"Druggists have been misled into purchasing this substitute for aristol by unscrupulous salesmen, who have palmed off on them a substance which in many cases is nothing more than 'fuller's earth,' said Dr. Wesener. This stuff was sold to them cheap."The druggist can have no excuse for selling this stuff, which is injurious, because it is an easy matter for him to test it to find out whether it is aristol or not. Aristol is soluble in either, and makes a dark brown solution. Some of the powder which we have obtained on these prescriptions is not soluble at all. We have not completed the chemical analysis of all the precipitates, but those which we have tried consist of chalk mixed with an iron oxide to give it the color, or some other mineral substance."
"Druggists have been misled into purchasing this substitute for aristol by unscrupulous salesmen, who have palmed off on them a substance which in many cases is nothing more than 'fuller's earth,' said Dr. Wesener. This stuff was sold to them cheap.
"The druggist can have no excuse for selling this stuff, which is injurious, because it is an easy matter for him to test it to find out whether it is aristol or not. Aristol is soluble in either, and makes a dark brown solution. Some of the powder which we have obtained on these prescriptions is not soluble at all. We have not completed the chemical analysis of all the precipitates, but those which we have tried consist of chalk mixed with an iron oxide to give it the color, or some other mineral substance."
The two leading imitations are as follows: Spurious preparation of aristol, and an imitation of triethylate which is a substitute for trional.
Aristol sells at $1.85 an ounce and triethylate retails at $1.50 an ounce. The cost of manufacturing the two imitations is about 2 cents an ounce.
"The adulteration of aristol is liable to be fraught with serious consequences to the patient. It is extremely dangerous to introduce a mineral substance into an open wound, and many surgeons who have used this adulterated antiseptic, having bought it in good faith for the pure drug, have been at a loss to know why the wounds have suppurated. It is possible this adulterated drug may have caused numberless cases of blood poison with consequent loss of life."
"The adulteration of aristol is liable to be fraught with serious consequences to the patient. It is extremely dangerous to introduce a mineral substance into an open wound, and many surgeons who have used this adulterated antiseptic, having bought it in good faith for the pure drug, have been at a loss to know why the wounds have suppurated. It is possible this adulterated drug may have caused numberless cases of blood poison with consequent loss of life."
It is even whispered that one of the products sold by this gang as a counterfeit of a standard article hastened the death of President William McKinley. The story goes that when the physicians sent to the nearest drug store for a certain kind of medicine they were given a substance which resembled it in every way but which was spurious. It is said the drug had exactly the opposite effect upon the president from what the doctors had reason to suppose it would have. Some there are who even declare that the application of the genuine article at that critical time would have saved the life of William McKinley.
Otta G. Stoltz, druggist at 60 Rush street, Chicago, Ill., assisted by his porter, manufactured the spurious drugs in his basement for E. A. Kuehmsted.
In manufacturing the standard remedy of aristol, he used fifty per cent of various ingredients, and fifty per cent of rosin. It was called "Thymistol, manufactured by the Mexican Chemical Company," and substituted for aristol. Therewas no such a company in Mexico. The goods, boxes and labels were made in Chicago, Illinois, and the stuff was sold to the druggists for one half the price of the genuine aristol.
The gang was ostensibly engaged in selling to the retail drug trade infringements of a large number of patented drugs, manufactured in Germany. Their products were represented to be genuine, differing from those handled by the legitimate wholesale drug trade only in the fact that they were imported by them direct from Canada and England, thereby evading payment of royalty to the American patentees. As a matter of fact, the peddlers used the cry of monopoly under the patents merely as a pretext for ingratiating themselves with the retail druggists, and then foisted upon them many adulterated and spurious imitations of the imported preparations. The drugs imitated are standard medical preparations, dispensed on physician's prescription by every retail pharmacist. These remedies are in so general use that at least one-half the prescriptions written by physicians call for one or other of them.
Chicago, Ill.,July 24, 1902.Mr. M. R. Zaegel.Sheboygan, Wis.My Dear Mr. Zaegel:Although I have been selling bogus Phenacetine and a lot of other bogus goods for over three years. I have never had the pleasure of selling you any of them. I should very much like to do so, and feel that I can give you satisfaction both in goods and prices.Some time ago I perfected arrangements to get my supplies direct from Europe, where the supply is not so limited as in Canada, and I can do much better in price.The enclosed list gives my complete line. All items with prices attached I have in stock and can supply without delay. Other items are continually arriving.The prices I have made you are, I think, exceptionally low, and I trust they will induce you to give me a trial. Express charges I prepay. Trusting I may be favored with your valued orders, I am,Very respectfully,Edward A. Kuehmsted.6323 Ingleside Ave.,Chicago, Ill.
