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GFD Adds 100 years of Data on over 9000 Industrial OTC Companies to the U.S. Stocks Database

After five years of painstaking research, Global Financial Data is proud to announce that its database of thousands of over-the-counter (OTC) stocks has been completed and is now available to subscribers to the United States Stocks Database. The US Stocks Database already provides data from all the nation’s stock exchanges, including the New York Stock Exchange from its inception in 1792, the AMEX/Curb since 1918, as well as Boston, Philadelphia, Chicago and other regional exchanges. The addition of the OTC data has completed Global Financial Data’s efforts to provide a complete view of the corporate history of the United States over the past 225 years.
Before the organization of the NASDAQ in 1971, unlisted stocks were traded over-the-counter, using the pink sheets to find brokers who dealt in these unlisted securities. With the advent of computers and the organization of the NASDAQ, this arcane method of buying and selling stocks was made superfluous. Before 1972, however, OTC stocks provided an important resource for securities unavailable on organized exchanges. NASDAQ began keeping track of stock prices electronically on December 14, 1972, and data on OTC stocks after that date is readily available. Before 1972, however, very little data was on unlisted companies was accessible until now. Global Financial Data has digitized over 100 years of information on OTC stocks for its customers to analyze and explore. Although most people may think that it was mainly small stocks of little interest to investors that traded OTC prior to the creation of the NASDAQ, nothing could be further from the truth. Several companies that are current members of the Dow Jones Industrial Average traded OTC before they listed on the NYSE. This includes Chevron, ExxonMobil, Disney, WalMart JPMorgan Chase and Travelers. Without access to Global Financial Data’s complete histories for these companies, you will be missing some of the key elements in these companies’ histories. In addition to this, most financial stocks, banks and insurance, traded OTC prior to the advent of NASDAQ because the companies were too small to list on a major exchange. GFD now makes a hundred years of history that includes data on over 5000 finance companies available to its customers. The database provides information on thousands of banks and insurance companies that are included in the OTC Database from every state of the union. How were bank stocks affected by the Great Depression? Without access to Global Financial Data’s OTC Stocks Database, you will never know. The source of this data is the Commercial and Financial Chronicle and its sister publication, the Bank and Quotation Record. Each month from 1865 until 1972, these periodicals collected data from their sources throughout the United States and published the bid and ask for each OTC company. The result is an incomparable history of business in the United States. The OTC database covers over 100 years of stock histories between 1865 and 1972, including data on over 20,000 companies with over 1 million data entries. Using this resource, we have added data on over 900 insurance companies, over 4000 banks and over 7000 Industrial companies which were not previously part of the U.S. Stocks Database. The inclusion of this data has also allowed us to provide additional data on over 9000 companies that were already in the database, including many members, past and present, of the S&P 500. Xerox listed on the NYSE in 1961, but OTC data for Xerox begins in 1936. As a result of this addition, the number of companies listed in the U.S. Stocks Database has increased to over 50,000 beginning with the Bank of North America in 1782 and ending with the IPOs of 2016. Global Financial Data has carefully collected and entered this data to verify its accuracy. One of the most difficult parts of this project has been to organize the data into separate files for each company. GFD did extensive research to classify each company by equity type, sector and industry, SIC Code, incorporation, and other relevant factors. In addition to this, we provide a description of the company’s business and its corporate history. Even ignoring the extensive stock market data, the result is an incomparable history of corporations in the United States. No other resource provides so much information in a single location about corporations in the United States over the past 200 years than Global Financial Data. Many of our customers are already using these additions to the database to fine tune their algorithms for trading stocks. Are you? To access the United States Stocks Database, to get a list of the OTC stocks that were added to the database, to obtain a complete list of the 75,000 securities in the U.S. Stocks Database, to get a demonstration of the U.S. Stocks database, or if you have any questions about these additions, call today to speak to one of our sales representatives at 877-DATA-999 or 949-542-4200.

The Panic of 1792

The first attempt at a stock corner in the United States came at the birth of the American stock market, occurring even before the New York Stock Exchange had been established. Instead, it occurred in trading at Philadelphia. In 1792, Philadelphia was both the capitol and the financial center of the United States. Consequently, it is not surprising that politics and finance intermixed to create the nation’s first financial panic and the first time the government stepped in to save the markets from themselves.  

Alexander Hamilton and the Bank of the United States

Alexander Hamilton, the first Secretary of the Treasury, laid the foundations of the American financial system. When Hamilton became Secretary of the Treasury on September 11, 1789, the nation’s finances were in a mess. Government 6% bonds were trading at 25 since they were in default. Hamilton planned to follow in the footsteps of John Law and reduce the amount of government debt by allowing it to be converted into equity. The President, Directors and Company, of the Bank of the United States, or the First Bank of the United States, as it is more commonly known, was chartered for a term of twenty years, by the United States Congress on February 25, 1791. The bank was part of Alexander Hamilton’s plan for stabilizing and improving the nation’s credit by establishing a central bank, a mint, and introducing excise taxes. Opposition to the bank was led by Thomas Jefferson and James Madison who thought the bank was unconstitutional and created an unnecessary centralization of power. Hamilton modeled the Bank of the United States on the Bank of England. The bank could be a depository for collected taxes, make short-term loans to the government, and could serve as a holding site for incoming and outgoing money. Nevertheless, Hamilton saw the main goal of the bank as a way of promoting commercial and private interests by making sound loans to the private sector. Most of the bank’s activities were commercial, not public. The Bank of the United States had $10 million in capital, of which $2 million was subscribed by the U.S. government. The $8 million in shares sold to the public (20,000 shares at $400) were sold in July 1791. To understand how large the Bank of the United States was, the revenues of the Federal Government were only $4.4 million in 1791, so the capitalization of the Bank of the United States was twice that of the Federal Government’s revenues.  

