The Hellhound of Wall Street

by Michael Perino

  The last thing Curry, who probably thought he was already sufficiently God-fearing, wanted was Ferdinand Pecora in the top job. He surprised everyone by announcing the nomination of Thomas C. T. Crain, a frail, elderly judge who had been a Tammany sachem for years. Frank Warder, the man Pecora had prosecuted in the City Trust collapse, apparently had a lot of friends in Tammany Hall. In one fell swoop, Curry and his cronies not only got revenge on Pecora, but they nominated a compliant and doddering figurehead who was not expected to cause any trouble. Pecora must have been bitterly disappointed, but he at least appeared equanimous, explaining that he had, in reality, “lost nothing.” “No man ever lost what he never had,” he said.41

  Crain easily won the election, and Pecora stepped down from the district attorney’s office on December 31, 1929. That same day, Banton gave his valedictory address in the hallway outside his office in the Criminal Courts Building. As the assembled reporters and assistants stood in front of Banton jotting down his comments, they could see behind the exiting district attorney a sign painter erasing the title “Chief Assistant District Attorney” from Pecora’s office door. Crain was already fulfilling his campaign promise to abolish the position in which Pecora had so effectively served the city for so long. Pecora’s public service career was seemingly at an end.42

  When he left the district attorney’s office, Pecora joined a law firm and his name was added to the letterhead. He handled a few criminal defense cases, including a couple involving allegedly fraudulent stock promotions, but the bulk of his practice was run-of-the-mill business litigation. Occasionally he would do some corporate work as well, mostly organizing new businesses or merging existing ones. About a year in, Pecora’s old boss Banton joined the practice and Pecora reported that they “were all very happy together.”43

  Mostly, it seemed, he was just plain bored. Pecora had learned a great deal as a prosecutor, particularly about “the weaknesses and foibles of human nature.” Being on the front lines of criminal activity for that long, he said, “enables one better to evaluate character [and] human nature.” But reflecting back on his three years in private practice, he couldn’t name a single incident or experience that helped him grow either personally or professionally. Pecora merely contrasted the excitement of the district attorney’s office with the tedium of law firm work: “There isn’t much occasion, [in private practice] for a lawyer to take part in any kind of litigation that is in any way out of the ordinary.”44

  Clearly, Pecora was itching for something more.

  Chapter 3

  SITTING ON THE LID

  By the first week of January 1933, Senator Norbeck was growing increasingly frustrated in his quest to hire a new lawyer to run his Wall Street investigation, mostly because no one seemed to want the job. The senator had known, even before the first hearing was held eight months earlier, that getting the right lawyer—one who was smart, aggressive, courageous, and incorruptible—was perhaps his most important task. “You know these things generally turn on the lawyer who is employed,” Norbeck wrote when the investigation began. The shaky start to the inquiry the previous spring was a strong reminder about how right his initial assessment was.1

  Norbeck was hardly alone in the importance he placed on finding the right lawyer, but “right” had a different meaning depending on a senator’s goals for the investigation. Back in March 1932, conservative members of the committee who had lost the fight over the breadth of the authorizing resolution knew there were other ways to squelch the investigation. They could starve the inquiry by making sure that the Senate appropriated only a small amount of money to conduct it or discourage the best lawyers from taking the job with stingy compensation. That was a particularly big hurdle in the early 1930s, because in those austere fiscal times salaries for the committee’s employees were capped at $300 per month. As times got even tighter, that amount was reduced by another 15 percent, making for a princely salary of $255 per month.

