MANIPULATING GOLDFIELD CON
About a week after the publication of the editorial headed "Nixon a Senator with a Blackmailing Mind," when Goldfield Consolidated stock had slumped to around $7, the Nevada Mining News in big bold-faced type urged its readers to place their buying orders for Goldfield Consolidated at $4 a share, saying that New York mining-stock brokers advised their clients that the stock would almost certainly go down to that figure because of the Senator's mistakes in the financial management of the company. That edition contained another editorial on Senator Nixon, headed "Branding a Bilker." It accused him of saying in his annual report a few months previous that payments of dividends on a regular basis would commence within a short time, and contrasted this statement with the signed interview published in the Nevada Mining News, in which he said dividends would be paid "whenever the trustees thought it wise to do so and not before."
Within a day thereafter the stock "busted" wide open to $51/8 bid, $5¼ asked, and the whole Goldfield list smashed farther in sympathy. By June 8th Goldfield Consolidated had crashed to $4.50.
On the dip from $7.50 to $4.50 an opportunity had been offered to Berney Baruch and his associates to buy back in the open market all of the stock they might have sold on the way down from $10 to $7.75, which was the option price. Then the stock was promptly manipulated back to $7. On the way back to $7, the outstanding short interest (of other traders who had accompanied the decline with their selling orders) was forced to cover.
To help along the covering by outsiders up to the $7 point a report was circulated by lieutenants of Senator Nixon in Reno that a dividend would be declared before the end of June, and almost simultaneously the general manager of the mining company in Goldfield put forth a similar tip. As the market began to recover toward the $7 point, Senator Nixon went to San Francisco and was seen often at the sessions on the floor of the San Francisco Stock and Exchange Board. On the day before the bulge to $7 he was quoted in a San Francisco newspaper as saying that Goldfield Consolidated was such a good thing he would not take $20 per share for his stock.
When the stock hit $7 and the shorts were being squeezed the hardest, Senator Nixon was quoted as saying in still another interview that a dividend was not far away. This interview was carried over the telegraph wires to all market centers by the Associated Press. At the same time a story was printed in the New York Times saying that it was reported on the Street that J. Pierpont Morgan, acting for the Baruch-Ryan crowd, had taken over the control of the Goldfield Consolidated. The shorts were successfully driven to cover. Then the price eased off again in a day from $7 to $61/8.
A month later Mr. Teague became editor in chief of the Nevada State Journal and severed his connection with the Nevada Mining News. I succeeded Mr. Teague as editor and my name appeared at the head of the editorial columns. At about the same time the Sullivan & Rice enterprise was abandoned. I discovered that most of the money Mr. Sullivan had put into the corporation had been borrowed by him from a member of my own family with whom he had hypothecated most of his stock in the company. A rumpus ensued which ended in the shutting up of the shop.
By August Goldfield Consolidated had been manipulated back to $8.37½ a share. Mr. Baruch's option could certainly prove of little value to him unless the stock sold higher at periods than $7.50. But he now evidently found it a hard job to hold the stock above $7.50. By September it had receded again to $7.40. At this period it was reported in Reno that George Wingfield, sick of his partner's bad bargain, was beginning to assert himself and demanded that the Baruch option be cancelled at whatever cost.
The erratic price movement of the stock was causing the loss of public confidence. The manipulation appeared to be raw. Without any important transpiration except the news of the Baruch option and the varying statements put out by Senator Nixon from time to time regarding the plans of the company, which was now awaiting the erection of a huge mill before going on a regular producing basis, the stock had dropped from $10 to $4.50, recovered to $7 and eased off to $61/8, rallied to above $8, and was again tumbling.
The option to Mr. Baruch was conceded to be practically a flat failure from a company standpoint, only 20,000 shares of stock having been purchased by Mr. Baruch from the treasury of the company in nine months. The impression prevailed that Mr. Baruch was milking the market and held the option principally as a club to accomplish his market designs. Moreover, nearly every broker, investor and speculator residing in Goldfield by this time had gone broke because of the vagaries of this stock in the market, and the losses in bad loans and unsecured overdrafts incurred by John S. Cook & Company's bank, controlled by Messrs. Nixon and Wingfield, was said to total nearly $2,000,000 as a result of the almost general smash in market values. The entire Goldfield list, with the exception of Goldfield Consolidated, was now selling at 25 cents on the dollar compared with boom prices of less than a year before, and it was a rather ordinary "piker" sort of broker or speculator in Goldfield who at this time could not boast of being in "soak" to John S. Cook & Company's bank anywhere from $15,000 to $100,000.
