[M]oney in New York . . . the sky is lined with greenbacks . . . winnings sing from every streetcorner.
—JOHN DOS PASSOS, THE BIG MONEY
Altogether, between 1927 and early 1929, including his purchase of the 400,000 shares of Loew’s, Inc., Fox committed Fox Film and Fox Theatres to spending about $370 million for film production and the acquisition of theaters. Publicly, Fox spoke as if money rained from the heavens to support his plans, and most observers readily accepted that picture. After all, it was the late 1920s, a time of unparalleled prosperity in American history.
But where did all the money really come from? That had always been a key question behind the growth of the Fox enterprises, and the answers along the way had illuminated the contradictory sides of Fox’s character. Vision, energy, leadership skill, a keen eye for talent—he had all those, but they hadn’t been enough to pull in all the working capital he needed. He’d had to get his hands dirty by taking money from Big Tim Sullivan and the underhand upper-class New Jersey investors and then, amid the hostile business conditions of the early 1920s, by exploiting the weaker negotiating position of exhibitors. Now, in the late 1920s, with competition more intense and the stakes higher, the question mattered more than ever. Where did the money come from?
Some of it, of course, came from the movies themselves. In 1927 and 1928, gross film rentals provided revenue of $21.8 million and $25.1 million respectively to Fox Film; sales of advertising materials to exhibitors added at least another $1 million each year. From that income had to be deducted film production costs, studio overhead, and other operating expenses. The resulting figures represented Fox Film’s net profits: $3.1 million for 1927 and $6 million for 1928. But the company did not get to keep all that money for itself. Shareholders expected their $4-per-share annual dividends, and it was simply not cost effective not to pay them because dividends were considered a crucial indicator of a company’s financial health. In 1927 the company doled out $2 million in dividends, and in 1928, $3.2 million. Thus, while Fox movies could comfortably pay for themselves at a rate that was on track with the planned $100 million production budget for 1928 through 1932, there would be nowhere near enough left over to make a significant dent in the other $270 million needed.
The lion’s share of that remaining $270 million commitment arose from the cost of buying and building theaters to increase access to the moviegoing public. Yet Fox Theatres had even less money than Fox Film to contribute to the cause. The company was not tremendously profitable and wasn’t intended to be. Fox had created Fox Theatres in 1925 as a “retail division,” essentially a chain of fancy stores to sell Fox Film’s products.
The money for expansion, then, could not come from the earnings of either Fox company; neither would it come from commercial loans. By the late 1920s, almost no major enterprise with even a pretense to prosperity went to the bank to borrow money. Amid the dynamic business conditions of the era, bank loans were disadvantageous not only because they had to be repaid in regular installments within a relatively short time frame, thus restricting flexibility, but also because they burdened a company with fixed charges that would sharpen the impact of an unexpected revenue decline and create a risk of bankruptcy.
Instead, any company that could do so turned to the stock market. The public obliged, generating a “white heat” of speculation. In 1925, 452 million shares of stock had been traded on the New York Stock Exchange; in 1928, that number soared to 920 million shares. Banks fueled the upsurge, lending to investors who couldn’t actually afford their purchases but who intended to sell out quickly at a higher price. By June 1929, reflecting a nationwide trend, New York and Chicago banks had more than 28 percent of their resources tied up in securities loans.
Swept along by those mighty economic currents, Fox set about financing his expansion plan by selling new stocks and bonds for his companies. It looked like easy money. Stock sale proceeds would never have to be repaid, except as one might voluntarily assume a moral obligation to generate profits for investors. Mortgage bond funds would have to be returned, but generally at the end of a considerably longer time period and at a lower interest rate compared to commercial loans.
Between 1927 and 1929, both Fox Film and Fox Theatres roughly doubled their number of outstanding Class A shares. Fox Film added 420,660 new shares to the 400,000 that had been distributed when the company went public in 1925, while Fox Theatres increased its outstanding Class A shares from 800,000 to 1,583,000. Each company kept its Class B voting shares at 100,000, because to issue more of those would have meant that Fox personally would have had to buy them in order to maintain absolute control. The two companies also sold $36.25 million in bonds to finance construction of the studios in Los Angeles and New York as well as the building and acquisition of various Fox theaters. To repay the $50 million he had borrowed to buy the Loew’s shares, Fox planned to merge Fox Film, Fox Theatres, and Loew’s and to issue stock for the huge combined organization.