Chicago, Ill.,July 24, 1902.
Mr. M. R. Zaegel.Sheboygan, Wis.
My Dear Mr. Zaegel:
Although I have been selling bogus Phenacetine and a lot of other bogus goods for over three years. I have never had the pleasure of selling you any of them. I should very much like to do so, and feel that I can give you satisfaction both in goods and prices.
Some time ago I perfected arrangements to get my supplies direct from Europe, where the supply is not so limited as in Canada, and I can do much better in price.
The enclosed list gives my complete line. All items with prices attached I have in stock and can supply without delay. Other items are continually arriving.
The prices I have made you are, I think, exceptionally low, and I trust they will induce you to give me a trial. Express charges I prepay. Trusting I may be favored with your valued orders, I am,
Very respectfully,Edward A. Kuehmsted.
6323 Ingleside Ave.,Chicago, Ill.
"Section 10, Chapter 38 of Hurd's Revised Statutes of Illinois for 1903. Whoever fraudulently adulterates, for the purpose of sale, any drug or medicine, or sells or offers or keeps for sale any fraudulently adulterated drug or medicine, knowing the same to be adulterated, shall be confined in the County Jail not exceeding one year, or fined not exceeding $1,000, and such adulterated drugs and medicines shall be forfeited and destroyed."
"Section 10, Chapter 38 of Hurd's Revised Statutes of Illinois for 1903. Whoever fraudulently adulterates, for the purpose of sale, any drug or medicine, or sells or offers or keeps for sale any fraudulently adulterated drug or medicine, knowing the same to be adulterated, shall be confined in the County Jail not exceeding one year, or fined not exceeding $1,000, and such adulterated drugs and medicines shall be forfeited and destroyed."
After the great mass of evidence had been gathered it was submitted to the Chief of Police, Francis O'Neill, who instructed Detective Clifton R. Wooldridge to lay the matter before John K. Prindiville, Justice of Peace, and if he would issue warrants to go ahead and search the premises and make arrest.
Desk Sergeant Mike White looked upon as an expert by the police Department drew the complaints and warrants which were duly signed and a detail of 20 picked men was assigned to Detective Wooldridge with instructions to go ahead, and on Oct. 29, 1904, they were divided into four squads and they swooped down on the five Medicine concerns at one time without giving them any warning.
The following is a list of the parties arrested:
W. G. Nay, alias S. B. Soper, 1452 Fulton street; over $2,000 worth of spurious stuff seized. Nay and wife arrested.Burtis B. M'Cann, alias George A. Barton, 6113 Madison avenue, $2,500 worth of stuff seized. McCann arrested.J. J. Dean, 6123 Ellis avenue; $5,000 worth of spurious medicines seized; Dean and wife arrested.J. N. Levy, 359 Dearborn street; $500 worth seized.Edward A. Kuehmsted, 6323 Ingleside avenue, and Isabella Kuehmsted were arrested; over $12,000 worth of spurious drugswere seized by Detective Clifton R. Wooldridge, Sergeant William M. McGrath, Sergeant Thomas Fitzpatrick, Officers Terence N. Kelly, Mathew J. Reilly, Michael O'Neill, Thomas Ready, Michael McGuire, August C. Dolan, Patrick Quinn, Thomas Daly, Bernard Conway.
W. G. Nay, alias S. B. Soper, 1452 Fulton street; over $2,000 worth of spurious stuff seized. Nay and wife arrested.
Burtis B. M'Cann, alias George A. Barton, 6113 Madison avenue, $2,500 worth of stuff seized. McCann arrested.
J. J. Dean, 6123 Ellis avenue; $5,000 worth of spurious medicines seized; Dean and wife arrested.
J. N. Levy, 359 Dearborn street; $500 worth seized.
Edward A. Kuehmsted, 6323 Ingleside avenue, and Isabella Kuehmsted were arrested; over $12,000 worth of spurious drugswere seized by Detective Clifton R. Wooldridge, Sergeant William M. McGrath, Sergeant Thomas Fitzpatrick, Officers Terence N. Kelly, Mathew J. Reilly, Michael O'Neill, Thomas Ready, Michael McGuire, August C. Dolan, Patrick Quinn, Thomas Daly, Bernard Conway.
V. Goldberg, a partner of Edward Kuehmsted, appeared on the scene and tried to prevent the officers from taking the goods. He was locked up on the charge of disorderly conduct and on the following morning entered a plea of guilty before Justice John R. Caverly and was fined $1 and cost. John G. Campbell, alleged attorney for Edward A. Kuehmsted, appeared upon the scene and tried to force his way into the house while the drug was being removed. He also tried to prevent the officers from taking the drugs and threatened to whip them, pulled his coat off and assaulted Detective Wooldridge. He too was sent to the Harrison Street Station and locked up.