On September 23 the Goldfield Consolidated directorate met at Goldfield. After the meeting it was officially announced that the option held by Mr. Baruch on 1,000,000 shares at $7.75 had been canceled and that Mr. Baruch had been given sufficient of the optional stock to liquidate the $1,000,000 obligation of the company, leaving the company free of debt and with a cash reserve of nearly $2,000,000. It was stated that Mr. Baruch had originally been given the option for services in securing the loan of $1,000,000 from J. Kennedy Todd & Company of New York for 13 months with interest at the rate of 6 per cent., and that the price of $7.75 was an "average" one, indicating that Mr. Baruch held an option on stock at varying figures on a scale up from a considerably lower price than $7.75, which he might have exercised in whole or in part.
It was also disclosed that a large block of Goldfield Consolidated stock had been put up as collateral for the note. Because the officials of the company declared by resolution that the "unused certificates shall be canceled" it was generally believed that the entire 1,000,000 shares under option to Mr. Baruch had been put up as security.
The official statement of the company said that the option had been turned back to the company "on a satisfactory basis." No figures were given out. Dispatches from San Francisco to the Nevada Mining News, which I promptly published, alleged that Mr. Baruch was given 200,000 or more shares of Goldfield Consolidated in settlement of the loan to the corporation of $1,000,000 and for the surrender of his option on 1,000,000 shares at an average price of $7.75.
The 200,000 shares of stock was taken out of the collateral at the rate of $5 per share on a day when Goldfield Consolidated was selling around $7.50, after the stock had been manipulated to a fare-ye-well and against a market price of $10 for the stock on the day the option was given.
No denial was ever published. My opinion, based on private investigation and on analysis of the company's reports, is that Mr. Baruch fared even better than as outlined above.
The giving of the option had made it dangerous for anybody except Mr. Baruch to attempt to hold the stock above $7.75 per share after the option had been given, and the company in addition was now mulcted for the difference between the low price per share at which settlement was made with Mr. Baruch and the price at which the stock could have been sold had it been quietly disposed of on the market during the period of nine months which had preceded the date of cancellation. As a matter of fact, there was no necessity at all for settling the loan with stock, the company having in its treasury more than sufficient to repay the loan, and the money was not due. The real purpose, apparently, was to shroud in darkness the exact amount given to Mr. Baruch to release the company from the option and to keep Messrs. Nixon and Wingfield's Goldfield bank, which was the depositary of the mining company, in funds.
Instead of quieting the stockholders the surrender of the option again thrust into the limelight the entire transaction and proved to be an exacerbation.
The immediate effect was that Goldfield Consolidated began to slump again, and in a few days sold down to $6.50. From this point it kept on tobogganing during a period of weeks down to the $3.50 point—a depreciation in market price for the capitalization of the company, within a year of its promotion at $10 a share, of $23,400,000—before rallying once.
ENTER, NAT. C. GOODWIN & CO.
A mining partnership between Nat. C. Goodwin, the actor, and Dan Edwards had been formed at Reno a little before this time. Dan Edwards was a hustling young mining man who had engaged in the business of "turning" properties to promoters. In August, when Goldfield Consolidated was selling around $7.50, Mr. Edwards had asked me to give him a good market tip. I told him to sell Goldfield Consolidated short.
When it hit $6.50 around October 1st he saluted me thus, "Got to hand it to you. I have been trying to make my new firm stick, but it don't seem to work. I guess I don't know how to handle the situation in times like this. How would you like to join us?"
"How much capital have you got?" I asked.
"Five thousand of Nat's money," he answered.
"Get another man with $5,000," I said, "and I'll talk to you."
A young Easterner engaged in mining, named Warren A. Miller, was stopping at the Riverside Hotel. Within an hour Mr. Edwards had him lined up. A week later Nat. C. Goodwin & Company was incorporated with Nat. C. Goodwin president, Mr. Miller vice-president and general manager, and Dan Edwards secretary. The new corporation engaged to give me a salary for showing it how and an interest for other substantial considerations.
Within a fortnight the corporation of Nat. C. Goodwin & Company was making money, not as promoters, however, but as demoters. Instead of at first promoting a mining company and earning its profits on the constructive side of the market, it turned the tables and made money on the destructive side—of Goldfield Consolidated.