  Of course, some lawyers might do it for the prestige or to make a name for themselves. That was where a senator bent on restricting the investigation needed to be particularly cautious, because the committee’s lawyer had almost boundless discretion to shape how it would be conducted. The resolution was now sufficiently broad that a lawyer could look into pretty much any aspect of Wall Street operations. Norbeck, or any senator who was interested in a meaningful investigation of Wall Street, would want a smart lawyer who was willing to go anywhere the evidence led. Finding a lawyer to do the laborious legwork was crucial because without documentary evidence to pin down a recalcitrant witness, it was easy for almost any witness to evade the questions put to him. And, of course, lawyers who already represented or hoped to represent Wall Street firms might shy away from tackling the biggest players for fear of harming their careers.2

  Other senators simply objected to investigations as a matter of general principle. Carter Glass thought little of this kind of political theater, believing it was simply a Roman holiday that took time and attention away from passing his carefully crafted banking legislation. John W. Davis, the 1924 Democratic nominee for president and the founder of the prestigious Wall Street law firm that bore his name, shared Glass’s skepticism. Davis, himself a former congressman, generally thought investigations were a waste of time and good for little but generating publicity for the politicians who ran them. “[T]here will always be on committees,” he wrote around the time of Teapot Dome, the bribery investigation that rocked the Harding administration, “some persons whose daily prayer will be, ‘Lord, let the limelight shine on me, just for the day.’” Davis was even more passionate by 1932 because he represented some of the most powerful bankers in New York, including the most powerful private banking firm of all, J.P. Morgan.3

  In March 1932, when the Senate first authorized the Wall Street investigation, debate focused on precisely these issues and, as the progressives and conservatives kicked around the possibilities, the investigation stalled. The key sticking point was how close a connection the lawyer could have to Wall Street. Some conservative members of the committee were actually pushing for Davis. There was little doubt that he was one of the best lawyers in the country, but with his jaundiced view of congressional investigations, his muscular notions of economic liberty and rights of privacy, and his absolute faith in his clients’ moral rectitude, he was clearly not the man to conduct a vigorous investigation. Other names were floated, but the senators were unable to reach a decision.

  As the committee continued to dither for weeks, Norbeck was repeatedly forced to push back the start date for the hearings. “The bulls and bears,” he announced, “may rest a few days more.” At the end of March 1932, with the market continuing its downward dive, nothing had happened on the much ballyhooed investigation, and the press began to speculate that the senators had realized that they were in way over their heads. “Many Senators,” the New York Times reported, “have expressed privately the opinion that those responsible for instigating the investigation, aimed primarily at short selling, figuratively ‘have a bear by the tail,’ and are unable either to dispatch it or let it go.” Darker rumors swirled as well. The administration’s ardor for the investigation, it was said, had cooled substantially when it learned that prominent Republicans and at least one cabinet member were among the short sellers.4

  The latter rumors don’t seem to have been true. If they were, President Hoover’s reticence was short-lived. As the market continued to swoon, Hoover was growing antsy for the committee to publicly lambaste some short sellers. “I want the shorts investigated,” he demanded on the last day of March, “and the quicker the better!” A week later, while Norbeck was in Chicago, Hoover called Senator Walcott, his confidant on the committee, and told him that George Barr Baker, a journalist and Hoover ally, had wired the president warning of a massive bear raid planned for the next day on the New York Stock Exchange. Hoover demanded the investigation commence immediately.

  That same afternoon, Walcott called an im
promptu committee meeting in the Senate Cloak Room. The Connecticut senator told the committee about the warning and his demand that the exchange’s president, Richard Whitney, turn over a list of all short sellers. In the face of Whitney’s refusal, Walcott convinced the committee to subpoena the exchange president, who was ordered to appear in Washington on Monday morning. The committee then named as its temporary counsel Claude R. Branch, a Republican lawyer who had worked in the Hoover Justice Department and was now a partner at a prominent Boston law firm.

  Norbeck rushed back to Washington, convinced that the sudden urgency was a “well laid scheme” by Hoover and Walcott “to get a Wall Street attorney to do the investigating of Wall Street” while he was conveniently out of town. Walcott insisted to the press that the White House had nothing to do with the surprise start of the investigation, but Norbeck’s hunch seems to have been right. On the same day that Hoover demanded action to investigate short sellers, he met in the Oval Office with one “C. R. Branch.”5