The prisoners arrested in the raid were sent to the Harrison Street Police Station together with eleven wagonloads of drugs seized, which were valued at $30,000.
Upon the arrival of the prisoners and the drugs, a United States warrant was served upon them, charging the defendants with using the mails to defraud, also a duces tecum subpoena was served for the drugs seized in the raid to be brought into the United States court forthwith, was served upon Detective Wooldridge, and other officers by United States Marshal.
The two ex-convicts were Levy, who was also known under the aliases of Charles Meyers, R. Waldron, and R. Cassat and George Edwards. Under the latter name he served a year in Joliet. Hass was the other ex-convict. His Sing Sing number was B 5574. Yet under the administration of the law under the justice shop system these men, who sold chalk and water mixed with idorn oxides for an antiseptic, finally managed to get out of the clutches of the law on a compromise adjudication,concerning which the State's Attorney alone knew the details.
Then the insolent vendors of fake drugs thought they saw a chance to get back at the officers of the law. They found a nice little loop-hole in the fact that when the raids were made a few chemicals, which were not contraband had been seized, in the rush and scurry of the raid.
Therefore a suit was brought against Detective Clifton R. Wooldridge, Charles M. Carr, editor of the N. A. R. D. Notes, a police publication, Henry D. Morton, Chief of Police Francis O'Neill, the Farbenfabriken Co. and Wooten. The suit called for heavy damages. After going over the evidence the court of first resort awarded damages of $1.00. Rather than be put to the cost of an appeal this $1.00 was paid by the defendants.
But the business of vending fake drugs in the city of Chicago had been broken up and the city made unsafe for this most detestable class of swindlers, who prey upon the sick and wounded and endanger human life by the sale of their nostrums. "It was worth $1.00 to put the rascally crew out of business," said Detective Wooldridge afterward in discussing the matter. "It is surely worth a dollar to a man to know that he has been instrumental in saving thousands of human lives." And there the matter rested.
Every day the American people squander $100,000 in fictitious speculation in grain.
There are 1,000 bucket shops operating in the United States at this time, their geographical distribution marked by the boundaries of the country.
For each of these 1,000 shops an average of $100 a day gross income is necessary to meet its expenses, chief of which are for wire and ticker service and blackboard writers.
Thus, in order that 1,000 of these shops may live and remain open, they must have $100 a day each, which, in a year of 300 days, means an income of $300,000,000 annually. Many of these bucket shops fail for lack of money, while others "fail" in order that they may keep the money of the investor. While $100,000 a day as the losses of the people in the illegitimate speculation in grain is very conservative, one must add another $100,000 a day as tribute which the gullible pay to the fake "get-rich-quick" and kindred sharper concerns of the country.
Yet with this $100,000 a day going into the hopper of frenzied speculation of all kinds, Bradstreet's for the year 1907 showed business failures from speculation as one-eighth of 1 per cent of the total failures of the country.
Whatever may be Bradstreet's definition of the word "speculation," as used in his lists, the word to the average business man who knows whereof he talks is as unmeaning as any other in the business dictionary. Suppose a man somewhere in a country town loses money in any speculative venture anywhere under the sun. If it is a few dollars only, he may not speak of it at all. If it is enough to embarrass him, perhaps he may have to speak. Under these circumstances the best possible thing to do is to explain that he lost it "on the Chicago Boardof Trade." If he has no credit at stake in the matter, and is sore, he may yell murder over his losses "on the board." But hundreds of such men have lost their money in bucket shops, and scores of them have lost it at poker or some other gambling game.
Every little while a banker somewhere goes wrong with funds that are intrusted to him, and in the telling of the story the "Chicago Board of Trade" is the secret of his undoing.
One of the marked cases of the kind was that of the Aurora banker who defalcated with $90,000, "lost on the Board of Trade."
But when the story was run down it was discovered that his money was lost in a bucket shop in Hammond, Ind., which had been driven out of Chicago through the efforts of the Chicago Board.
When $100,000, at a conservative estimate, every day, is lost by the American public in bucket shops, just the thing that such a shop is "in being" should be of economic interest and consideration.
Within the knowledge of tens of thousands of citizens some acquaintance or person of whom they have had personal knowledge has gone "broke" in grain speculation.
Yet to find a man who has lost his fortune on the race tracks or in a gambling den is not at all an easy task.
Without a question the gambling losses in the bucket shop are more serious in consequences the country over than the losses in any other one kind of gaming, for the reason that the man who could afford to confess losses at horse racing or at cards may retain his character as a business man to a far greater extent by having lost at a "little flyer in grain."
