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.