Shortfall

by Alice Echols

  In the wake of Davis’s death the press put out contradictory reports about his intentions and state of mind, but all were in agreement that the disgraced banker had chosen to kill himself because of his overpowering shame about having looted his business. The police offered corroborating evidence from his Gramercy Park apartment, where they found a gun and various powders, two of which were said to contain poison.10 And yet it was equally likely that, for Walter, suicide meant avoiding jail and ensuring Lula and Dorothy an insurance payout that would make them financially secure. It also permitted dividend payments hefty enough to blunt the anger of his depositors, and hence further protect those close to him.11

  Walter’s funeral was a private affair, held at the family’s home. Pallbearers included men with whom Walter had done business over the years: neighbor and lawyer Clyde Starrett, who had recently been elected district attorney; Mayor George Birdsall, the co-owner of the town’s major car dealership; the Northwestern Mutual Life district manager; the owner of a title and abstract company; the president of a local paint supply company; and the family physician, Dr. Peter Hanford. Conspicuous by their absence as pallbearers were Walter’s three brothers. He was buried at Evergreen Cemetery and, although the press did not report it, without a gravestone. The next day the Denver Post observed that at the same time that Walter’s body was being lowered into the grave, authorities in New York were opening a safety deposit box that he had rented there. Instead of the hundreds of thousands of dollars and bonds they had hoped to find inside it, they found his out-of-date passport and two silver mementos of little value. Even in death, the Post writer remarked, Walter Davis seemed to “get a laugh on the authorities.”12

  The search for the money continued to unfold on a national stage. Intensifying the urgency of the search was the news that after the authorities sold his two Packard automobiles to satisfy his debts, Walter’s estate amounted to $485, the value of his Cadillac.13 Every time the authorities thought they had found a promising safety deposit box they came up empty-handed. As for all the keys the authorities confiscated from his New York hotel room and his Springs office, they matched no bank boxes. With headlines in the local dailies such as “Search for Davis’s Box Nears Crisis,” Harper suddenly decided that Fertig, an insurance broker with no law enforcement experience, should really be in charge of searching for the hidden treasure. The conflict was resolved when the Justice Department, agreeing with local authorities that federal laws had been broken, came onboard. The very next day it was announced that J. Edgar Hoover’s Bureau of Investigation (later renamed the Federal Bureau of Investigation or FBI) would be taking over the investigation. Careful to emphasize Harper’s important spadework, the article in the Gazette declared the “worldwide secret organization of the federal government has started the machinery in motion which eventually is certain to uncover for the defrauded depositors the stolen fortune which Davis is known to have concealed.” It also warned readers that there would likely be little news in the weeks ahead because the bureau did not publicize its efforts.14

  In the immediate aftermath of Walter’s suicide the authorities kept very little from the press. However, there was one item they did keep from reporters. What went unreported is that local authorities and Colorado’s attorney general believed they had enough evidence to move forward with charges of mail fraud against Lula. Much of the correspondence between the authorities that is included in my grandfather’s FBI file concerns Lula’s culpability. The Brentano’s package containing the December “code letter” and the discovery that Walter had communicated with Lula several times using this method rekindled their suspicions. The telephone company records indicating that the couple had also spoken on the phone a number of times from August onward did not help her cause.15

  In their view the most persuasive evidence against Lula was her November 1931 withdrawal of $10,000 from an account she and Walter shared at New York’s Bowery Savings Bank. She put $500 of the money in their safety deposit box and took the remainder of it—in the form of a check—with her to Colorado Springs. Harper and Fertig were convinced that for anywhere from two to six years Walter had used Lula as a courier for transferring money and securities belonging to the association to New York City. By late November 1931, with depositors pressing him hard for money, they reasoned, he sent Lula to New York to retrieve some of that money. Perhaps Lula was his courier, but he had been with her in New York just weeks earlier. Why hadn’t he withdrawn it himself?

  In the wake of his suicide and with Lula in the authorities’ crosshairs, Eva Terry, the woman whom the authorities and the public once regarded as Walter’s key accomplice, began to recede from the narrative. At first the press hounded her. Once reporters learned of Walter’s suicide they descended upon her uncle’s home. Her aunt Hattie met them on the porch, and after enduring a fusillade of questions she said, “The lies they have told about her. It would be different if the girl had been implicated. We can say nothing.” Eva’s faint voice was then heard from inside the house. “Shut the doors,” she told her aunt. By the afternoon Eva modulated her response, calling the offices of the local paper to say that she would cooperate in any way to help the authorities solve the mystery of the missing money. But the police finally began to believe what Eva had been saying all along, and moved on. The embezzlement charges that the DA had filed against her were quietly dropped. It would take another four years, but the authorities ended up even returning to Eva the ring and $3,000 that they had once claimed were property of the depositors.16

  I am not sure that either my mother or my grandmother understood that the authorities considered Lula their prime suspect, but surely they could feel the press turning against her. Walter had not helped matters for his family by boasting to the New York police that his relatives were keeping “three or four million dollars” for him so that he would be “well taken care of” upon his return to Colorado.17 Lula’s unwillingness to talk to the press worked against her, too. Asked to comment on her husband’s arrest, she demurred. “I’ve got nothing to say. What is there for me to say?” she asked. The following day the paper published its usual headshot of Lula with the censorious caption, in bold print, “Refuses to Talk.”18

