THE CLASH OF BATTLE
With a line of defense carefully outlined, I approached the fray. First, the Scheftels corporation placed with reliable brokers written orders to sell at the opening the stocks that were specified in the stop-loss and good-till-cancelled orders of customers. Not an order to sell a share of inside stock was given. It was also decided not to place any supporting orders until after the market opened and it could be determined with some degree of accuracy what the volume of stock amounted to that was pressing for sale.
Just before the market opened I could see from my office window a dense crowd of brokers assembled around the Ely Central specialists. Although ominously silent, they were struggling for position and were tensely nervous. It was plain that the over-Sunday anti-Scheftels newspaper publicity had racked Ely Central stockholders and created a panicky movement to liquidate, which was about to find vent in violent explosion. It was evident that the Scheftels corporation would have to conserve every resource if the day was to be saved.
The market opened. Instantly there was terrific action. Hundreds of hands were waving wildly in the air. Everybody wanted to sell and nobody wanted to buy. The chorus was deafening. Screams rent the air. The tumult was heard blocks away. Every newspaper had a man on the spot. Brokers from the New York Stock Exchange left their posts and came to see the big show; the Stock Exchange was half emptied. The spectacle had been advertised widely and everybody was keenly awake and wrought up to a high pitch of excitement over what had been scheduled to occur.
Had the Scheftels brokers been supplied with orders to buy one-quarter of a million shares of stock at the closing market price of the Saturday before, $4 1-8, it was very apparent that they would have been unable to hold the market. The opening sale was at $4. Downward to the $3 point the stock traveled, breaking from 25 to 50 cents between sales. Through $3 and on down to the $2 point the price crashed. Blocks of 10,000 shares were madly thrown into the vortex of trading. The Curb was a struggling, screaming, maddened throng of brokers. Every trader appeared to be determined to crush the market structure. At $2 a share there was a temporary check in the decline, but the bears renewed their onslaught, gaining confidence by the outpour of selling orders. Within less than an hour after the opening the stock hit $1 1-2 a share. At this juncture the Scheftels broker in Ely Central reported that he had executed all the stop-loss and good-till-cancelled orders entrusted to him with the exception of 19,000 shares.
"The Scheftels company will take the lot at $1 1-2," I said.
In lending succor at $1 1-2 per share I was really stretching a point, although at this figure the net market shrinkage of the Ely Central capitalization was in excess of $3,000,000. This melting of market value was awful to contemplate. On the other hand the newspaper agitation was unmitigated in its violence, stockholders were convulsed, a break of serious proportions was certain, and it was up to me to conserve every dollar. The moment the Scheftels bid of $1.50 a share made its appearance on the Curb and the selling from the same source for the account of customers was discontinued, it was seen that the force of the drive had spent itself, at least for the time being. Support now came from the "shorts." They started to cash their profits on their short sales of the days previous. Crazed selling was transformed to frantic buying.
The scene at this juncture was dramatic. It was the momentary culmination of a cumulative, convulsive cataclysm. In refraining from selling for its own account the Scheftels corporation violated one of the sacred rules and privileges not only of the New York Curb but of the New York Stock Exchange. In both of these markets it is the custom, where brokers have advance information of an impending calamity, to beat the public to the market and get out their own lines first, leaving customers to take care of themselves.
By deftly feeding stock to bargain hunters and to the "shorts" at intervals and buying stock when it pressed for sale from frightened holders at other periods the Scheftels company was able to support the market that afternoon to a close with sales recorded at $2 a share. The cash loss of the Scheftels company on its Curb transaction in Ely Central that day was $60,000. This fresh sacrifice was needed to steady the market.
Tuesday, the following day, the daily newspapers belched forth further tirades of abuse and calumny. The market crash in Ely Central was held up to the public as proof positive that the project was a daring swindle. The raid on the stock in the market was renewed. A Johnstown flood of liquidation ensued. Fluctuations were violent. Opening at $2, the price was forced down to $1. It afterward rebounded to $2, but the waters would not subside, the stock was hammered again and it closed at $1 per share. To meet the oncoming emergencies the Scheftels corporation was obliged to fortify its cash reserve in the only one way that offered. It was compelled to convert a large part of its reserves of securities into cash and it had to sell on a declining market. Many accounts were withdrawn by timid customers, and the Scheftels company was further called upon to give stability to Rawhide Coalition and Bovard Consolidated, other stocks which it had been sponsoring in the markets. Loans were called by brokers with whom the Scheftels company was carrying stocks, deliveries were frantically tendered to the Scheftels company of stocks it had purchased at previous high levels, and a financial onslaught made generally that would undoubtedly have sunk the Scheftels' ship but for the fact that we had backed-up in the nick of time, had measured our distance, had gone just so far and not too far, and had kept on the firing-line.
An exceedingly gratifying feature of the sensational day was the way in which our friends stood by us. The venom and selfishness of the overwhelming assaults that had been made upon us convinced many of the public that we were being made the victims of a special attack, and with the natural impulse that governs honorable men they gave testimony to their confidence in us.