Stock market money wasn’t entirely easy money. A major drawback of all the new capital flooding into the stock market was that it came largely from uneducated small investors who, responding to advertising and oral tips, tended to run in and out of investments on a whim. The resulting volatility in share prices was inimical to the interests of companies such as Fox Film and Fox Theatres, which needed to be able to demonstrate steady, dependable forward movement in order to sell new shares whenever they wanted. Sharp upswings in price were not desirable because astute professional investors knew they were likely to be balanced at some point by wide downswings.
Fox thus found himself in a peculiar position. His companies really did have, as he put it, “bedrock stability,” yet they were at risk of being kicked around all over the board because of broad market conditions. In order to compete, Fox realized he would have to actively manage his shares’ performance so that the Fox companies looked like the stable, profitable investments he believed them to be. As he later said, “Stocks don’t stay up without being kept up or put up.”
Everybody was doing it, and many tactics for rigging the market were neither illegal nor against New York Stock Exchange rules. Not to fall in line, Fox believed, would be to fall behind.
Beginning in July 1927, Fox conducted a secret market operation to boost the price of Fox Film stock, which was then selling at around $55 per share. Fox did not invent the scheme, and many others were using it to advance their own stocks. In his case, he had the Taylor, Thorne & Co. brokerage firm assemble a “syndicate,” a small group of professional traders and wealthy investors who put money into a pool specifically for trading in Fox Film shares. Using this money, a Taylor, Thorne syndicate manager went out into the open market and started buying Fox Film stock to make it look desirable. Then the Taylor, Thorne manager controlled the price’s upward movement at a gradual pace, allowing no more than a quarter of a point increase at a time. As one syndicate participant later explained, “[I]f the last sale was 57½ and a buyer comes into that stock, to see that it does not sell at 58, all you have to do on the floor of the New York Stock Exchange is to offer 100 shares at 57¾.” A slow stride forward conveyed the impression of wise investors backing the stock, people who didn’t need to get rich quick because they already were rich. Every week, to make sure that Taylor, Thorne stayed ahead of the general public, Fox fed the syndicate inside information about Fox Film’s performance—a not-yet-illegal practice.
Fox always insisted that he conducted the trading syndicate only to maintain an orderly market for Fox Film stock. In fact, the operation also yielded rich profits to the participants. When the syndicate closed in early April 1928 after eight months of operation, it showed a 71 percent return. As the syndicate’s largest participant, having invested $120,000, Fox got the most—a profit of $84,723. He knew there was something underhanded about it. To hide his involvement, he carried his Taylor, Thorne account not in his own name, but in that of his New Jersey bankers, Eisele & King.
He also used the Taylor, Thorne market operation to manipulate public perception of value so he could get the prices he wanted for new Fox Film stock offerings. In January 1928, while the syndicate was still going, and at a point when it had raised Fox Film’s share price to the $80–$90 range, Fox released two new blocks of the company’s stock, totaling 267,216 shares. The purpose was to finance the $16 million purchase of the Wesco shares, which conferred full control of the prized West Coast Theaters chain. That arrangement was questionable. Properly, Fox Theatres, and not Fox Film, should have bought the Wesco stock because theater management was its business. However, with its longer history and greater profitability, Fox Film could raise the money by selling new stock more easily than Fox Theatres could.
At first, everything went smoothly. The first of the two January 1928 stock offerings, for 125,000 shares of Fox Film stock, sold out quickly. That was because the shares were offered at $75 while the market price fluctuated from $7 to $13 higher. According to Fox Film bylaws, new shares had to be offered first to existing shareholders. Recognizing a bargain, they bought all 125,000 shares. After broker’s fees and commissions, Fox Film netted $9 million within forty-five days.
