New Vistas of Rottenness - Part 2
By Patrick Gaffey
Inevitably, Hollywood entered the scheme. Lewis offered theater magnate, construction contractor and former U.S. consul Adolph Ramish a deal that seemed too good to be true. If Ramish, a charter member and First Grand Officer of the prestigious Native Sons of the Golden West, loaned Lewis $200,000 for a period of less than two months, Lewis would put up Julian stock as full security. If the stock increased in value by $50,000 during the loan period, Ramish could keep that amount, and the two would split any additional gains. If the stock did not reach that level, Lewis would still repay the entire loan plus $50,000, which amounted to 25% interest in two months in a state whose usury law made interest over 12% a year illegal. Law or no law, Ramish could not resist.
The deal got better. When the loan came due, Lewis gave Ramish the option of taking the $50,000, holding the stock and extending the $200,000 loan for another short term at the same incredible rate. The process repeated, Ramish put up more, and soon he had loaned Lewis over half a million dollars. Ramish talked friends into joining him in his good fortune, including Universal Studios President Carl Laemmle, Metro-Goldwyn-Mayer’s Louis B. Mayer and director Cecil B. DeMille. Ramish introduced Lewis and Berman to Edward Rosenberg, son of a partner of Ramish. Rosenberg and Berman hit it off, and soon the two were working shoulder to shoulder in the stock mill, cranking out certificates, forging signatures, keeping Lewis well supplied.
In the middle of 1926 Lewis finally announced the merger he had teased the market with. Julian Pete would merge with a successful oil- and dividend-producing company, Marine Oil, to form the California-Eastern Oil Corporation. Marine Oil had close connections to the Pacific Southwest Trust and Savings Bank, a branch of First National Savings Bank, the fastest-growing in Los Angeles.
Pacific Southwest was the creation of Henry M. Robinson, perhaps the most respected businessman in Los Angeles, a board member of more than fifty California corporations, a man with so many national and international connections that conspiracy theorist Baker identifies him and one of his vice presidents, Motley Flint, as having created the whole swindle to raise money to put Robinson’s friend Herbert Hoover into the White House. When Robinson wasn’t consulting in Washington, representing President Coolidge in Europe on the post World War I Inter-Allied Reparations Committee and other international bodies, he was blocking San Francisco banker A.P. Giannini’s Bank of Italy from expanding into Southern California.
Soon Robinson, Flint and the other bankers of Pacific Southwest were helping S.C. Lewis borrow $2,325,000 to finance his merger, which looked like a huge moneymaker for all involved. Lewis easily led the wisest minds in the Los Angeles banking community with his charm, his confidence and the promise of money.
By late 1926 Julian Pete was sailing into a rising storm. Awareness began to spread that more Julian stock was being traded than was supposed to exist. At each hint, the price of Julian Pete fell. Lewis conferred with his banker friends, and together they came up with an idea: the "Million Dollar Pool." The bankers and their friends would save Julian Pete by putting up a million dollars to buy stock and take it off the market, buying time until the big merger began laying golden eggs.
Of course the bankers had to be guaranteed against any chance of loss. And they needed to make a healthy profit. Their initial profit would be almost 20% over 45 days. But like Lewis’ loans to Ramish, the pool would not end in 45 days.
When word spread through the business community that the bankers were making such sacrifices to save Julian Pete and its 43,000 investors, an outcry arose. The pool sold out too soon! On those terms, other businessmen wanted to help, too! So a second pool was formed. And a third. And a fourth. And more; nine, by author Baker’s count.
The first pool, instead of ending after 45 days, lasted nearly seven months and paid off its members to an extent they could not have imagined. The members included the cream of Los Angeles businessmen: most of the vice presidents of Pacific Southwest, including William Rhodes Hervey; Louis B. Mayer; Adolph Ramish; large-scale realtors and stockbrokers. One prominent investor was Harry M. Haldeman, president of the Pacific Pipe and Supply Company. Haldeman was also president of the Better American Federation (BAF), a patriotic organization headquartered in the White Spot. Morrow Mayo wrote that the wealthy founders of the BAF "have set themselves up, not as Americans, but as Better Americans. Thus if one lives in Los Angeles and happens to belong to the Better American Federation, he is, it appears, a ‘better’ American than his neighbor, John Smith, who is only an Elk, or maybe a chiropractor." The BAF devoted itself to panicking the public over the menace of communism in America.
In addition to his role as the best of the Better Americans, Haldeman was patriarch of a family of Republican Party activists, which included his grandson, future Watergate conspirator H.R. Haldeman. Harry M. Haldeman’s vanity was like that of the other members of the Million Dollar Pool. Tygiel says they, "all considered themselves pillars of morality in the community."
Harry Haldeman invested $20,000 in the first Million Dollar Pool and more in the second.
Early in 1927 the corporate merger the insiders believed would save the company and make their fortunes moved closer to reality. But a Ponzi scheme, in which early investors are paid off with the money of later investors, necessarily spins faster and faster, demanding more and more cash. Berman and Rosenberg churned out so much unauthorized stock that an overissue became obvious to experienced traders. Though the Los Angeles Stock Exchange was created to protect investors, its managers noticed the overage, but did nothing. Adolph Ramish recognized white knuckle time. Meeting with the bankers, he voiced his fears: They could lose their investments. His had grown to $2,000,000. Baker reports Ramish told his fellow conspirators he "wanted to ‘unload’ and let some ‘sucker’ carry the burden."