The Bank Scrip Bubble

Scrip on the Bank of the United States, which represented rights to buy full shares of stock, initially sold for $25 on July 1, 1791. To complete ownership, payments of $75 were due on December 31, 1791, $100 on July 1, 1791, $100 on December 31, 1792 and $100 on July 1, 1793. One-quarter of the payment had to be in gold, but the remaining three-quarters could be made in U.S. government bonds. By allowing three-fourths of the payment to be made in United States debt securities, the prices of U.S. government bonds immediately rose in price. U.S. government debt had been reorganized in October 1790 into the Sixes and Threes, at which point the Sixes traded at 70, and by July 31, 1791, the Sixes were trading at 100. Since Hamilton had taken over as Secretary of the Treasury, U.S. government bonds had risen in price from 25 back to par at 100. Fully-paid shares in the Bank of the United States were issued in August 1791, and they rose in price from 530 to 740 by the end of August, only to fall back to 524 by early October. Trading also occurred in the scrip of the Bank of the United States, which represented shares that had not been fully paid for (these later became half shares and three-quarter shares as payments became due). The scrip went on an even wilder ride, rising from 25 at the beginning of August to 249 on August 12, 1791, falling to 165, rising again to 207 on August 22, then sliding back to 121 by September 16. The speculation became known as the Bank Scrip Bubble of 1791. Within weeks of the issuance of Bank shares, the nation had gone through its first stock market bubble and crash.  

 
The charter creating the Bank of the United States had set up the Sinking Fund Commission composed of Vice President John Adams, Secretary of State Thomas Jefferson, Attorney General Edmund Randolph, Chief Justice John Jay, and Secretary of the Treasury Alexander Hamilton, charged with resolving financial crises. The Bank Scrip Bubble provided the Commission their first test. Hamilton met with fellow members of the Treasury’s Sinking Fund Commission and persuaded them to authorize purchases of government securities in the market place to keep the prices of stocks and bonds from collapsing. Hamilton worked with William Seton, the cashier of the Bank of New York, to authorize the purchase of $150,000 of public debt in New York to be covered by government revenues. By September 12, Hamilton’s intervention had not only stabilized the market, but had also laid the groundwork for his cooperation with the Bank of New York, which would later be crucial in ending the Panic of 1792.  

Duer and the “Six Percent Club”

The Society for Establishing Useful Manufactures (SUM) was established in 1791 to promote industrial development along the Passaic River in New Jersey, founding the city of Patterson in the process. The goal was to use the Great Falls of the Passaic River as a power source for grist mills. The company was the idea of Assistant Secretary of the Treasury Tench Coxe, and was charted in New Jersey under Hamilton’s direction as a type of public-private partnership. Hamilton asked William Duer, who had sided with Hamilton in The Federalist Papers, writing in support of the United States Constitution under the alias of “Philo-Publius,” to become governor and chief salesmen for the SUM. Duer was instrumental in helping to raise $500,000 in capital for the new company. William Duer was not only a master salesman, but a speculator as well. When Hamilton discovered that Duer had been a driving force in the “scripomania” which had driven the Bank Scrip Bubble, he sent Duer a letter admonishing him for speculating in bank scrip. Like any plunger, his failure in the Bank Scipr Bubble only motivated him to invest on a larger scale and to try and have greater control over the market to insure success. Duer organized a pool along with Alexander Macomb, a wealthy land speculator who had purchased the largest piece of property from the state of New York, and with other owners of shares in the Bank of the United States. They were known as “The Six Percent Club” since shares in the Bank of the United States paid a 6% dividend. Their goal was to try and corner the market before the next distribution of shares in July 1792 and sell the shares to European investors at a profit. Duer and the others bought the shares on time, in essence buying options, rather than buying full shares, so they could maximize their profit through leverage. The Bank of the United States finally opened in December 1791, and made use of its capital by making loans and issuing banknotes. This increased the money supply and helped to feed new speculation in bank shares and U.S. 6% bonds. The wild ride in shares of the Bank of the United States continued. Shares rose in price from 524 to 680 on October 26, 1792, fell back to 528 on December 17, 1791 and rose to 712 on January 4, 1792. Since the U.S. Government Sixes could be used to buy shares, their price rose in sympathy with the increase in the price of the Bank of the United States, rising to 129 on March 5, 1792.

 
Duer got others to invest with him, reportedly including a madam from one of the city’s brothels, who probably kept the money hidden in one of the well-worn beds, and cosigned notes with merchants to raise capital. Duer even withdrew $292,000 from the treasury of the SUM for personal investments and expenses to allow him to buy even more shares, an act that would later lead to his downfall. With the shares overvalued, a number of shorts formed a bear raid to push the stock price lower. The bears were led by Governor George Clinton of New York, an ally of Thomas Jefferson who was opposed to the Bank of the United States and to Alexander Hamilton. Anything Clinton could do to embarrass the bank or cause it to fail would help Jefferson and his cause. Clinton and his clique sold short all the stock they could to Duer.  

