AT THE HEIGHT OF THE FRENZY
The difference between the market price of listed Nevada stocks on November 15, 1906, and that of to-day is in excess of $200,000,000. A fair estimate of the public's real-money loss in the listed division is $150,000,000.
Nor was this all of the damage that was done. When excitement in Goldfield's listed stocks reached a frenzy, wild-catters operating from the cities got into harness, and within three months in the neighborhood of 2,000 companies, owning in most instances properties situated miles from the proved zone in Goldfield, or in unproved camps near Goldfield, were foisted on the public for $150,000,000 more.
The fact that Mohawk, which in the early days of Goldfield could have been purchased at 10 cents, had advanced to $20 and had shown purchasers a profit of 20,000 per cent.; that Laguna had advanced in less than two years from 15 cents to $2; that Jumbo and Red Top, selling at $5, could have been purchased a year or two before at around 10 cents; that Goldfield Mining, which had in the early days been peddled around the camp at 15 cents, had moved up to $2, etc., gave the wild-catters an argument that was convincing to gulls in every town and hamlet in the Union. And the harvest was immense. Not one of the 2,000 wild-cats has made good, and every dollar so invested has been lost.
It will be noted from the reckoning as given that about as much money was lost in the listed stocks of the camps as in the unlisted "cats and dogs."
As a matter of fact, veteran mining-stock buyers, in camp and out of the camp, lost as much hard cash as did the unsophisticated. San Francisco, which owes its opulence of years gone by to successful mining endeavor, was probably hit as hard as any other city in the Union. San Francisco thought it knew the game, and it confined its operations to the stocks listed on the exchange where the Comstocks are traded in. But San Francisco did not know the inside of the merger deal as it is now known to every schoolboy in Nevada.
The operation on the inside was this. Wingfield and Nixon owned the John S. Cook & Company bank in Goldfield, and they owned the control of nearly a score of mining companies which were of little account as well as having acquired the control of the biggest mine in camp. During the height of the boom, which they engineered to swing the merger, they disposed of millions of shares of an indiscriminate lot of companies, and used the many millions of proceeds to take over Jumbo, Red Top and their outstanding contracts in Mohawk and other integrals of the merger. They likewise were able during the ballooning process to dispose of much Mohawk at from $15 to $20, much Jumbo at from $4 to $5, much Red Top at from $4 to $5, that cost them very considerably less than this, and in this way were enabled to finance their deal to a finish.
I have just pointed out that in order to accomplish the merger it was necessary that the market in all Goldfield securities, in which the promoters were interested, be stimulated in order to enable unloading by the insiders before some of the very large payments became due. This being accomplished, and the payments having been made, the promoters sought to establish a market for merger shares at or around par. In order to accomplish this the Goldfield bank, in which the promoters were heavily interested, stimulated speculation and managed to spread a feeling of security by announcing its willingness to loan from 60 to 80 per cent. par on merger shares.
All Goldfield fell for this, and the camp went broke as a result.
Within eighteen months thereafter Goldfield Consolidated sold down to $3.50 in the markets, and margin-traders and borrowers who had put up the stock as collateral to purchase more were butchered. Loans were foreclosed by the bank as rapidly as margins were exhausted. The carnage was awful.
It must be evident that Wingfield and Nixon, both of whom became multimillionaires as the result of their mining-stock operations in Goldfield, were directly and indirectly important factors in the loss by the public of $300,000,000, as set forth above. It is admitted that less than $7,000,000 worth of ore had been developed as a reserve at the time $35,000,000 worth of stock in the merger was issued and a market manufactured to dispose of the stock at this fictitious price-level. It is not of particular interest that Goldfield Consolidated, by reason of sensationally rich mine developments at depth, has since given promise of returning to stockholders an amount almost equal to par for their shares, and that it now appears that those who were able to weather the intervening declines may in the end be out only the interest on their money.
This fact stands out: Although Goldfield Consolidated owned at the outset a bonanza gold mine, stockholders had just two chances. They could break even or lose—break even on their investment if the mine made good in a sensational way, which was a big gamble at the time, or lose if the mine didn't. They could not win.
Mr. Nixon was a United States Senator from Nevada. He was also president of the Nixon National Bank of Reno, Nevada. He held both of these positions at the time the merger was made, and it was largely because of Mr. Nixon's political and financial position that the daring ballooning market operations, which were staged as a curtain-raiser for the merger, proved so successful.
In the Nevada Mining News of May 25, 1907, circulation 28,000, an interview appeared with United States Senator Nixon of Nevada, vouched for as follows:
The manuscript of the interview was submitted to, and approved by, the Senator. Unchanged by one jot or tittle, it is printed just as it came from his hands. Even now the Senator holds a carbon of the original manuscript and may brand us with it if we have broken the faith we pledged.
I quote from the Senator's interview, as it appeared in that issue of the Nevada Mining News:
"What do you estimate the ultimate earnings of Goldfield Consolidated will be?" was asked.
"Consolidated will be a bigger producer, I should say, three or four years from now than it will be one year from now," Senator Nixon replied, "and I believe I am conservative when I say that the property will be eventually earning $1,000,000 net monthly."
"Then, as an investment, the stock is easily a $20 stock?"
"That is a minimum estimate of its future value, I should say," was the response.
As to that interview:
Mr. Nixon said that within three or four years (the time limit is up), $20 would be a minimum price for the shares. They touched $10 only once since then, or one-half of his estimate. Shortly after the interview was given they sold down as low as $3.50. Recently the market quotation was $4.