I have frequently been requested to define bucket shops—a most difficult task, owing to the variety of disguises which theyassume and the outward similarity which they bear to legitimate brokerage. The following definition covers the essential features of bucket shops from the standpoint of an expert.
A bucket shop is an establishment conducted nominally and ostensibly for the transaction of a grain, cotton or stock exchange business.
The proprietor, with or without the consent of the patron, takes one side of every deal that is made in his place, the patron taking the other, no article being bought or sold in any public market.
Bucket shops counterfeit the speculative trading on exchanges.
Continuous market quotations of an exchange are the essence, the very sinew of the gambling business carried on in a bucket shop, being used as dice are used, to determine the result of a bet.
The market quotations posted in a bucket shop are exactly similar to those posted in a legitimate broker's office, but they are displayed for a different purpose. The broker posts the quotations for the purpose of showing what the market has been on the exchange as a matter of news.
The bucket shop posts them as the terms upon which its patrons may make bets with the keeper. A bucket shop is destroyed if it loses its supply of quotations.
Margins deposited with the bucket shop proprietor by the patrons are nothing but the patrons' stakes to the wager, and are appropriated by the proprietor when the fluctuations of the price on the exchange whose quotations are the basis of the bet, reach the limit of the deposit, one party (the proprietor) to the bet acting as stakeholder. The commissions charged by the bucket shopkeepers are odds in its favor, and necessary in order to maintain their pretense of being legitimate brokers making the transaction on an exchange.
The bucket shop proprietor is ready to make all deals offered in any commodity that fluctuates in price. He may call himselfbanker and broker, or commission merchant, or disguise his business under the form of an incorporated enterprise or exchange. But he is still a common gambler. The interest of the proprietor of a bucket shop is at all times opposed to that of his patrons, as the profits of the shop are measured by the losses of the patrons.
Bucket shops should not be confounded with the great public markets of the world, where buyer and seller, producer and consumer, investor and speculator meet in legitimate trade; for the pretended buying of millions of bushels of grain in bucket shops will not add a fraction of a cent to the price of the product of the farm, nor will the pretended selling of as much increase the supplies of the consumer or lessen the cost of his loaf a farthing. Nor should they be confounded with the offices of legitimate brokers which they endeavor to imitate in appearance.
The term "bucket shop," as now applied in the United States, was first used in the late '70s. It was coined in London fifty years ago, when it had absolutely no reference to any species of speculation or gambling. Beer swillers from the East Side (London) went from street to street with buckets, draining every keg they came across and picking up cast-off cigar butts. Arriving at a den they gathered for social amusement around a table and passed the bucket as a loving cup, each taking a "pull" as it came his way.
In the interval were smoking and rough jokes. The den came to be called a bucket shop. Later the term was applied, both in England and the United States, as a byword of reproach to small places where grain and stock deals were counterfeited.
Yet the bucket shop is a gambling den par excellence, with all the paraphernalia necessary for the deception of the unsuspecting. One may place a $10 bet in the bucket shop, pay a commission of 25 per cent to the "bucket shopper," who mayso shuffle the "cards" that the bettor may have to lose, even after he has won. As an example:
The one thing absolutely necessary to the bucket shop are quotations, never from a legitimate board of trade, but through leased wires, or wire tappings, or from some other fake source. For the instant that the "quotations" cannot be written upon the blackboards the betting must cease. The bet of the customer is that before a certain grain drops off a point against him, it will advance a point or more in his favor, and the bucket shopper takes the bet, holding the stake himself. Frequently the bettor may realize that he has won a point, or two, or three, and may insist upon the bucket shop selling for him. Perhaps the victim lives at a distance from the shop and must write or wire his "broker." He wires for the "broker" to sell, and perhaps gets a message in reply to the effect that the market must go much better than that; that he refuses to sacrifice his patron's best interests in that way, and will hold on for the certain rise. In most cases this patron is immensely flattered, until within a few days the market is "off" again, wiping out not only his profits, but his original margins as well.
Or if on a certain day the customer takes advantage of a rise in the commodity bet upon, and insists upon closing out the deal, it is most frequently settled by the bucket shop upon the lowest figure for the day. Occasionally, indeed, where a bucket shop keeper has allowed one or more customers to "win" a considerable figure from it through some untoward turn in figures, the whole shop closes up and disappears, leaving the victims no redress at law for the reason that they have left the money voluntarily in the hands of the sharpers. Occasionally the country branch office of one of these central bucket shops may clean out a town of its currency until the scarcity of money in the place may demoralize the every-day business of the town.