  Richard Whitney arrived at the appointed hour on Monday morning, the model of the Wall Street aristocrat, a man who seemed to stand far removed from the world of short sellers and market operators that the committee wanted to explore. For many, Whitney was the face of Wall Street. The Groton-and-Harvard-educated Boston Brahmin was the son of a bank president and traced his American lineage back to the Puritans who arrived on the Arabella in 1630. Whitney was tall, athletic, and perfectly attired (right down to the Porcellian Club gold pig dangling from his watch chain) and he played the roles of social elitist and country squire to a tee. On his five-hundred-acre estate in Far Hills, New Jersey, the Wall Street bond trader and broker to the House of Morgan raised prizewinning Ayrshire cattle and hunted foxes. Perhaps his most pronounced characteristic—and one that shone forth in all its glory that Monday morning—was his haughty noblesse oblige. According to his biographer, John Brooks, Whitney “had a toplofty way of being able to deal perfectly factually and equitably with people he considered his social inferiors—which meant most people—and at the same time leaving no doubt of just how he considered them.”6

  Branch and the senators were no match for the imperious Whitney, and the hearing quickly descended into farce. Progressives on the committee had been champing at the bit, insisting that they would conduct a vigorous investigation. “We are going into this stock market from top to bottom,” said the Iowa Republican Smith Wildman Brookhart. “We are summoning Mr. Whitney because we think he knows the facts. We aren’t going to stop with the bears. We are going to find out about the bulls, too.” But the committee members had not conducted any investigation and were therefore forced to base their questions on hunch, rumor, and suspicion.

  Whitney was able to deftly deflect their questions with little apparent effort, professing ignorance of wrongdoing at some points, at others gently lecturing the apparently baffled senators on the finer points of market operations. He had no knowledge of any planned bear raid, he told the five hundred reporters jammed into the hearing room, a room so crowded that spectators were sitting on file boxes and leaning against the back of Whitney’s chair. Indeed, the stock exchange president claimed under oath that bear raids didn’t exist, although he assured those assembled that “the New York Stock Exchange was doing its utmost as a body of men to prevent illegal practices.” The soft-spoken Branch was little help. He asked only a few questions about the data that the exchange had assembled and mostly left the questioning to the senators, who, in their frustration with Whitney’s unwillingness to concede anything, were left to posture and fulminate. By Tuesday, a committee member admitted that in two days the senators had learned “nothing at all.”7

  Norbeck quickly began to ease out the ineffectual Branch in favor of Branch’s seemingly more aggressive assistant, William A. Gray, a Philadelphia lawyer who had a reputation for “bullyragging” witnesses. Gray took another crack at Whitney, with much the same results. Over the next several hearing days, Norbeck took out his frustrations on Whitney, complaining that the exchange leader was unwilling to “grant that anything in the market is illegal” and calling him “hopeless.” But Whitney didn’t have to admit to anything. Norbeck, the other senators, and their serial lawyers had absolutely no facts to back up their questions and therefore nothing with which to pin down the evasive Wall Streeter. At one point Norbeck lashed out at Whitney in frustration, “You make rules that are just paper rules.” Whitney calmly asked for Norbeck’s “proof” and the senator, who didn’t have any, responded, “You attend these hearings for a while and we will give you some proof.” The room erupted with laughter when Whitney replied resignedly, “I have.” The South Dakota senator was so taken aback that all he could do was shout, “Yes, but up to now you have been running them!”8

  A few minutes later, Norbeck dismissed the haughty exchange president, although he reminded him that he was still under subpoena. Whitney didn’t want to leave; there were statements he wanted included in the record. “Oh, you will be back,” Norbeck told him.9

  The Wall Street Journal rebuked the senator for his tirades. “Chairman Norbeck’s angry outbreaks while the president of the exchange was on the stand Thursday were nothing more or less than a confession of the committee’s failure to date to prove against the exchange its presumption of guilt.” The hearings, they concluded, were nothing more than a raw “abuse of inquisitorial power.” Political cartoons pictured Whitney as a teacher lecturing a group of ill-informed school-boys. Public interest quickly waned, in part, the New York Times surmised, “because of the somewhat foolish anticlimax that has been reached.”