On Valentine’s Day Ramish exploded: "Jack Bennett [Berman] is lousy with lucre. Let him cough up and take us out, or I, for one, am going to blow up the ship.... I’m going to take my stock and sell it!"
Lewis attempted to cool him: "...don’t forget that you have made more money out of this Julian play than any other living man."
Ramish dumped his stock on the market, recovering his investment and taking another huge profit. Only ignorance and mindless optimism kept stock prices high enough for the great oil merger to inch closer.
At the end of March, the original Million Dollar Pool disbanded. From late September, 1926, through April, 1927, though the white knights of the business community had failed to raise the price of Julian stock, they had made an incredible $760,000 profit—Baker said $790,000—on the million dollars they invested, sapping the corporation on which 43,000 had bet their savings.
Photo: Cecil B. DeMille
As the pool manager gradually released the stock onto the market, the price crept lower, causing concern whether stock sales might bring in enough to completely pay off the pools’ original investments. When Louis B. Mayer discovered he would be one of the last to be paid off, he erupted and demanded all his money immediately. Otherwise he would withdraw all MGM’s money from Pacific Southwest Trust and Savings and destroy the bank. Panic quickly rounded up a loan. Mayer received all his money the following day: his $65,000 investment plus the $50,000 profit he had "earned" over six months. Still, he was not happy. The megamillionaire went over his accounts. He had been short changed. He demanded another $39.50. Lewis paid him.
By the end of April traders knew Julian Pete stock had been overissued, but not by how much. In fact sixty thousand shares of preferred Julian Pete stock had been authorized, but more than 3.6 million were circulating. As the stock price drove lower, investor demands reached a white heat. Lewis admitted the overissue. The nearly complete corporate merger died. At this point Berman is supposed to have stuffed $625,000 into a money belt. A money belt could never hold that much cash, not even in $10,000 bills, which would have been of little use to a man on the run, anyway. But Berman gathered up a large sum and vanished.
Now the general public, which had previously only smelled the occasional putrid whiff, began to find out what had happened. As panic vaporized their investments, Tygiel describes investors weeping in downtown Los Angeles. When, within weeks, they heard of the profits made by the whitest citizens of the White Spot, outrage burst into flame. Even C.C. Julian, who had been busy cheating investors with a phony mining operation in Death Valley, returned to the public platform to denounce his distinguished successors one by one as "thief," "crook" and "scoundrel."
On May 16 the once-respected A.C. Wagy brokerage was closed. Its officers would soon stand trial.
City Prosecutor "Doc" Lickley announced that the participants in the various stock pools had each broken the usury law, and would be forced to return three times the interest they had recieved. He said the interest totaled $11 million. Lickley filed a complaint against Harry Haldeman. The better American hurried downtown and surrendered his profits. So did Ramish. Hope began to rise that something might be paid back to the mass of investors. On June 14, however, Haldeman demanded the return of his money. He attorneys had told him the payments he had received were technically not interest, and he had not been involved in usury. Ramish followed suit. The money was returned. Lickley then indicted Cecil B. DeMille.
On June 23 the Los Angeles County Grand Jury indicted 55 men on charges of embezzlement, banker’s bonus violation, usury, conspiracy to commit usury and violation of and conspiracy to violate the State Corporation Security Act. At first the names were kept secret by District Attorney Asa Keyes (rhymes with "skies"), but when leaked onto front pages, newspaper readers discovered they were the same names which popped up so frequently in society columns as hosts of formal parties or as celebrities in attendance at concerts and galas. They were names which endowed charitable causes, accepted honors and awards. The accused criminals were the most powerful and most respected businessmen Los Angeles could boast, men credited with building Los Angeles and tending its economic machinery for the public good.
Executives of the powerful Pacific-Southwest Trust and Savings Bank were charged with various felonies: Charles F. Stern, president; Motley H. Flint, executive vice president; William Rhodes Hervey, executive vice president, trust department; H. A. Bell, executive vice president, loan department; P. L. MacMullen, vice president and cashier; I. L Rouse, vice president; and W. I. Hollingsworth, director.
Other indicted businessmen included Harry M. Haldeman; Louis B. Mayer; Adolph Ramish; Joseph Toplitsky, a major realtor and director of the Merchants’ National Trust and Savings Bank; Ben Platt, owner of the Platt Music Company; William Kotteman, one of California’s best-respected accountants; Harry W. Chotiner, theater owner and investor; bank presidents Charles Stern and John E. Barber; and a number of other prominent bankers. Stockbroker Jacob Farbstein was also president of the General Pipe and Supply Company. Charles E. Reese, president of A. G. Wagy and Co., Inc., was indicted along with his brother, R. M. Reese, the company’s secretary. The list of indicted brokers ran long. Also indicted were S. C. Lewis, former president of Julian Petroleum Corporation, and his fugitive former assistant, Jacob Berman.