The Panic of 1792

By March, the banks started to face a credit crunch. Clinton and his clique began to withdraw large amounts of money from the city’s banks to create a credit shortage. Moreover, it was springtime when farmers began withdrawing money from the banks to pay for the crops they were planting. Oliver Wolcott, the comptroller of the currency, had discovered the deficiency of $292,000 at the SUM, which Duer acknowledged, and demanded repayment. Wolcott called upon the U.S. attorney in New York to sue Duer for the long overdue debt. Duer appealed to Alexander Hamilton to intercede on his behalf, but Hamilton refused, and on March 9, 1792, Duer failed to meet payments on some of his loans and Duer’s paper pyramid collapsed. With Duer and his pool no longer able to buy shares in the Bank of the United States, the price of the stock began a precipitous decline. On March 23, Duer took refuge in the New York city jail. Duer was soon joined in jail by two other members of the “Six Percent Club,” Walter Livingston (who is buried at Trinity Churchyard near Wall Street), who had cosigned over $200,000 of notes signed by Duer, and Alexander Macomb, who defaulted on $500,000 in stock he had purchased from the bears. By mid-April, with the Six Percent Club defaulting and the price of Bank of the United States stock collapsing, the country suffered its first financial panic. This delighted Secretary of State Jefferson, Governor Clinton and his allies, who were opposed to Hamilton’s attempt to centralize the finances of the United States. They would turn the Panic into political capital which they would use to undercut Alexander Hamilton. In response to the crisis, many banks tightened their credit, and in March and April, money began flowing to farmers to provide funding for their crops. From December 29 to March 9, cash reserves for the Bank of the United States decreased by 34%, prompting the bank to not renew nearly 25% of its outstanding 30-day loans. In order to pay off these loans, many borrowers were forced to sell securities they had purchased, which caused the price of stocks to fall sharply. The price of Bank of the United States half shares collapsed from 203 on March 3 to 146 on March 21 while the price of U.S. Sixes fell from 129 to 95. The price of stock in the Society for the Establishment of Useful Manufactures fell from 136.5 on February 8 to 30 on March 13, 1792. Duer had perpetrated the young nation’s first financial Panic and stock market crash, and he paid the price. Duer spent the rest of his life in debtor’s prison where he died on May 7, 1799.

 

Hamilton Steps in a Second Time

For a second time, Hamilton and the Sinking Fund Commission authorized the government to buy up government bonds to support their price and slow the collapse in prices. On March 26, and with only Jefferson dissenting, the commission authorized $100,000 in open-market purchases of securities to offset the credit crunch that was occurring.To get out of the financial crisis, Hamilton had the Bank of New York take several measures. Hamilton encouraged the bank to take loans collateralized by government securities, but to lend at seven percent instead of six.
Hamilton promised that the government would buy from the bank up to $500,000 of securities should the Bank of New York be stuck with excess collateral. Hamilton also supported lending by the Bank of Maryland and Hamilton authorized an additional $150,000 of open-market purchases by the Bank of New York. In essence, Hamilton followed Bagehot’s dictum, given eighty years later in his book Lombard Street to “lend freely, against good collateral, at a penalty rate,” acting as the lender of last resort for other banks. Nevertheless, in the elections in the congressional elections of 1792, Jefferson and his allies benefitted as voters expressed their disgust with Duer and his financial shenanigans. After the collapse was over, the United States began its first bull market, with stock rising in price until 1802. The outline of every financial panic that has happened over the past two hundred years occurred in the Panic of 1792: the wild speculation, the financial frenzy, the collapse that followed, and the intervention of the government to keep the rot from spreading. Despite everything the Federal Reserve, Congress, President, Stock Exchanges and other agencies may do to insure that financial panics are a thing of the past, this pattern will no doubt be repeated many times over in the century to come. Speculators as a specie will never die.

Jacob Little and the First Stock Corner

Jacob Little was the first and one of the greatest speculators on Wall Street. He engineered the first successful stock corner on the New York Stock Exchange in 1835, and was known as “Ursa Major,” or “the Great Bear of Wall Street.” Like any bear, he was loathed by the bulls, but through his stock operations, he became one of the richest men in the United States. Although Little is now mostly forgotten, his speculative expertise laid the foundation for Jay Gould, Daniel Drew, Jesse Livermore and others who followed in his footsteps. Jacob Little was born in 1794. His father was a man of large wealth and distinction who was ruined financially in the War of 1812. Little’s father helped Jacob get a position with Jacob Barker, one of the leading merchants of New York. In 1822, Little started his own business as an exchange specie broker, dealing in banknotes issued by private bank, where he gained a “reputation as an honest, energetic, and successful broker.” Jacob Little opened his own brokerage house in 1834 in the old Exchange Building in Wall Street, and for the next twenty-five years, Jacob Little & Co. dominated Wall Street.  