That the man who tries to beat the bucket shop has an impossible task in front of him in investigating the $10 bet, the commonest in the shop. The man with the bill steps up to the window and asks to buy ten shares of American Sugar at $110 a share, paying 25 per cent out of the $10 as commission. Then, counting that the bucket shop might be as nearly straight as such an institution can be, remember that the decline of Sugar three-quarters of a point will wipe out the bettor's $10, while for him to win another $10, Sugar will have to advance to $111.25. In short, the customer is betting against a proposition which will lose him $10 if Sugar declines 75 cents, while to win $10 it must advance $1.25, in either case the bucket shop holding his money and taking 25 cents in tolls.
In the machinations of the bucket shop interests and those of kindred concerns that are garnering this $100,000 a day from the American people, the fake trade journal has had much to do; the fake mercantile agency, reporting extravagantly upon the responsibility and wealth of the schemers, has played extensively upon the credulity of men and women; fake banks and bankers have come into existence for the completion of the work of the others, and have been by no means the least in the category of rascality; the whole aggregation has been lending back and forth the "sucker lists," which is an interchangeable lists of names and addresses of men and women who have "bitten" at one scheme and may be promising of a rise to another of different type under a new title.
On file in the office of a Chicago man of affairs at the present moment is a series of interesting letters, which he shows occasionally to a friend. These letters are especially eloquent of a spirit of investment which is in the country today and which prompts the "biting" at almost any sort of flaunting announcement of quick riches. The letters are from a young man holding an official job under the government at Washington.
The first letter is apologetic for reminding the addressee that he is an old friend of the writer's family; but it recites that the young man has about $200 in bank which he has saved from his salary, and which he is disposed to invest with a certain company if his friend in Chicago thinks the prospects are in line with good business and responsibility.
Evidently the Chicago man does not regard the concern as dependable, for the next letter expresses thanks for saving the writer loss, but asks a further question of a concern that promises 20 per cent a month on cash investments in grain.
The third letter, recognizing all that the old friend from Chicago has done, explains that he has only a fair salary from which it is hard to save much money, and this fact has led him to the necessity of considering an investment of his savings that promise large returns, and yet at the same time promise the maximum of safety. Having established his reasons for such ventures, he suggests to the friend: "Perhaps you can answer all I want to know in a single reply. 'Are any of these concerns promising dividends of 50 per cent and such to be depended on'?"
And the Chicago man's letter, in substance, reads: "No!"
Speculation, for the most part, as in the case of this young man, means for the average intelligence a possibility for placing money in a side line where quick and profitable returns may be expected, wholly independent of the person's occupation. To the man who knows what the best of the speculative market is, the necessity for all of the time and attention and best judgment of the speculator is imperative. It is a business in which only the best business methods succeed.
On the boards of trade the commission merchants may be wholly apart from any risk in even the legitimate trading, taking the commission of one-eighth of a cent a bushel in buying and selling. On the Board of Trade of Chicago the designatedleading speculative articles, in their order, are wheat, corn, oats, rye, barley, mess pork, lard, short ribs, live hogs and cotton.
A year's grain crop may be 650,000,000 bushels of wheat, 2,500,000,000 bushels of corn, 900,000,000 bushels of oats, 150,000,000 bushels of barley, and 30,000,000 bushels of rye.
Bucket shops have been condemned by statutes as criminal and pernicious in many states in the Union, but anti-bucket shop laws are rarely enforced by public servants whose duty it is to enforce them. Prosecutions thus far, except in Illinois, have been left to private citizens or associations for the suppression of gambling.
The "bucket shop" has, within a few years past, sprung from comparative inconsequence into an institution of formidable wealth and threatening proportions. There are nearly a thousand in the United States. Every large city in the west has at least one. Having banded together in a strong combination they sneer at legislation. Opulent and powerful they scoff at antagonistic public opinion.
The "bucket shop," like the lottery and the faro bank, finds its profits in its customers' losses. If its patrons "buy" wheat and wheat goes up, the "bucket shop" loses.
Many a bucket shop commission merchant would hardly know wheat from oats, and none of their grain and produce "exchanges" ever had a sample bag on its counters. Their transactions are wagers and their existence is an incitement to gambling under the guise of commercial transactions. The pernicious influences of the gaming house are, in the bucket shop, surrounded by the allurement of a cloak of respectability and the assumption of business methods.
The legitimate exchange is a huge time and labor saving machine. Its benefits are universal. While its privileges are valuable they have been rendered so only by hard work, and its members are entitled to the protection of the state againstthieves. The "bucket shop" is a thief. The quotations upon which the "bucket shop" trades are the product of the labor and intelligence and information of the exchange. The exchange gathers its news at great cost from all over the globe and disseminates it for public advantage. But its quotations should be its own property. They are the direct product of its energy, its foresight and its business sagacity.