The ease of that stock offering was deceptive. Amid the mercurial and highly emotional atmosphere of the late 1920s, investors were not always willing to be led down the garden path, even when the professionals made the numbers make sense. Fox learned this with his second offering of Fox Film stock in January 1928. In that instance, he was dealing with the Wesco stockholders, who were represented by Hayden, Stone. Fox offered to buy their Wesco shares for $55 each or to exchange them at a rate of one Wesco share to three-quarters of a Fox Film Class A share. Because that formula effectively sold Fox Film shares at $73.33 each, Fox expected that almost all the Wesco shareholders would prefer the exchange option. As it turned out, the owners of 109,000 of the total 295,000 Wesco shares wanted cash, amounting to nearly $6 million.
Fox didn’t have $6 million to part with. Consequently, Hayden, Stone assembled a group of investors to buy the 109,000 Wesco shares at $55 each from the owners. The group then exchanged the Wesco shares for 81,750 Fox Film shares, took another 60,466 Fox Film shares at $75 each, and set about marketing them to the public. It should have been an easy task. In the background, Fox was still running the Taylor, Thorne price-fixing syndicate, and four days before it was scheduled to end in early April 1928, he started another one. (The purpose of ending one group and forming another was to allow participants an opportunity to leave with their profits and to let in new members.)
The plan failed. In the spring of 1928, Fox Film’s share price suddenly dropped. There wasn’t any good reason for it, but there wasn’t any good reason for much of the stock market’s behavior at the time. Hayden, Stone sold only a few of its Fox Film shares at a profit, and then, when the market price refused to move upward during the next few months, the firm halted sales.
The situation resolved itself, but not in any way that was reassuring to Fox. Instead, mysterious forces took hold. In mid-June 1928, Fox Film’s share price suddenly began to climb from $72 to well over $100. The company’s performance didn’t warrant the price increase, Fox knew, and he did not want the price so high because of the risk that it would crash down to its rightful level.
Although he was never able to confirm it, Fox believed that the driving force behind the price run-up was William C. Durant, the twice-deposed founder of General Motors who had moved to New York to play the stock market full time. Durant was one of the so-called “big ten,” which was actually a group of about twenty-five multimillionaires from the Midwest who—operating secretly with their brokers, in defiance of Wall Street customs and precedents and against considerable opposition—had commandeered the stock market by the summer of 1928. Throwing money at about fifty targeted securities, they lured the public to follow in their footsteps and then, with share prices rising by 10 to more than 100 points, cashed out with huge profits. One of Durant’s pet stocks was Fox Film.
As the share price spiraled upward, the Hayden, Stone group sold all its remaining Fox Film shares, taking in a gross profit of $1.6 million. That effort ended on September 10, 1928, the very day that Fox Film stock hit an all-time high of 119⅝.
The share price then drifted down and settled around $109. That was still too high. Fox worried that a sudden, sharp drop would make it difficult later on to market more shares. To ease the price back to what he believed was the appropriate level—and to raise more money to pay off mortgages, discharge bank debts, and help pay for more Movietone City construction—he arranged for Hayden, Stone to underwrite another 153,444 Fox Film shares at $85 each, beginning on October 1, 1928. Again, the offer had to go first to existing shareholders, and again, as they had at the beginning of the year, the existing shareholders responded enthusiastically, taking all but 247 shares within twenty-one days. Fox Film received $12.4 million, and as intended, the share price drifted down to the mid-$80s, where it had been at the beginning of the year.
Again, this was not natural market activity. In the background, Fox was running a third Taylor, Thorne price-fixing syndicate. This one had started on August 31, 1928, the same day that the second syndicate closed, and continued until October 30, 1928, after the stock offering to the shareholders closed.
Altogether, then, during the sixteen months from July 1927 through October 1928, Fox continuously manipulated Fox Film’s share price through secret trading activity. He had no misgivings. He considered it his “obligation to take care of the market” for the sake of Fox Film, and later said, “I did the best I knew how.” If he had personally invested in and profited from all three Taylor, Thorne syndicates (and he had), and if, for all three, he never put his own name on his account (and he had not), that was his own business. He had done nothing illegal.