Railroads Transform the Stock Market

When Little entered the stock market in 1834, it was going through tremendous changes. Until the 1830s, most of the listed stocks were in insurance companies and banks. Most finance companies were small, had a limited number of shares outstanding, and their shares traded infrequently. Speculative activity was limited. In the 1820s and 1830s, shares in railroads began to dominate the stock market since they needed large amounts of capital to fund their operations. The first exchange-listed railroad, the Baltimore and Ohio Railroad, started trading in 1828. Whereas railroads weren’t even represented on the NYSE in 1825, by the 1840s, they represented around ninety percent of the volume of the exchange. With the growth in share size and volume, speculators like Little were able to jump into the market and seize opportunities that didn’t exist until the 1830s. Little had a fanatical obsession with the market. He would often work twelve hours at his office speculating on stocks, only to spend another six hours at night buying and selling banknotes issued by private banks. Little played both sides of the market, shorting stocks he felt were overpriced, trying to corner stocks the shorts were selling, or going long during a bull market. Little could remember every transaction he made, and attended to every detail of his transactions. He even delivered stock he sold personally to make sure there was no mistake in the transaction. Until Jacob Little arrived on the scene, most speculators used inside information to make their fortunes, but Little relied upon predicting the future direction of stocks and manipulating stocks to reap his fortune. Little was an inveterate gambler, but one who wanted the cards stacked in his favor. The spirit of Jacob Little was summed up when he said, “I don’t care what happens, so long as I am in it.” To understand Little’s involvement in the stock market, you have to understand how the stock market of the 1830s differed from the market today. Of course, there was no CNBC or ticker tape, telegraph or telephones, all trading was done on the floor of the exchange. Shares were not traded all day long as they are today. Instead there was a morning session and an afternoon session. During each session, a representative of the exchange would run through each of the listed stocks. Traders could only buy and sell when a stock was announced. When the representative of the Exchange arrived at Erie, for example, he would offer to buy or sell shares at set prices. Traders would respond by offering to buy and sell shares. Then the exchange moved on to the next stock. Continuous trading in stocks did not exist. You had two chances each day to trade a stock. That was it. Each and every transaction was written down, and published in The New York Times, The New York Herald or another newspaper the following day. If you go to a copy of The New York Times from the 1850s, you can see a record of every transaction that took place on the stock exchange. Shares were sold short either through borrowing shares directly from an owner, or more often through selling options on the stock. In the 1830s, options were not derivatives ruled by Black-Scholes mathematical formulae calculated on computers with a fixed premium. Instead, someone would offer a customer the opportunity to buy or sell the stock to them at a fixed price to be delivered at the request of the buyer at any point in the next six months. If you look at the record of transactions published in The New York Times, you can see the notation of the time period the buyer had the option to buy or sell the stock as well as the agreed upon price. Since this was how foreign exchange transactions and moving money between cities were carried out, this methodology seemed natural to people on the floor of the exchange.  

Little and Morris: The First Corner

Little’s first coup occurred in his corner of the Morris Canal and Banking Company in 1835. There had been an attempt to corner the stock of the First Bank of the United States in 1792 by William Duer and Alexander Macomb, but the attempt had failed, leading to the Panic of 1792. The Morris Canal was a 107-mile canal, established in 1822, that stretched across northern New Jersey from Phillipsburg on the Delaware River to Jersey City on the Hudson River. The canal lowered the cost of moving coal from Pennsylvania to New Jersey and iron ore from New Jersey back to Pennsylvania. It took only four days to move goods from one end of the canal to the other, but when railroads were able to move goods the same distance in five hours, the canal could no longer compete. Rather than make a tender offer for outstanding shares, as is done today, raiders had to buy up all existing shares of a company to own it. Little determined to do this for the Morris Canal and in the process, he cornered shares of the company. Little and his group of New Jersey traders ended up owning all of the outstanding shares, and shorts had to buy their stock from Little in order to cover their short positions. The price of Morris Canal stock went from $20 in February 1834 to $185 in January 1835. Little could have asked for more from the cornered shorts, but if he had, the shorts would have had to sell shares in other companies to raise the capital to cover their shorts which could have destabilized the market as a whole. The spike in price caused by the corner is visible in the graph below.  

 
Little followed up this coup with a corner on Harlem Railroad in September 1835. There were reportedly 60,000 shares of Harlem sold short, but only 7,000 shares outstanding. Little drove the price of Harlem stock up from $40 per share in March 1835 to $195 a share in September 1835. Of course, the shorts did not want to fulfill their contracts and lose heavily, so they went to the Board of the Exchange to find out if there was any flaw in the contracts that would allow them to get out of them. The Board ruled that contracts had to be fulfilled, and the price of $160 was settled upon to close out the short positions. This decision set a precedent for future corners on the Exchange, and shorts knew they would have to pay if they were caught in a corner. The effect of the corner can clearly be seen in the graph below.
With these two corners, Jacob Little became known as the “Napoleon of the Board.” Little foresaw Andrew Jackson’s campaign against the Bank of the United States and the Panic of 1837 that followed. Little went short the market and profited from its decline, whence his other nickname, the “Great Bear of Wall Street.” By one count, Little’s fortune reached $30 million, making him one of the richest men in the United States.  

Two Failed Corners

 
Jacob Little also participated in an attempt to corner the stock of the Norwich and Worcester Railroad in 1846. He organized a pool with several Boston operators to secure control of the railroad. Each member put up a $25,000 bond pledging not to sell stock below $90. The pool drove the stock price up, but Little thought the corner would fail. He sold his stock while it was in the 80s to cut his losses, and as promised, delivered a check for $25,000 to his co-conspirators. Little made a similar mistake in 1847 when he was given a chance to invest in the telegraph by Samuel Morse, but declined, a decision he later regretted.  