During the first half of 1907 I had felt the country's speculative pulse from day to day with the promotion literature of the Sullivan & Rice corporation. Although its new mining company, the Rich Gulch Wonder, had boasted of a very high-class directorate and the property was conceded to have merit, the public refused to enthuse. Instead of subscribing for large blocks, scattering purchases had been made, and money in dribs and drabs had been grudgingly paid over. The Wonder mining camp boom had "died abornin'." Investors seemed to have had enough of mining-stock speculation for a while.
Prices of listed Nevada issues were crumpling like seersuckers in the rain. By this time the awful mess that had been made of Goldfield affairs through the mistakes of Messrs. Nixon and Wingfield had resulted in a depreciation in market value of more than $100,000,000 in listed Nevada issues. This in itself was sufficient to kill a world of buying sentiment.
You have to be a rainbow-chaser by nature to be a successful promoter, but even I, despite my chronic optimism, began to feel the influence of what was transpiring. I made a flip-flop and turned bear on the whole market.
On October 17th the Heinze failure occurred in New York. Five days later the embarrassment of the Knickerbocker Trust Company was announced. I glued my ears to the ground.
Nat. C. Goodwin & Company "shorted" the mining-stock market so far as its limited capital would permit. On the day Mr. Heinze went overboard the company was already short 2,000 shares of Goldfield Consolidated at around $6. On hearing that the Knickerbocker Trust Company was in trouble it promptly shorted 2,000 shares more at a lower figure.
On the afternoon when the news reached Reno of the Knickerbocker Trust Company's embarrassment I received a private telegram from Chicago stating that the paper of the State Bank & Trust Company of Goldfield, Tonopah and Carson City had gone to protest in San Francisco. This set my blood tingling. I knew that meant a general Nevada "bust."
Next morning Nat. C. Goodwin & Company shorted 2,000 shares more of Goldfield Consolidated at about $51/8. Later in the day the failure of the State Bank & Trust Company was announced. A run followed on the Nye & Ormsby County Bank and its branches in Reno, Carson City, Tonopah, Goldfield, and Manhattan, and in two hours that institution, too, closed its doors.
Goldfield Consolidated promptly broke to $4 a share. Around this point Nat. C. Goodwin & Company covered its short sales, at discretion.
All of the Nixon banks in Nevada experienced runs as a result of the failure of the two Nevada banking institutions. So did the other banks.
Governor Sparks was appealed to by Nevada bank officials between two suns to come to the rescue. Without hesitation he declared a series of legal holidays to enable the banks of the State which were still standing on their feet to catch their breath. These banks finally threw open their doors, but when they did, those of Reno met depositors' withdrawals with asset money instead of legal tender. The only bank in Reno which had refused to take advantage of the enforced legal holidays was the Scheeline Banking & Trust Company. And when asset money was finally resorted to as a makeshift, M. Scheeline, the president, was made custodian of the bonds which were put up by the associated Reno banks to secure payment. This restored confidence.
It was believed in Nevada at the time of the failure of the mining-camp banks, the State Bank & Trust Company and the Nye & Ormsby County, that the Nixon institution in Goldfield would have found it hard to weather the storm but for the fact that the Goldfield bank was believed to have upward of $2,000,000 of the Goldfield Consolidated Mines Company's money on deposit.
When the State Bank & Trust Company went to the wall Senator Nixon, in an interview published in his Reno newspaper, charged the failure of the State Bank & Trust Company to me. He alleged that the State Bank & Trust Company lost $375,000 by the failure of the Sullivan Trust Company ten months before, and that I had broken the bank. The liabilities of the bank were $3,000,000, and its Sullivan Trust Company loss was only "a drop in the bucket." The Senator didn't fool anybody, not even himself. His effort was an ill-concealed attempt to prepossess the public against me, and was received by Nevada people as such.
Senator Nixon indulged in some more "interview" with a view to stemming the tide of liquidation in Goldfield Consolidated. Notwithstanding the fact that the company had only recently resorted to the sale of treasury stock for money-raising purposes, he asserted that a quarterly dividend, payable January 25th, would probably be declared. Beyond a question this statement was made for market purposes at a time when the Senator was sweating money-blood.
The stock promptly tobogganed farther on the strength of the dividend forecast. The Senator's interviews had now become a standing joke in the community. Speculators and brokers had learned the wisdom of "coppering" anything the Senator said.