Fox also disregarded the lesson that had confronted him in his unsought entanglement with William C. Durant: he was dealing with forces he didn’t fully comprehend, and he’d been lucky to escape unharmed. Instead, he chose to believe he had mastered the situation. The incident seemed to confirm once again his supreme ability to triumph over every challenge. He saw what he wanted to see, and he had no one around him to suggest that the truth might be otherwise.
With Fox Theatres, Fox acted even more aggressively than he did with Fox Film. He could do so because he had set up Fox Theatres differently. Fox Film’s bylaws required the company to offer new shares first to existing stockholders, so any new stock issue had to be publicly disclosed, and transactions were exposed to public scrutiny. Fox Theatres had no such restriction. Its board of directors could grant stock options to whomever it wished—and since Fox owned 100 percent of Fox Theatres’ voting stock and thus controlled the directors, they granted options to whomever he wished. There was no need to reveal these actions to outsiders. Behind that lowered veil, Fox was governed only by his own conscience. In the late 1920s, that was a hazardous proposition.
From 1927 through 1929, Fox traded continually in Fox Theatres stock through as many as twenty-two brokerage houses. At each firm, he kept up to seven accounts, all in the names of relatives or employees, in order to disguise his participation. The purpose was to sell new Fox Theatres stock to the public without using bankers, whom Fox regarded as little more than parasites.
It was a highly unorthodox way to conduct business. Typically, a company looking to raise money sold a block of new shares at a discount to investment bankers who, because they would get stuck with any unsold shares, first researched the company to make sure its prospects were sound. The existence of a middleman provided reassurance to potential investors, in that a seemingly independent, seemingly astute party had judged that this was not a swindle.
But Fox didn’t want to pay the standard bankers’ commission of $3 per share. He didn’t think he had to. Fox Theatres had operated profitably since its inception, and it had some of the largest, most beautiful properties in the business. The public could see that. Bankers would have nothing to do except mail out paperwork and collect checks. That was all, he believed, that Hayden, Stone had done when it had sold the new Fox Film shares to existing stockholders in January and October 1928. The Wesco shares conversion did require some actual work, but altogether Hayden, Stone had received about $1.4 million in fees and commissions. Fox hated paying that $1.4 million. In his view, the money could have gone instead toward the upbuilding of his companies.
Altogether, through his brokerage accounts, Fox moved 700,000 new shares out of the Fox Theatres treasury and into the hands of the public—supplementing the 800,000 shares that had been issued at the company’s inception in November 1925. (The other 83,000 Fox Theatres shares that would be outstanding by the end of 1929 appear to have been sold by the company directly to the public in the early fall of 1929.) At first, in selling the new Fox Theatres stock, Fox either covered his tracks very carefully or handled the transactions in a relatively unobjectionable way. At least, his activity in 1927 would never be pinpointed for public criticism.
However, in mid-1928, amid the stock market’s broad, frenzied run-up, he cast off restraint and conducted two short-selling operations in Fox Theatres stock that directly conflicted with his duties as president and chairman of the board of the company. A short sale amounts to a bet against a company’s performance. On the assumption that the share price is about to decline, one first borrows stock from a brokerage firm for a specified period of time for a relatively modest fee. Then one sells the borrowed shares. When the stock price declines, one buys the number of shares that one had borrowed and returns them to the lender. The arrangement reverses the order of the usual rule for stock market speculation. “Buy low, sell high” becomes “Sell high, buy low” and allows investors to profit in a down market. Company officers, of course, are supposed to concentrate entirely on doing well.
To run the Fox Theatres short-selling scheme, Fox enlisted Michael J. Meehan, head of the M. J. Meehan & Company brokerage firm. In his late thirties, Meehan was a quiet, round-faced figure who wore glasses with severe metal frames and brushed his hair smoothly back from his forehead. A former cigar salesman, he was now considered one of the shrewdest minds on Wall Street.