There was one case where Little himself almost suffered the fate of being cornered. Little regularly shorted shares in the Erie Railroad Co., and in 1855, a syndicate of rival brokers which called themselves “the Happy Family” laid a trap for Little. They allowed Little to sell shares short, buying up the shares themselves. When they thought they had Little cornered, the family issued their one-day notice that they expected delivery of shares. Certain they had tripped up Little, the Happy Family estimated that Little had lost over $1 million on Erie, and now he would pay as they had done. The next day the Happy Family went to the floor of the NYSE and Nelson Robinson called out the list of stocks for trading. When he got to Erie, he offered 62 cash for Erie, then 63, 64, 65. There were no takers and Robinson and the others realized there was no float left. Although they knew they had him caught, Jacob Little sat placidly nearby, still offering to sell shares. In 1855, shares weren’t delivered by certificate and power of attorney, but had to be formally transferred at the office of the company. Knowing a showdown was at hand, Robinson and almost every operator on the Street went to the Erie office the next day to watch Jacob Little squeal when he failed to deliver the shares. Little showed up a few minutes before closing and Robinson said to him, “Well, we’ve got Erie locked up tight enough, every share of it. Now, stand to the rack like a man and acknowledge that the jig is up.” What Robinson and his clique didn’t know was that Little had purchased convertible bonds on Erie in London, and that morning had converted the bonds into shares of common stock. Little not only delivered all the shares that were demanded of him, but had shares left over which he offered for sale. Little cleared over $100,000 from this operation. From there, the price of the stock quickly fell into the teens as is seen in the graph below.

 

The Mystery of Jacob Little

Over the course of the twenty-five years he operated on Wall Street, Jacob Little made several fortunes and went bankrupt three times. He wasn’t always bearing stocks, but also invested in state bonds and railroad bonds when he was unable to find good shorts. In the 1850s, Jacob Little & Co. was the largest brokerage house on Wall Street. That didn’t occur just because Jacob Little was a bear. Jacob Little may have speculated in railroad stocks, but he was also known as the “Railroad King” because of his large ownership of rail shares.It is hard to tell the truth about Jacob Little because a lot of the information about him is taken from reminiscences that are erroneous when you check the facts. Having the actual stock market data proves that some of the stories about Jacob Little are wrong. The examples below illustrate how the stories differ from reality.
In relation to the Erie story, one source said this occurred on November 12, 1855, but by then the stock had already fallen from the 60 range where the attempted corner occurred. Another source said this happened in 1838, but this was before the Erie railroad had even issued any shares. The data do confirm the stock corners in Morris Canal and Harlem Railroad, but leaves the stories about Erie in terms of amount and timing in question. According to one source, Jacob Little went bankrupt on December 5, 1856 after a reversal in Erie stock in which he was short 100,000 shares, and his position went from a profit of $2 million to a loss of $10 million. The problem is that a $12 million reversal on 100,000 shares could only occur if the stock had moved 120 points, but in 1856 the range on Erie stock was only 15 points. I found another article in The Economist from 1856 which said Jacob Little was short about $10 million in Erie, New York Central and Reading, and his total losses were estimated at $1 million. The contemporary account in The Economist makes more sense. The New York Times of December 6, 1856 reported that the failure of Jacob Little & Co. had been announced at the opening of the exchange on December 5. The article said Little had reportedly been a seller of “two-thirds the outstanding contracts registered at the Board for the past sixty days or ninety days.” In other words, Little had taken a bear stance against the entire New York Stock Exchange. The article mentioned not only Erie, but Reading and New York Central among the stocks he had been shorting. On December 5, 1856, Erie closed at 62. The stock remained above 60 until February when it began its descent to 8 in October 1856. Jacob Little was certainly correct to be bearish, but his timing was off and he gambled too much. Had he waited a few more months or gambled less, he could have made another fortune off the Panic of 1857. Although the suspension left Little free of any liability, he eventually distributed one million dollars to his creditors, paying every creditor in full with interest. When the Panic of 1857 hit on October 13, 1857, twenty brokerage firms failed or were suspended when the market crashed and banks suspended specie payments. Among the suspended firms was Jacob Little & Co. Although Jacob Little is central to the painting entitled “Wall Street, half past Two O’clock, October 13, 1857” which represented the scene when banks suspended specie payments, Jacob Little & Co. was allowed to resume its seat on the board three days later. As one newspaper put it, “It is said that the Stock Board cannot get along well without Jacob.” In the May 13, 1859 issue of The New York Times, the newspaper reported that Jacob Little was suspended from trading on the NYSE because once again he was unable to meet his engagements, though the amounts were smaller than the suspension of 1856. In this case, Little was bullish, hypothecating bonds and shares of the Delaware and Hudson Railroad, Illinois Central Railroad and Panama Railroad, as well as the Sixes of Missouri, Tennessee and Virginia. When these stocks and bonds declined in value, Little was unable to meet the margin calls. Again, Little promised to make good on the basis of the average market price of the day once he determined his overall financial condition. Little apparently paid his contracts in full, for as one source put it, “Jacob Little’s suspended paper was better than the checks of most merchants.”  

Jacob Little: Penniless Pauper or a Trader to the End?