On Wednesday the campaign terminated. Ely Central weakened an eighth from the $1 point, the closing of the day before, recovered to sales at $1¾ and closed at $1½ bid; $15/8 asked.
All day long our offices were thronged with newspaper reporters and with pale-faced and agitated customers. Our clients felt their helplessness in such a tumult of warring forces. The only thing they could do was to stand by and watch developments as the battle waged. It was a proud moment for me when, at the end of the day's market, I mounted the platform in the Scheftels customers' trading-room, gave voice to a shrill cheer of triumph and wrote on the blackboard the following:
"We have not closed out a single margin account! We are carrying everybody!"
The scene which followed warmed the cockles of my heart. I was literally mobbed, but it was a friendly mob. We all joined in a season of noisy rejoicing. That we should have been able to survive the three-days' siege with minimum losses to customers and without sacrificing a single margin account was a signal achievement. I doubt if there are many cases like it in the history of Wall Street.
Scores of telegrams were received from out-of-town customers to whom the margin respite was wired. One of these read:
You may look for a tidal wave of business. Your princely action warrants 21 guns for the House of Scheftels.
Another one was to this effect:
The whole situation was greased for your descent. It was a shoot-the-chutes and a bump-the-bumps proposition. Congratulations on your survival.
Hundreds of letters of a similar tenor poured in upon us. Many of these came from the camp of Ely itself, where large blocks of the stock were held by mining men on the ground.
Thursday the stock closed at $1¾; Friday it advanced to sales at $17/8 and hung there.
The Scheftels organization now drew its first long breath. Friends and enemies alike marveled how the corporation had managed to survive. We had held the fort, but at murderous cost.
I got busy with the publicity forces at my command. Through the Scheftels Market Letter and the Mining Financial News the story was told of the whole dastardly campaign.
The Weekly Market Letter of the Scheftels company on November 13, 1909, devoted 24 columns to the story of the raid.
That the Guggenheim-managed Nevada Consolidated was well pleased with the publication of the Engineering & Mining Journal's attack seemed clear to me. The reason was this: In its attack the Engineering & Mining Journal stated that two drillholes put down by the Nevada Consolidated in the immediate vicinity of Ely Central had failed to show better than nine-tenths of one per cent. copper ore which, the article said, was below commercial grade. (At this late date, October, 1911, they are mining ore in the steam-shovel pit of the Nevada Consolidated that will not average more than eight-tenths of one per cent. copper transporting it to the concentrator, more than twenty miles away, and treating it at a profit. But this is not the point.) An engineer of international prominence telegraphed the Scheftels company from Ely as follows:
Two drill holes mentioned in Engineering & Mining Journal article were completed only last week. Results must have been telegraphed to New York.
These holes gave great trouble on account of caving ground. I heard drill runners say they were stopped on that account and were in ore in bottom. In any case, it is not conclusive of unpayable ore in vicinity. This condition often occurs.
I could write a book in reply to the Engineering & Mining Journal's tirade, showing the utter flimsiness of the statements it made. Limited space forbids anything more than an outline.
Charles S. Herzig was employed to report confidentially on the property. Mr. Herzig's report was later checked up by Dr. Walter Harvey Weed, a great copper geologist of known high standing who was formerly one of the principal experts of the United States Geological Survey and was himself a frequent contributor to the Engineering & Mining Journal. Dr. Walter Harvey Weed wired to the C. L. Constant Company, the metallurgists and mining engineers, from Ely, as follows:
After making a most thorough examination my opinion is Southern part Ely Central property is covered by rhyolite capping. Geological evidence demonstrates that the porphyry extends eastward (through Ely Central) from steam-shovel pit and with excellent chance of containing commercial ore beneath a leached zone. A well defined strong Fault separates steam-shovel ore from rhyolite area and this Fault Plane may carry copper glance (very rich copper ore) of recent origin, due to descending solutions. The iron-stained jasperoid croppings in the limestone areas give promise of making ore in depth on Ely Central property as they do in Giroux.
The Engineering & Mining Journal said in its article that the northern portion of Ely Central showed the Arcturus limestone of the district. It stated that in this limestone at various places there is a little mineralization but never during the history of the district were any profitable results obtained. As against this, Engineers Farish, Herzig and Weed reported that the limestone areas on Ely Central would likely show the presence of mines. As a matter of fact, Giroux, neighbor of Ely Central, had sunk through this limestone and opened one of the richest bodies of copper ore ever disclosed.
The Engineering & Mining Journal said that in representing that pay ore is likely to exist in the area of Ely Central sandwiched in between the two big mines of Nevada Consolidated, the Scheftels company was practicing deception. Not only did Messrs. Farish, Herzig and Weed report in favor of the likelihood, but it is now a commonly accepted fact that, unless all known geological indications are deceptive, Ely Central has the ore in this stretch of territory. A report made as late as September, 1911, by engineer Richard T. Pierce, for the reorganization committee of Ely Central, expresses the opinion that an area 1,300 feet by 1,900 feet at the south-east end of the Eureka workings "will be found to contain mineralized porphyry, with reasonable assurance that commercial ore will be had in it."