Fox and Meehan devised a nearly foolproof plan. To sidestep the main risk of short selling—that a stock price won’t decline but might actually gain—Fox gave Meehan options to buy Fox Theatres stock at prices ranging from $26 to $28. The options assured Meehan of the price at which he could buy shares in the future. Therefore, he knew the price at which his managers had to sell shares now in order to get the profits they wanted. On Fox’s side, the arrangement would raise money for Fox Theatres without incurring the usual $3 per share commission imposed by bankers. M. J. Meehan & Company would receive a more modest management fee—in one case, 10 percent of the net profits of the operation. To get working capital, Meehan formed syndicates of investors. The scheme’s only remaining risk was that no serious buyers would materialize and the operation would be a waste of time.
Fox took care of that, too. Through his many brokerage accounts held in other people’s names, he created wash sales in order to stimulate the market. That is, he placed buy and sell orders in the exact same amounts, usually on the same day, to generate an appearance of interest in the stock. In the first Meehan syndicate, such phony transactions accounted for 35 percent of the total trading.* The trick worked. Traders on the floor of the New York Curb Exchange, where the stock was listed, ran after Fox Theatres shares. As the Meehan & Company syndicate manager later explained, floor traders “are always glad to follow . . . any activity in the stock.”
As a result of these manipulations, Fox Theatres’ share price went as high as 37⅞. After selling at the artificially inflated prices, Meehan & Company exercised its option with Fox Theatres and bought the shares it needed to deliver to the buyers for as much as eleven or twelve points below the price at which it had sold them. The first short-selling syndicate lasted five and a half weeks, from August to October 1928, and generated a profit of $433,308. With a 26 percent share, Fox personally received $110,660. The second syndicate, which ran from December 1928 to April 1929, yielded a profit of nearly $2 million. Fox’s share was $322,960.
There were so many dubious aspects of the process. The fact that Fox gave relatively low-priced stock options to Meehan meant that he was essentially betting that the public would pay more for the shares than he believed they were worth. And by running the wash sales campaign, he was manipulating the public into valuing the shares at an artificially high level. Moreover, through his personal participation in the Meehan & Company syndicates, he was profiting at the expense of his company. Fox Theatres received no more than the option price for its shares; the difference between that price and the market price all went to the syndicate members. In an ideal world, Fox Theatres would have benefited fully from the public’s estimation of its value.
Later, Fox would say that he had conducted his personal trading accounts both for his own and Fox Theatres’ profit. However, Fox Theatres had never expressly authorized him to act on its behalf, and kept no written records of these transactions. “[I]t was best not to have an entry” on the books, Fox said. Instead, he stored the information in his head, and when questioned later, he couldn’t recall the specifics. There is no evidence that any of the syndicate profits made it back to the company.
Much of what Fox did would soon be illegal, thanks to the Securities Exchange Act of 1934, which outlawed short selling by a company’s officers* and prohibited the buying and selling of shares in order to create an appearance of market activity. At the time, though, Fox broke no laws. He could further reassure himself by noting the stature of some of the other Fox Theatres syndicate participants. The second Meehan & Company syndicate included John J. Raskob, the right-hand man of Pierre du Pont and the former vice president for finance of General Motors; Walter P. Chrysler, founder of the Chrysler automobile company; and Nicholas F. Brady, chairman of the board of the New York Edison Company and a director of Chrysler, Westinghouse Electric, and Union Carbide.
On some level, Fox was ashamed of the short selling and wanted as few people as possible to know about his involvement. In at least one of the wash sales, he routed the transaction through five different brokerage houses, although ordinarily it would have cleared directly between two houses. When the time came to pay out the profits of the second short-selling syndicate, he had his check made out to a Meehan & Company employee, who then endorsed it over to him. According to that employee, the purpose was to hide Fox’s identity from the brokerage’s three hundred to four hundred clerical employees. Later, Fox would call short selling a “rotten” practice that ought to be outlawed.
On the other hand, with moral superiority at the heart of his self-image, Fox could never quite see himself in a guilty light. He insisted that all his trading in Fox company stock had been “perfectly proper”—which meant that short selling wasn’t wrong at all. In that frame of mind, he said, “Short selling is a common practice that is indulged in by many people. The New York Stock Exchange knows how to prevent it any morning if they wish to stop it. They permit it and I can’t see any crime in selling stock short.”
An uneasy conscience made it difficult to think clearly.