The "bucket shop," at no parallel cost, usurps the functions of the exchange and endeavors to secure for itself the returns for a labor performed by others. Were it to use honorable methods with its patrons it would be a dishonorable institution. Using the methods it does, the "bucket shop" is twice dishonored.
As a matter of fact, all other forms of gambling or swindling are commonplace and comparatively innocent when compared to the "bucket shop" which has caused more moral wrecks, more dismantled fortunes and made more of the innocent suffer than any other agency of diabolism. Just why so brazen an iniquity in the guise of speculation should be allowed to exist it is difficult to explain.
Open gambling has been placed under the ban of civic reform. While the policy shop, the lottery and other less dangerous methods of swindling have been effectively stamped out of most cities, the "bucket shop tiger" continues to rend the ambitions of young and old, dragging them down to forgery, embezzlement, suicide,—or that which is quite as bad,—broken spirit for legitimate endeavor. Under the circumstances the sympathy of the public should be with the movement to drive "bucket shops" out of business, to close them along with all other gambling institutions.
It is time that something was done to check the growing evil of gambling on produce, cotton and stock exchange quotations. A beginning has been made, but the movement has not gone far enough. These excrescences on the body politic have multipliedrapidly and so dangerously near do they come to being popular that the mercantile community owes it to itself to apply the knife at once.
Moreover, there is no form of gambling more disastrous to the player than "bucket shop" gambling. Its semi-respectability and likeness in many outward features to regular and reputable commission houses makes it the most insidious of all temptations to the young speculator and aspirant for wealth. It is the open door to ruin.
THAT NEW LEAFTHAT NEW LEAF
THAT NEW LEAF
Men do not blush at being seen in a "bucket shop" as they would if caught in a faro bank or poker room though they are drawn thither by the same passion for gambling that takes them to the regular gambling den. The "bucket shop" successfully carries on a worse swindling game than the "blacklegs." The wealth the chief "bucket shop" men of the country have acquired proves this. Men can be pointed out in Chicago, New York and other cities of the country who have amassed fortunes at the business while their thousands of victims are impoverished and ruined.
Persons desiring to speculate or invest can avoid "bucket shops" and "fake" brokers by making a preliminary and independent investigation into the character of the broker and the merits of the enterprise. If they accept the statements and references of promoters of schemes without making such investigations they are not entitled to sympathy if they are robbed.
Legitimate brokers do not resort to sensational advertising; they do not guarantee profits; nor do they solicit funds to invest on their judgment. The functions of a broker or commission merchant are to receive and execute the order of his customers. When he offers to do more (except in the way of giving market news, advice or conservative opinions) he should be avoided. Promoters of pools and syndicates and disseminators of advance information should be carefully avoided.
The cleverness and boldness with which the up-to-date investment swindler plies his craft are almost incredible. Wherever you find a fraudulent scheme you will find both of these elements present in some degree—but the comparative proportion of one to the other is generally determined by the element of time of operation.
For example, if the projectors of a scheme are old hands at the game and have established records of the wrong sort, then the idea of quick results is not only attractive, but often imperative. There are many "old offenders" in the profession of investment swindling who have been convicted and have "done time" in jails and penitentiaries, but have not yet learned to prefer straight to crooked finance.
Men of this character realize that a "quick getaway" is a cardinal essential of success; they must complete the transaction and get in the harvest before there is time for the public to wake up and do any investigating.
The length to which the bolder spirits in this class will go almost surpasses credibility. Here is an example, discovered by Detective Wooldridge of Chicago, of the tricks to which they will resort in order to create the impression of having the backing of men or institutions of strength and character:
Through introduction by social friends, the local representative of an investment scheme was able to open a checking account with a banking and trust company in a big city—a company of such high standing that it is very widely known outside of financial circles and among people of small means. Its endorsement was worth "ready money" to any enterprise, andthe fact was keenly appreciated by the "fiscal agents" of the Brite & Fair Bonanza Company.
After the opening of his personal checking account the fiscal agent lost no time in cultivating the acquaintance of the trust officer of the banking institution, which did a very large business in the discharge of trusts. One day the depositor came to this officer and explained that he had a very simple little trust which he wished to have executed. Finding it necessary to leave the city for a few days, he wished to provide for the delivery of a sealed package, containing "valuable papers," to a man whose name and personal description was given. The person to call for the package would leave a certified check, in the amount of $1,000, which was to be placed to the credit of the "fiscal agent" of the Brite & Fair Bonanza Company, whose business connections were unknown to the trust officer of the banking and trust company.