Mr. Herzig's first telegram from Ely after examining the Ely Central property was to this effect:
There is no question that the rhyolite was deposited in Ely Central after the enrichment of the porphyry. The Fault that limits the rhyolite in the Nevada Consolidated pit is indicated by several feet thickness of crushed mineralized porphyry-rhyolite ore, which is a positive evidence that the porphyry was enriched before the faulting. The limestone and contact areas owned by the company, in my opinion, have great potential value. The indications are in every way similar to Bisbee. Rich carbonate ore has been encountered on the Clipper and Monarch claims of Ely Central and I look forward to seeing big ore bodies opened up at these places.
Reports of both these engineers, many thousand words in length, made later, confirm these messages.
What probably convinced me more than anything else of the inaccuracy of the statement regarding the Ely Central property by the Engineering & Mining Journal was the attitude of Charles S. Herzig. He is my brother.
Up to within thirty days of the appearance of the attack in the Engineering & Mining Journal I had not set eyes on him in fifteen years. A graduate of the Columbia School of Mines, he had in the interim examined mining properties in South Africa, Egypt, Australia, the East Indies, Siberia, every European country, Canada, Mexico, Central America, South America and the United States in the interests of some of the world's greatest financiers. These expert examinations had covered deposits of gold, silver, copper, lead, zinc, coal and other minerals. In the engineering profession he is known as an expert who has his first failure yet to record. His standing is unquestioned as an engineer and a mine-valuer.
I had heard some criticism of the Farish report, made by engineers of the modern school, in which it was pointed out that Colonel Farish had failed to give scientific reasons for all of his deductions. I asked Captain W. Murdoch Wiley, then a member of the C. L. Constant Company, assayers, metallurgists and mining engineers, whether he could induce my brother to make an examination. I did not approach Charles myself, because we had been estranged. So it was that when he returned from Europe after an absence of many years, he had not even looked me up. Captain Wiley arranged for a meeting at the Engineers' Club. I went there, and was formally introduced by Captain Wiley to my brother across a table.
"What will you take to make a report on Ely Central?" I asked in the same matter-of-fact way I would have addressed a stranger.
"What's the purpose of the report?"
"The Scheftels company wants confidential, expert information such as you are qualified to give as to the value and prospects of the property," I answered.
"I'll take $5,000," he said, "but only on one condition. I am going to the Ely and Ray districts to report for English capitalists, and I can take your property in at the same time. My report is not to be published and I reserve the right to make a verbal instead of a written one. If you really want to know what I think of the property, I am quite willing to give it a careful examination and let you know. Because of the stock-market campaign you are making, I would not accept your offer if, did I report favorably, your idea would be to make use of the report in the market."
The bargain was struck. A few days later Mr. Herzig received $2,500 from the Scheftels company, on account, and a check for traveling expenses. He left for Ely.
On the Saturday morning when the New York Sun article appeared containing the excerpts from the Engineering & Mining Journal's onslaught, I wired my brother substantially as follows:
Savage attack in Engineering & Mining Journal on Ely Central. If your report on property is favorable, I beg you to let us have it by wire and allow the use of it to counteract.
An hour later I followed it up with another message telling him not to wire any report. I set forth that because he was my brother, it might prove of little avail, now that the publication had been made, and that it might only tend to do him personal damage in the profession because of the unqualified manner in which the Engineering & Mining Journal had taken a stand against the property. In reply he wired Captain W. Murdoch Wiley the short but decisive report already quoted herein, regarding the geological reasons why Ely Central should have the ore, which afterward was fully verified by Dr. Walter Harvey Weed in the message also reproduced in the foregoing. In a letter from Ely to Captain Wiley confirming the message, the original of which is in my possession, Mr. Herzig said:
I have formed a very favorable opinion of the property. I feel that it has the making of a big mine, and under the circumstances I am willing to stand a little racket for a time.
The same day he wired Captain Wiley to buy for his account 2,500 shares of Ely Central at the market price, which order was executed through the Scheftels company.
Editor Ingalls of the Engineering & Mining Journal and my brother had been friends for years. My brother had been employed early in his career by the Lewisohns, Guggenheims and the Anaconda Copper Company, and later in Europe, Australia and India by mine operators of even higher class. Up to the time when the Engineering & Mining Journal's attack appeared he had not committed himself on Ely Central. When he did commit himself it was with the foreknowledge that in doing the unselfish and courageous thing his name would be besmirched if under development Ely Central turned out to be what the Engineering & Mining Journal had declared probable. In that event his relationship with me would be held up as positive proof of duplicity and it would look bad for him. The fact that under all these circumstances he jumped into the breach satisfied me that the attack of the Engineering & Mining Journal was unjustified.