Not even the Fox companies’ mortgage bond issues (relatively conservative investments that were secured by real estate and buildings) went smoothly. After buying the land in 1925 to build his first two five-thousand-seat “super theaters” in Detroit and St. Louis, each of which would have an office building on top of it, Fox spent more than a year searching in vain for bankers to finance construction. Finally, in early 1927, the Chicago-based firm of Halsey, Stuart & Company signed on for the job. Halsey, Stuart president Harry Stuart said the firm did so to help Fox out of a tight spot. More plausibly, Fox claimed that Halsey, Stuart—never having handled theater securities before but wanting to get in on a promising new field—solicited the business.
The relationship was contentious from the beginning. Halsey, Stuart miscalculated the amount of work involved to sell the Detroit and St. Louis Fox theater bonds and had to conduct an expensive publicity campaign that completely ate up its commission of less than 7 percent. The firm was not in the habit of working for free. Consequently, when Fox came to Harry Stuart in the fall of 1928 with an emergency situation, Stuart exercised his resentment.
At that time, Fox’s $25 million deal to buy the Poli theater circuit in New England was about to collapse. Fox had arranged to borrow most of the money from the circuit’s founder and owner, Sylvester Poli, through a “purchase money first mortgage,” a type of agreement in which the seller acts like a bank and lends money to the buyer. Fox Theatres also threw in some cash, and because Halsey, Stuart hadn’t wanted the deal, Fox had lined up another banking firm to underwrite second mortgage bonds for the final $4 million. At the last minute, the other bankers backed out. Harry Stuart agreed to have Halsey, Stuart step in and take over the second mortgage bond underwriting, but only if Fox wrote a letter promising to make a special payment of $1 million for “past services.”
Fox agreed, but not happily. In his view, Halsey, Stuart was being well compensated: between 1927 and 1929, the firm would receive nearly $3.4 million from the Fox companies for issuing $48 million worth of securities. A lot of it was easy work. The public oversubscribed to second mortgage bonds for both the Roxy Theatre and the Poli Circuit, and a Halsey, Stuart executive told Fox his firm made good money on the deals. Furthermore, bankers were not builders of enterprise. They were buzzards, circling overhead, eyeing opportunities to feed upon others’ hard work. So, when Halsey, Stuart officials kept asking for the $1 million commitment letter, Fox kept not writing it.
Fox’s involvement in high finance swept him into a circle of shady characters. Typically, they were well educated, sleekly groomed, socially prominent, and extremely wealthy. In the spirit of the times, all they lacked was a public conscience.
Richard F. Hoyt, the Hayden, Stone partner who arranged the Wesco shares sale to Fox, was a Harvard University graduate, a yachting enthusiast, a skilled airplane pilot, and a ruthless mercenary. In 1926, Hoyt had unsuccessfully defended himself against fraud charges brought by a former client, Grace Van Braam Roberts, a railroad president’s daughter who had lost several hundred thousand dollars after Hoyt pushed her to buy stock in the Atlantic Gulf and West Indies steamship line. Hoyt claimed he had simply given honest bad advice. However, at the time he was urging Roberts to buy the shares, he was a director of Atlantic Gulf and West Indies and was dumping his personal holdings of the company’s stock. Hayden, Stone paid the $16,000 court judgment against Hoyt, and although Roberts tried for years, the New York Stock Exchange’s business conduct committee refused to censure Hoyt in any way. Roberts commented, “If the members of this firm had cheated at cards or in a yacht race they would have been expelled from their clubs. Why is stealing money from trusting customers more respectable?”
Harry Stuart, the president of Halsey, Stuart, Fox’s main banking firm, was cut from similar cloth. Impeccably groomed, usually with a carnation in his buttonhole, Stuart had a warm, ingratiating manner that masked icy, amoral instincts. Based in Chicago, he had made his fortune as a chief adviser and close friend to Samuel Insull, the founder of a huge inverted pyramid of utilities companies that would soon buckle and collapse into a heap of financial disaster. Stuart ultimately marketed $2 billion in largely watered Insull securities, collecting at least $20 million in fees.* Some sympathizers of Insull, who was previously a respected inventor, believed Stuart led him astray.