Weeks later the trust officer was astonished to receive from an old personal friend, who was knocking about in the west, a circular of the Brite & Fair Bonanza Company, in which the big trust company was designated as "trustee" for the "B. & F." stocks. As the friend who forwarded the circular knew something of the wildcat nature of the Brite & Fair enterprise, his comments on the folly of the bank's accepting such a "trust" had an edge on them.
When the matter was investigated it was found that the whole plot had been carefully concocted and worked up; that the circulars had been printed and put in directed envelopes ready for mailing in advance of the placing of the so-called "trust," and that when the trust officer of the solid financial institution had given his receipt for the "sealed package said to contain valuable papers," a telegram had been sent by the "fiscal agent" to "mail out trustee circulars." The man in this scheme, of course, believed that, as the circulars werebeing mailed out into a territory about a thousand miles from the city in which the banking and trust company was located, the trust officer who had been imposed upon would never hear of the misuse of his receipt for a "dummy" package which actually contained certificates of the mining company's stock.
Why did the men who worked this scheme to steal the moral support of the big trust company go to so great pains to get it? Because fake investment operators have found it profitable to take every precaution to give the color of legality to their acts, they have found it profitable to hire shrewd legal pilots to tell them just how far they may go in a given direction without running upon the reefs of the United States postoffice's "fraud order" or upon the rocks of a "conspiracy" prosecution.
Take it in the incident above related: Had these men been prosecuted for falsely using the name of the trust company or for obtaining money by misrepresentation (the claim that the trust company was acting as trustee for the Brite & Fair securities), an able lawyer could have made out of the "trust" to transfer a package of unknown contents a very plausible defense. Again, the mining company was able to make valuable use of the trust company's receipt for the package by having fac similes of the receipt printed and distributed among solicitors for the stock who were canvassing persons not at all familiar with legal documents—and who, under the statements and arguments of the agent, would see in the receipt an acknowledgment that this great trust company and its millions were behind the securities of the Brite & Fair Company.
This brings us straight to the practical point in the matter. Never go into an investment until you first find out for yourself, by direct and first-hand investigation, what the "references" named in the literature or advertising matter of the company have to say about it, and how much the references themselves amount to.
Promoters of wildcat investment enterprises have used hundreds of names as references which they had not the shadow of right to use—calculating that persons credulous enough to be interested in the proposition would also be credulous enough to say, "These references will speak well enough for the enterprise, else their names would not be given out for this purpose," and to act without making any inquiries of them.
Again, some man of prominence and great faith may have been, at the start, a believer in the enterprise and willing to say, within certain limitations, that he believed the venture could be made a success if conducted according to certain plans and under given restrictions. This does not signify that he will continue to retain that confidence or that he is willing to be understood as giving the venture his unqualified endorsement, or to say to the public which respects his name and position:
"Come and share this enterprise with me; put your money into it, for it's a good thing."
"Come and share this enterprise with me; put your money into it, for it's a good thing."
Detective Wooldridge, who has examined many of these concerns, desires to place special emphasis upon the crafty use which these companies make of the names and services of reputable "trust" companies. He uses the word "services" because a trust company may execute a "trust" in connection with bonds, stocks, property or securities without really assuming any general financial or moral responsibility for those securities or without becoming a sponsor for them. In a word, the trust company may engage to act as an escrow agent to see that a certain technical transaction is completed, and nothing more. That means this: The trust company consents to hold the stakes between two parties, but without the slightest responsibility as to the value of those stakes or what may be done with them after the stipulations as to the conditions precedent to delivery have been fulfilled.
Because a trust company acts as the trustee of a certain bond issued there is no warrant for a prospective investor to feel that the resources of the trust company are in any sense behind these deeds as a guarantee of values.
Another word of caution: Whenever you see the name of an educator, a pastor or a popular politician, or any other leader having a hold on the sentiment of a community used in connection with an investment offering, look into it carefully and take no step until the person mentioned has been questioned directly by you.
Officers of Four Underwriting and Guarantee Companies Arrested by Detective Clifton R. Wooldridge.
Charges Are Bogus Underwriting and Fraudulent Inspection of Properties.
All the officers of the four biggest underwriting and guarantee companies in the west, with headquarters in Chicago, were arrested. They were charged with having engineered the boldest and most comprehensive swindle ever exposed in this country.
(GETT, RICH & CO. PROMOTERS OF "GOOD THINGS")GETT, RICH & CO. PROMOTERS OF "GOOD THINGS"
GETT, RICH & CO. PROMOTERS OF "GOOD THINGS"
The following are the names of the men arrested for runningThe Central State Underwriting and Guarantee corporation room 1306, Tribune building:
W. H. Hulbert, H. B. Hudson, Francis Owings, M. J. Roughen, W. H. Todd, were arrested for running a confidence game. W. H. Todd jumped his bond and fled to St. Louis, Mo., where he was apprehended and brought back by Detective Wooldridge.