  Norbeck tried to help his cause by taking to the national airwaves to excoriate the exchange, but it did little to sway public opinion. Those who already thought Wall Street was a den of thieves didn’t need convincing. For everyone else, the speech underscored Norbeck’s ignorance, and they dismissed him as a “vote-grabbing demagogue.” Norbeck’s poor radio delivery didn’t help. The medium amplified his broad accent, which one listener described as sounding like that of a Scandinavian servant girl. Readers of the New York Evening Post were dismissive, accusing Norbeck of destroying public confidence in the market and ridiculing him for his pronunciation of “manipulators,” which apparently came out “maniperlators.” Conservative newspapers called on Norbeck to apologize to the stock exchange for his unfounded claims. Norbeck, however, was feeling neither contrite nor apologetic, and he vowed to “carry this investigation through to the end.”10

  By June, the hearings had produced no significant revelations, with only one exception. It came at the end of April 1932, shortly after the Whitney fiasco, and it was played up for all its dramatic possibilities. On Monday, Norbeck told reporters that a “surprise witness” would provide “sensational testimony” the next day. On Tuesday morning, the New York representative Fiorello La Guardia arrived at the jammed hearing room with two plainclothes policemen lugging a heavy brown trunk. The contents were apparently so explosive that La Guardia had kept the trunk in a police vault for the last three days. La Guardia directly contradicted Whitney’s claims that it was impossible to manipulate stock, and he said he had the evidence to prove it. From the trunk, La Guardia pulled canceled checks and other supporting documents showing that a New York publicist named A. Newton Plummer had paid some of the leading financial journalists in New York nearly $300,000 over a ten-year period. Plummer was working with the pools trying to drive up the prices of sixty-one separate stocks. In exchange for cash and options, Plummer wrote favorable and not entirely accurate stories about the companies and then paid the journalists to publish them in New York’s leading newspapers. It was all quite unseemly, but since everyone, even during the heyday of the stock market bubble, knew that pools did everything they could to rig the market, it is hard to say that anyone was all that surprised.11

  After those scintillating disclosures, however, the hearings droned on with little discernible progress, with Gray and the senators continuing to focus solely on
short selling and other market operations. Norbeck convinced the Senate to appropriate $50,000 to continue the inquiry, but John Marrinan, a former journalist and one of Norbeck’s most trusted staffers, warned him that if he intended to continue he should do so without Gray. Gray, Marrinan told him, was too close to too many people on Wall Street. He accused Gray of trying “to divert the investigation away from the Stock Exchange and the insiders controlling its market operations” and of failing to follow up on Whitney’s “misleading statements.” He complained that Gray was a “personal friend” of Matt Brush, a famous short seller who had appeared before the committee, and that Gray “dined [with Brush] in the public dining room of the Willard Hotel and spent some time in his apartment on the day of the examination.” This was the kind of close connection that Norbeck had tried to avoid.

  Marrinan left the senator with a final warning—unless a change was made, there would be dire consequences for the investigation and for Norbeck. Norbeck and the committee would be condemned for “protecting the Stock Exchange” and for “wasting the funds of the Committee.” Norbeck was convinced, and the committee abruptly dropped Gray without explanation at the end of June when it suspended the investigation for the summer and fall.12

  Richard Whitney hated that the exchange was “being used as a political football,” but he was delighted with the outcome. He told stock exchange members that he did “not wish to appear to be too critical,” but it wasn’t really true. Given the haste with which the investigation commenced, he said, “it was literally impossible for counsel and the accountants of the Committee to examine each case thoroughly in the time available, and, besides, they were handicapped by their lack of familiarity with the routine of the brokerage business. It is not surprising, therefore, that the record contains many inaccurate statements, but it is none the less regrettable.” It was a polite way of saying that the committee and its counsel were ill-prepared, ignorant, and wrong. Reporters were equally unimpressed. Unless Norbeck could uncover “more sensational wrong-doings,” the Commercial & Financial Chronicle predicted, there would be no federal regulation of Wall Street.13