Insull’s wasn’t the only crooked business that Stuart promoted. In 1928, Halsey, Stuart marketed $2.5 million in gold debentures for Wardman Realty and Construction, which owned hotels and office buildings in Washington, DC. In its promotional literature, Halsey, Stuart failed to mention that Wardman had $16 million in prior liens and had been threatened with foreclosure proceedings in 1927. For that oversight, Harry Stuart would later be charged with mail fraud.
Furthermore, on a weekly basis Halsey, Stuart tried to bamboozle the public with its nationwide radio show, The Old Counsellor. Every Thursday night, interspersed with “tuneful . . . high order” musical entertainment, the program featured an allegedly wise, allegedly well-seasoned financial expert who profiled business leaders and offered advice about promising stock market investments. In fact, the sixty-minute show was just a sneaky sales pitch. All the supposedly model executives worked at companies whose securities Halsey, Stuart was selling and the mellow-voiced “Old Counsellor” was no such thing: he was actually a middle-aged University of Chicago professor of public speaking, Bertram J. Nelson, who for fifty dollars a week read a script prepared for him at the Halsey, Stuart office.
At arm’s length from Fox was Albert H. Wiggin, chairman of the board of the Chase National Bank. Through his private investment company, the Shermar Corporation, Wiggin participated in the Hayden, Stone syndicate that sold Fox Film shares from January to mid-September 1928; on an investment of $375,000, Shermar received a profit of more than $65,000. During the same general time frame, Wiggin was conducting an extensive insider-trading operation in Chase Bank and Chase Securities stock that by 1932 would yield $10.4 million in cash profits to him personally. He also helped engineer one of the financial industry trends that positioned the U.S. economy for a precipitous fall: the rise of bank-affiliated securities companies. In 1917, he had started Chase Securities as an investment banking firm that would underwrite new stock offerings. So it operated until 1928, when the stock market boom began. Wiggin then plunged Chase Securities into speculative trading. Using Chase Bank deposits (then uninsured by the federal government), Chase Securities threw money onto the gambling tables of the late 1920s stock market. According to Columbia University economics professor H. Parker Willis, who helped draft the Federal Reserve Act and who served as the Federal Reserve Board’s first secretary from 1914 to 1918, securities affiliates such as Chase Securities violated “[p]ractically every maxim of sound banking formerly known” and were “a national disgrace.”
Fox didn’t like any of these overseers of high finance, but he became one of them. He thought he had to in order to control his future. In 1927 or 1928, he joined the board of Harriman Bank, serving for less than a year. Then, on May 8, 1928, he created Bankers Securities with his close friend, millionaire Philadelphia realtor Albert M. Greenfield. A deal maker more than a real estate enthusiast, the Russian-born Greenfield had taken over a small West Philadelphia bank in 1926 and built it up as the Bankers Trust Company. Fox was a shareholder in Bankers Trust and, following the trend led by Chase Securities, he and Greenfield decided to form Bankers Securities as a securities-trading affiliate. Greenfield became chairman of the board, and Fox, a director of the new company. Having started with $12 million raised through stock sales, Bankers Securities increased its assets to nearly $31.6 million in less than fourteen months.
Although Bankers Securities loaned Fox $10 million in early 1929 toward his purchase of the Loew’s shares, he hated the general idea of the company. Later, when Greenfield’s Bankers Trust had collapsed and he had nothing to lose by expressing his true opinion, Fox called bank-affiliated securities companies “the most damnable practice that the banking world of this country has ever known.”
Secret stock price manipulation, short selling his own company’s stock, starting a bank-related securities company that helped destabilize the nation’s financial foundation—these were the tactics Fox used to get a large part of the money that fueled the tremendous expansion of his film empire during the late 1920s. He had misgivings, surely. But he had taken tainted money before and had redeemed it. He had built two huge, wonderful companies that gave many people fulfilling, creative employment and that brightened the lives of countless audience members around the world. He would clean up the money this time, too. He had to. Fox Film and Fox Theatres were still his shining cities on a hill, worth whatever sacrifices he had to make for their welfare.