Some sources say Jacob Little never recovered from the Panic of 1857 and died penniless, but did he? According to The Merchant’s Magazine, Little lost most of his fortune as a result of the Civil War rather than the Panic of 1857. Though his fortune was reduced, Little continued to trade in the 1860s. I personally own a stock transfer certificate, signed by Jacob Little on August 26, 1864 assigning 25 shares to H. J. Morgan and Co. If Jacob Little had been so penniless and forgotten, why would The Merchant’s Magazine devote the lead article in their June 1865 issue to the passing of Jacob Little, who died on May 28, 1865? According to the article in The Merchant’s Magazine, “The news of his death startled the great city. He had long been one of its most remarkable men. Merchants congregated to do him honor. Resolutions of enduring respect were adopted, and the Stock Board adjourned for his funeral.” The New York Stock Exchange didn’t adjourn to honor paupers.
Jacob Little was a generous man. He knew what it was like to face a stock market reversal and lose everything. When other traders lost a fortune and went to him for help, he never turned them down, but freely loaned them money. He never called in the loans, and by the time he was suspended from the exchange, Jacob little was owed hundreds of thousands by the people he had helped.

 
Although Jacob Little was the first stock market tycoon, the first to corner a stock, the first to make millions and lose millions over the course of a lifetime, he is barely known today. What little we do know of him are stories drawn from reminiscences of his fellow traders. Even if you assume that the stories about the Morris Canal, Harlem Railroad, Erie Railroad and others are true, it still makes you wonder what he did the rest of the time he spent 25 years on Wall Street. Little didn’t create the largest brokerage firm on Wall Street in the 1850s by shorting a few stocks. He had to be a consistent market trader who went bullish and bearish, who probably traded bonds more than he did stocks, and dealt with everyone on Wall Street successfully, despite his reputation. Perhaps it is the untold stories of Wall Street that are more interesting than the ones that are told.

Eddie Gilbert: The Boy Wonder of Wall Street

Eddie Gilbert died on December 23, 2015, four days shy of his ninety-third birthday, though few people outside of Albuquerque, noticed his passing. This is surprising. Gilbert was once known as the “boy wonder of Wall Street” for his successful stock market trading and his takeover of E.L. Bruce in which he created the last corner on a U.S. Exchange. Gilbert also went to prison twice, was friends with Jack Kerouac, John Dos Passos and other luminaries, made and lost fortunes, and finally succeeded with his real estate business in New Mexico, becoming a multi-millionaire. Despite having one of the most colorful histories of anyone in the financial world, Eddie Gilbert doesn’t even have an entry in Wikipedia, though a cricketer, wrestler and hockey player of the same name do.
Eddie Gilbert was one of those driven individuals who was a born salesman and deal maker with plenty of chutzpah. He always had to make a deal, and no matter what the circumstances were, Gilbert could always find a way to make money. He would leverage his transactions, get others involved, and oversaw and coordinated his market transactions like a general at war. Gilbert was determined to win, and usually did, but sometimes the deals blew up in his face.  

The Shorts Get Cornered, but Who Owns Bruce?

Gilbert began his business career in the 1950s working for Empire Millwork, which had been founded by his grandfather, and which was then headed by his father. By the 1950s, Gilbert had already spent y
ears trading stocks and commodities, and had produced two plays on Broadway, including a production of Peter Pan with Jean Arthur and Boris Karloff.Between 1955 and 1957, largely due to Eddie Gilbert’s determination, sales at Empire increased from $5 million to $30 million. Eddie demanded that his pay be increased from $15,000 to $50,000, the same as the officers of the company. When they refused to raise his salary, he quit, but he was soon hired back at $50,000 when they realized how much the company needed him. Gilbert discovered that one of their competitors, E. L. Bruce, was poorly run, and he felt he could run it much more efficiently. Bruce’s sales had been stagnant for the past ten years while Empire’s sales were increasing. Gilbert began buying up shares of Bruce in February 1958 at 16.875 to acquire majority ownership of the company. As Gilbert bought more and more shares, Bruce’s stock price rose, and short sellers entered into the market believing that an underperforming company like Bruce wasn’t worth the price it was trading at. In the process, Gilbert was acquiring all the float in Bruce’s stock. As the price of Bruce stock rose further, the shorts were forced to cover their positions. On June 12, 1958, the American Stock Exchange suspended trading in E. L. Bruce Stock when the stock soared to $77 a share. Shares were in short supply because the management of E. L. Bruce owned 50% of the outstanding shares and Gilbert had taken control over the remaining 50% of Bruce stock. The shares that were sold short represented the balance between Bruce and Gilbert. Typically, in a situation like this, the exchange would step in, negotiate a fair price for the shorts to cover their position, and settle outstanding short contracts for cash, but Gilbert didn’t want to do this. Gilbert wanted the shares the shorts had borrowed because getting those few extra shares meant the difference between who owned E. L. Bruce Corp. Although the American Stock Exchange required that all shorts cover their positions, the stock no longer traded on the ASE, and the shorts had to find shares over-the-counter. This led to a mad scramble among the shorts, and the stock reportedly traded as high as $190 as shorts desperately tried to cover their positions. Short interest in the stock gradually declined from 16,134 shares on May 15 to 6,440 shares by August 15 and to 3,500 shares by September 4.