W. H. Hulbert, H. B. Hudson, Francis Owings, M. J. Roughen, W. H. Todd, were arrested for running a confidence game. W. H. Todd jumped his bond and fled to St. Louis, Mo., where he was apprehended and brought back by Detective Wooldridge.
The book of the Central State Underwriting and Guarantee corporation had promoted 300 corporations and companies which were capitalized at $300,000,000. Stock bonds were issued which was guaranteed by this company. This company further agreed to sell these bonds and stocks to raise the money to financier these companies.
The complaint was made by the Compensating Pipe Organ Company, through C. V. Wisner. The firm is located at Battle Creek, Mich.
W. H. Todd & Co. was employed by the Pipe Organ Company to make a bond issue of $150,000. The brokerage firm, he said, demanded a 1 per cent deposit, amounting to $1,500.
This was paid, according to Wisner's complaint, and Todd & Company undertook to deposit the money with another underwriting company.
Then, he asserts, the bond issue was never made, and Todd & Company failed to repay the $1,500.
The firm conducts a banking, brokerage and underwriting business at room 803, 112 Dearborn street.
Rare oriental rugs, the most costly tables and chairs, and elaborate grandfather clocks, together with an amazing amount of polished brass work and plate glass, were found in each of the imposing offices raided by the deputy marshals.
The Central States Underwriting & Guarantee Company did a business commensurate with the costly environment. Thebooks of the concern show that from February 1, 1903, to August 5, 1906, 643 corporations throughout the United States paid money to the Central States concern, and the aggregate amount paid was $340,000.
AT LAST!AT LAST!
AT LAST!
Advertisements were placed in all the leading papers throughout the country, circulars were distributed broadcast with propositions that capital could be obtained for corporations and manufacturing enterprises by addressing this company.
The officers of corporations replying to these advertisements would be asked to call at the Chicago offices of the companies.
The brokers acquainted with the scheme would then introduce the corporation officials to alleged capitalists who represented they had available capital to finance business propositions, and would buy the underwritten stock, provided the corporation officers would have them underwritten by responsible guarantee companies.
It is asserted that these alleged capitalists would then advise that the work be done by the Central States Underwriting & Guarantee Company, the American Corporation & Securities Company, or the National Stock & Guarantee Company of San Francisco.
The brokers in the alleged fraudulent transactions would represent to the proposed victim that they would get no returns for their work unless they actually sold the stocks, and that they would be content with a commission of from one-half to 1 per cent on such stock as they sold. They assured the victims that there could be no doubt that the stock underwritten would be sold, as the capitalists to whom the victims had been introduced would be certain to buy them.
The brokers would then take the men seeking the underwriting to the offices of the guarantee companies and arrange for guaranteeing the bonds on payment of a fee of 1 per cent of the amount of underwriting.
The men arrested never entered into a proposition on which less than $100,000 was involved, and that they, in some cases, obtained $5,000,000 worth of stock to underwrite.
Detective Wooldridge secured proof that the application fee which was paid by the officers of the corporations to theunderwriting companies was always divided among those companies and the fraudulent brokers who had sent the corporation's officers to the supposed underwriters.
The Guarantee Company system is a new phase of "promotion" that has come to the surface during the past two years, but which, through police and legal investigation, has about reached its limit.
A strictly legitimate guarantee company is modeled much after the Fidelity and Insurance Bond corporations. They issue secured bonds for all necessary business purposes, and are reputable and responsible. About 1903 a promotion gang in Chicago stole the name "Guarantee," and half a dozen fake guarantee companies were started.
In all the phraseology of tricky finance there is no word so overworked as "guarantee." And this means that experience has proved it to be highly effective in the hooking of "suckers." Depend upon it, that no word or phrase achieves marked popularity in the literature of the "small investments" appeal which has not demonstrated its rare effectiveness as an agency of deception; the phrase that does not draw the money is promptly thrown out by these shrewd fishers of men, who check up their returns as accurately and systematically as the most legitimate mail order business.
If the small investors of this country could reach anything like a fair knowledge of just how much and how little there is in each of these appealing "catch words" in each phrase, the plausibility of which has been scientifically tested, they would be well on the way toward being able to protect themselves against the cleverest and most convincing of these appeals. Perhaps the writer can do the public more service in analyzing a few of these "star phrases" than by any amount of denunciation of the wildcat schemes and schemers which deserve as harsh a characterization as any man can frame.