He said, further, that the mines would ultimately earn at the rate of $1,000,000 a month. This statement also has fallen far short of fulfillment.
Soon after George S. Nixon, as president of the Goldfield Consolidated Company, gave out this interview for public consumption he, according to his own later admissions, disposed of all of his holdings, and at an average price, it is believed, of less than $8 a share.
This is only a superficial rendering of the big event in Goldfield's history, but it is sufficient to furnish an example of the effect of Get-Rich-Quick influences that radiate from high places and separate the public from millions upon millions, without being called to account.
The dear American public has been falling for this kind of insidious brand of Get-Rich-Quick dope for years. It is being gulled into losing millions through its fetish worship of promoters with millions, who are really the Get-Rich-Quicks of the day that are very dangerous.
Greenwater, a rich man's camp, in which the public sank $30,000,000 during three months that marked the zenith of the Goldfield boom, is another case in point where a confiding investing public followed a deceiving light and was led to ruthless slaughter.
CHAPTER IV
The Greenwater Fiasco
When the excitement was at fever-heat in Goldfield over the stupendous rises in market value of Goldfield securities which were being chronicled hourly, news came to town of the successful flotation in New York of the Greenwater & Death Valley Mining Company. The capitalization was 3,000,000 shares of the par value of $1 each. The stock had been underwritten at $1 a share by New York and Pittsburg Stock Exchange houses, had been listed on the New York Curb, and had climbed to around $5.50, or a valuation for the property of $16,500,000. Among the officers of this company were M. R. Ward, brother-in-law of Charles M. Schwab; T. L. Oddie, now Governor of Nevada, and Malcolm Macdonald, later president of the Nevada First National Bank of Tonopah.
Greenwater is situated about 150 miles south of Goldfield, across the State line in California. No one ever went to or fro without passing through Goldfield. If there was a Greenwater boom, how was it that we in Goldfield, who were in touch with all Nevada mining affairs, did not know about it? Goldfield promoters soon began to give attention. Shortly they caught the infection. A stampede from Goldfield into Greenwater ensued. In fact, people flocked to Greenwater from every direction. A bunch of Tonopah money-getters, headed by the indomitable Malcolm Macdonald, were grabbing the money on Greenwaters in New York, and Goldfield was not in the play.
The reports that came from Greenwater as a result of the first stampede from Goldfield were of doubtful variety. Greenwater & Death Valley was described as a raw prospect not worth over 10 cents per share. Goldfield people shook their heads. There was no gainsaying the fact, however, that Greenwater & Death Valley appeared to be a giant success in the Eastern stock markets. Charles M. Schwab was reported to be behind the flotation of Greenwater & Death Valley. Montgomery-Shoshone and Tonopah Extension, two other Schwab enterprises, were selling at hundreds of per cent. profit in the stock markets. The fact that Mr. Schwab was interested in the camp was an argument that appealed with great force to Nevada promoters, for the fraternity had learned to attach just as much significance to having a market as to having a mine before commencing promotion operations.
The Sullivan Trust Company not having had a failure of any kind on the market, I hesitated to commit the trust company to any issue in the new camp. Not to be entirely out of it, however, I sent our engineer, "Jack" Campbell, into the district to report on all the properties.
News came thick and fast from the New York market as to the success of the Greenwaters in the East. Furnace Creek Copper Company, originally promoted by "Patsy" Clark of Spokane at 25 cents per share, with a million-share capitalization, was reported to be getting the benefit of Mr. Clark's personal market handling on the New York Curb, and the shares soon reached a high quotation of $5.50. John W. Gates had been let in by "Patsy" at around 50 cents and was reported to have unloaded 400,000 shares at all sorts of prices from $1 up to $5.50, and down again.
On the heels of this advance came word of the successful promotion of the United Greenwater Company, with C. S. Minzesheimer & Company, members of the New York Stock Exchange, acting as fiscal agents for the company. The promoters were named as Malcolm Macdonald, Donald B. Gillies and Charles M. Schwab. J. C. Weir, the New York mining-stock broker, who was conducting through the mails a nation-wide market-letter campaign in favor of Greenwater, was reported to have sold 150,000 or 200,000 shares at the subscription price of $1. The offering was said to have been oversubscribed twice. The price then shot up to $2.50 on the New York Curb. The market boiled.
Philadelphia was reported to be Greenwater-mad. When United Greenwater had reached $1.50 on its way up and Greenwater & Death Valley had passed the $4 point, the Schwab crowd announced the formation of the Greenwater Copper Mines & Smelters Company to consolidate the Greenwater & Death Valley and United Greenwater companies. This new parent company was capitalized for $25,000,000, with 5,000,000 shares of the par value of $5 each, and the East was reported to be eating up the new stock "blood raw." The president of this company was Charles R. Miller, who was president of the Tonopah & Goldfield Railroad Company, and the vice-president was M. R. Ward, the redoubtable brother-in-law of Charles M. Schwab. The directorate included Mr. Schwab; John W. Brock, who represented Philadelphia interests on the directorate of the very successful Tonopah Mining Company; Malcolm Macdonald, the champion "lemon" peddler of Nevada; Frank Keith, general manager of the Tonopah Mining Company, and others. It was a "swell" directorate.
It was learned that the stock of the new company had been underwritten by New York Stock Exchange houses, principally those with Philadelphia and Pittsburg branches where the Schwab crowd was influential, at $1.80 per share, and that large blocks were being sold to the public at up to $3.25 on the New York Curb, a valuation for the "properties" of more than $16,000,000.