E. L. Bruce (Old) Stock Price, 1955-1959

 
The remaining shorts simply could not find the shares to cover their position, so they filed suit to avoid having to cover their positions claiming there was no “fair market” in the stock and refused to have their shares bought in until a fair market was established; however, in Aronson v. McCormick, the court denied their preliminary injunction and the shorts were required to cover their shares.The real question was, who controlled E. L. Bruce? Gilbert had invested over $5 million in his attempt to take over E. L. Bruce and the outstanding short shares could determine whether Gilbert had control of the company. It was important to have this issue resolved by September 18, 1958 when shareholders of record would be contacted for the corporate meeting at which Gilbert wanted to take over the company. Gilbert’s group demanded delivery of the shorts’ shares in the hope that it would give them 50.1% ownership in the company. On September 22, the Gilbert and Bruce factions met at the Waldorf-Astoria hotel in New York. Gilbert arrived in a limousine followed by an armored truck. Inside the armored truck were the actual certificates for all the shares Gilbert owned. He had the shares taken up to the suite in the Waldorf-Astoria and had them dumped on the floor. Gilbert told the Bruce board members that he had over 50% of the outstanding shares and if they didn’t believe him, they could count them. Gilbert said he would allow the Bruce management to still be on the board, but he would have control of the company. Gilbert said was going out to lunch and when he came back, he wanted to know if they would accept his offer. When Gilbert returned from lunch, the piles of stock lay untouched on the floor, and the Bruce management acceded to Gilbert’s demands. Gilbert later confessed that they were a bit short of the full 50%, but he was happy his bluff had worked. With this coup, Gilbert became known as “the boy wonder of Wall Street.” Empire Millwork Corp. changed its name to Empire National Corp. in 1960 and to E. L. Bruce in 1961. By 1962, Bruce had $60 million in sales and Gilbert began eyeing Celotex, with sales of $80 million, as his next takeover target. In 1962, Gilbert began buying up shares of Celotex, both on his own account and through E. L. Bruce. The market was in the midst of a bull market, and by March 1, Celotex had risen from around 26 to 41 5/8.

Empire Millwork Corp.-E. L. Bruce Corp. (New) Stock Price, 1955-1971

 

Blue Monday for Bruce and Celotex

Gilbert had also gotten André Meyer from Lazard Frères involved in the Celotex takeover. In 1960, Gilbert had sold Lazard Frères $2 million in convertible debentures which could either be paid off or converted into shares of E. L. Bruce. Meyer approved of the takeover, and he and Gilbert agreed that Meyer would buy up shares of Celotex, then sell the shares to Gilbert at a profit when the takeover was consummated. Meyer redeemed half of the convertible debentures in early 1962, but since Bruce stock had doubled in price since 1960, redeeming half the convertible debentures meant that this cost E. L. Bruce $2 million which was provided through a loan from Union Planters Bank.Meyer bought 87,000 shares of Celotex, but demanded that Gilbert redeem the rest of the debentures in order that Meyer could buy an additional 163,000 shares of Celotex. Gilbert asked that the funds be held in escrow to be paid when the Celotex deal was completed, but instead, Meyer withdrew the funds from the escrow account, nearly wiping out Gilbert’s cash reserves. Gilbert had bought shares on margin, and when the stock market crashed on Blue Monday, May 28, 1962, Gilbert received margin calls on his Celotex shares. Gilbert now was cash poor, and the $500,000 in cash he had left was insufficient to meet the margin calls. If Gilbert were unable to cover the margin calls, not only would his holdings in Celotex be sold making the merger impossible, but the prices of both Celotex and E. L. Bruce would crash. E. L. Bruce Corp. would also suffer because the company owned 77,300 shares of Celotex. Gilbert directed that $1.953 million of corporate funds be used to cover his margin calls to prevent the collapse in the price of Celotex and Bruce shares. Unfortunately, he did this without first getting the approval of the board. Gilbert knew that the Ruberoid Co. was also interested in acquiring Celotex, so he contacted a friend at Ruberoid to see if they would buy out his position in Celotex. This would provide sufficient funds for Gilbert to cover the $1.953 million. Gilbert called a meeting of the E. L. Bruce board met on June 12 to discuss how he and the company would handle the $1.953 million Gilbert had taken. Since Meyer had taken out the $2 million from the escrow account, Gilbert had insufficient funds to cover the $1.953 million, but he pledged all of his resources as collateral to guarantee he would return the sum. As Gilbert had become successful, he had built up a sizeable stamp collection, purchased antiques and paintings for his home, had acquired a villa on the Riviera where he entertained, and regularly went to Monte Carlo where he would win or lose hundreds of thousands. In fact, John Brooks referred to Gilbert as “the Last Gatsby.” Unfortunately, Ruberoid called back and said they would not be interested in acquiring the block of Celotex shares, Gilbert knew he was sunk. He had ample resources, just very little cash. Not wanting to face the consequences of his actions, when Gilbert left for lunch, he booked a flight to Rio, and after resigning his position at E. L. Bruce, fled the country.  

The Fugitive Playboy

When Gilbert arrived in Brazil, he left behind a spacious apartment on Fifth Avenue in Manhattan, a villa on the French Riviera, a $3.5 million tax lien and $14 million in debts. When news of his flight to Brazil broke, the press went wild, and Gilbert became known as the “fugitive Playboy.” The story followed him to Brazil. Gilbert was featured in a nine-page spread in Life Magazine and was the subject of a half-hour “Eyewitness Reports” feature on CBS entitled “Refuge in Rio.” Gilbert also became the basis of a character in Louis Auchincloss’s novel A World of Profit. This was not how Gilbert had wanted to become famous.

 
Even though Gilbert had left the United States with almost no money, Gilbert traded stocks on the Rio stock exchange and speculated in United States dollars. By the time Gilbert returned to the United States five months later, he had made $100,000. One huge problem Gilbert faced was that the IRS demanded that Gilbert pay taxes on the $1.953 million he had taken from the Bruce treasury. Instead of treating the money as a loan Gilbert would repay, the IRS treated it as income to be taxed. The IRS put a lien on Gilbert’s assets, putting them first in line. Until the IRS matter was resolved, Gilbert was unable to pay any of his creditors, putting him in an even worse position. It also didn’t help that his wife Rhoda had purchased $732,000 of jewelry from Cartier’s shortly before the stock market collapsed. Given all the publicity relating to his case, Gilbert feared that the trial might not go his way. Two years after returning to the United States, Gilbert pled guilty to three counts of grand larceny and securities violations in the hope that he would get a suspended sentence. Instead, Gilbert was sentenced to two years in prison by the Federal government and two years by the state of New York. Gilbert served two years in prison, where he reportedly cornered the cigarette market, and was released in 1969. In 1977, the U.S. Court of Appeals ruled that Gilbert was not guilty of any of the crimes he had pled guilty to, but that he had “tripped over a legal technicality while risking his own fortune in a sincere effort to save his company’s interests,” since he had planned to repay the money taken from the treasury. Though this saved Gilbert’s name, it didn’t give him back the two years he had spent in prison.  

The Conrac Conspiracy

Unfortunately, Gilbert got into more trouble a few years later. In 1975, he was investing in a stock called Conrac, a communications equipment manufacturer, which he had recommended to several friends. One of his fellow traders, James Couri, bought shares on margin, and when Couri received margin calls, 20,000 shares were sold by his brokers, driving the price of the stock down from $28 to $23.375. Consequently, on December 18, 1975, the NYSE suspended trading.This led to a civil suit by the SEC against Gilbert, Couri and 17 others alleging they had obtained over 100,000 shares of Conrac to profit from manipulating the stock. Gilbert had been involved in about 75% of the transactions. No action was taken by the SEC in 1976, but in 1980, Gilbert was indicted on 34 counts of stock manipulation along with traders James Couri and John Revson and stock broker Harvey Cserhat.

Conrac Stock Price, 1974-1976  
In order to convict Gilbert, the prosecution had to prove that Gilbert and the others had conspired to manipulate the price of the stock and had coordinated their actions through wash sales, in which someone sells a stock to himself in another account at a higher price, or through match sales in which one person sells the stock to another co-conspirator at a higher price.The four admitted they were all trying to profit off the stock, but contended they did not coordinate their activities to manipulate the stock. James Couri made an agreement with the prosecutor to plead guilty and testify against Gilbert in exchange for a suspended sentence. Revson and Cserhat had their trial severed from Gilbert. The prosecution put together charts to show the jury how the trades were interrelated and coordinated, but the key to the trial was the credibility of Couri. After the trial was over with, it turned out that Couri was facing criminal indictments for fraud and related charges in another case, but the Jury and Gilbert didn’t know this. Gilbert was found guilty on 34 counts of stock manipulation. When Couri testified at the trial of Revlon and Cserhat, the jury did not find Couri credible, and the two defendants were found not guilty. Of the four, Gilbert was the only one found guilty, and he went to prison for two years. This case makes you realize exactly why it is so hard to prove criminal intent in securities cases.  

Gilbert Becomes a Real Estate Mogul

After being released from prison, Gilbert was forbidden from the securities market. He moved to New Mexico in 1989 and started the BGK Group in 1991 along with Ed Berman and Fred Kolber to profit from investing in real estate. By the early 1990s, commercial real estate prices had collapsed from their levels in the 1980s, in part because of the fallout from the Savings and Loan crisis.Gilbert, of course, was the deal maker for BGK. He scoured the market for underpriced office buildings and made an offer for them. If the offer was accepted, Gilbert put together a limited partnership to raise money from investors. Gilbert negotiated the pay back to the investors to maximize the return up front. Gilbert made sure that investors always got a 20% return in their first year, whether the funds came from profits or from the investors’ own capital. When BGK sold the property, the company would return all the capital to investors, and keep half of the profits for themselves. For example, BGK bought an Albuquerque, New Mexico shopping center (Plaza at Paseo del Norte) for $5.9 million in 1993. BGK raised $1.8 million and borrowed $4.3 million. The property was sold in 1998 for $17.8 million, netting a $11.4 million profit split between BGK and investors. This and other properties were bought on leverage with BGK usually borrowing around 75% of the purchase price. This time, the leverage did not blow up in Gilbert’s face. In 2010, Gilbert cashed out when BGK sold a majority stake to Rosemont Capital. Gilbert died a multi-millionaire. It is a tribute to Gilbert that he never gave up, and though he was forbidden from dealing in securities after the Conrac conviction, he was able to succeed in real estate even more than he had in the stock market. Was Gilbert a criminal, or the victim of zealous prosecutors? Was he a great salesman and a financial genius who could make money wherever he went, or did he manipulate markets in his favor? Gilbert kept his word and repaid all his debts. Most people would have given up after what Gilbert went through, but he persevered and finally ended up on top. Eddie Gilbert wasn’t just the “boy wonder of Wall Street,” but he was a wonder all around.
 

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