  Lula would learn that plenty of people expected that at last she would have something to say. But she stayed silent, and worse, I suppose, she conducted herself with the sort of brisk efficiency not normally associated with a grieving widow. Less than two weeks after Walter’s funeral, readers of the local dailies learned that she had retained a lawyer to help sort out her finances. This move worried depositors who feared it indicated that she might challenge her husband’s redistribution of insurance monies, which would slow down and might even jeopardize the disbursement of that promised first dividend payment.19

  Lula did retain a lawyer, but not one in Colorado Springs, where, my mother maintained, no one was willing to represent the family. They turned to the brilliant and controversial Denver lawyer Horace N. Hawkins. Known as “Colorado’s Clarence Darrow,” Hawkins had been active in the fight against Colorado’s Ku Klux Klan, and he had represented the United Mine Workers during the deadly strike in Ludlow, the site of the 1914 massacre of striking workers and their families. Hawkins had not made his name as a criminal lawyer, but perhaps the Depression, which was hard on even very talented lawyers such as Hawkins, led him to take their case. A year later he represented the trio of accused embezzlers in the Railway Savings Building and Loan case.20

  On January 5, 1933, just three weeks after Walter’s death, Hawkins met for the first time with the authorities. He must have realized that they were contemplating filing charges against Lula. Afterward he wrote to my mother, whom he called his “junior counsel,” and asked her to provide him with a complete list of the family’s travel from as far back as she could recall. Fertig and Harper were none too happy to be going up against Hawkins. In a letter to J. Edgar Hoover, Harper described Hawkins as a “high class trial lawyer with a high standing at this
bar.” He had “the reputation of being very smooth,” he added.

  As the search for the missing money floundered, the police started playing hardball with Lula and Dorothy. That May they questioned the family’s former laundress, Lillian Ferguson. Had she been at Walter’s funeral? Had she noticed the delivery of a package from Chicago? Had she or the woman who was then working as the family housekeeper, Ruie Stewart, lost money in the City’s crash? And did Dewey Sample, my mother’s fiancé, sleep over when he was in town? Apparently they were considering charging Lula with running a lewd and disorderly house. Then, that spring, El Paso County convened a grand jury to investigate, among other issues, the B&L scandal. Lula was not brought before the grand jury, but Jim Fleming, the City’s handyman, was hauled before it and threatened with formal charges. Lula asked Hawkins to counsel Fleming’s lawyer, which he did, and in the end the indictment was quashed.21

  Dorothy’s fiancé, Dewey Sample, stood by her and Lula. However, my mother eventually called off their engagement. After working as a lecturer in the geology department at the University of Colorado in Boulder, Dewey found a permanent position in the office of the U.S. Geological Survey. He never married, and when Dorothy wrote him in 1945 to tell him of her imminent wedding, he wrote back to say she was the only woman he had ever loved. (Denver Post)

  Receiver Charles Fertig also made it abundantly clear that he was not going to make Lula’s life easy moving forward. He contacted those insurance companies holding policies—totaling $100,000—in which Walter had designated Lula the beneficiary, and told them they must hold off issuing her a payment. Immediately Fertig and Hawkins were at loggerheads, and so they would remain until that spring, when Fertig collapsed from nervous exhaustion, brought on, the dailies claimed, by the stress of untangling Walter’s financial mess and grappling with angry depositors. Five weeks later he was dead. T.C. Turner, the receiver’s lawyer, was appointed the City’s co-receiver.22

  Meanwhile, the depositors were convinced that Lula was holding up the insurance settlement that would allow the dividend disbursement to go forward. One depositor, an accountant with connections to Common Sense Weekly, phoned Lula that May to say that if an insurance agreement was not soon forthcoming he would go after her brother-in-law Roy with a gun. He promised to harm Lula and Dorothy as well, although he didn’t spell out precisely how. It turned out that employees of the City (who were now working for the receivership) had been spreading the word that Lula was the one to blame for the delay in the payment of dividends to depositors.23

  At the end of June the new receiver went on the offensive in an effort, it would seem, to force Lula to relinquish all claims for any bit of the insurance money. Turner filed three lawsuits against Walter’s estate. One lawsuit claimed that between January 1926 and June 1932 Walter had drawn a salary of $27,582 from the El Paso Industrial Bank without it being approved by the company’s board of directors. The second suit alleged he had done the same with Fleming and Company in the amount of $80,000 during the period between July 1927 and June 1, 1932. The final suit claimed that on June 1, 1932, Walter had helped himself to $30,000 belonging to the City and had deposited it in a safety deposit box in Denver for his own use. That same day he took another $30,000 from the City and with it purchased all of the capital stock of the El Paso Industrial Bank—another one of his financial entities—taking the stock in his own name. Turner was suing the estate for a total of $167,582.24 In the end, he chose against moving forward with these lawsuits, and they went unmentioned in the press. Did Turner decide that he lacked sufficient evidence to prevail, or had he only ever filed suit to force Lula’s hand?

  On August 9, 1933, six weeks after Turner had filed those lawsuits and eight months after Walter’s death, the two parties finally reached a compromise about the insurance. Accordingly, the City would receive almost $200,000, with the possibility of collecting $140,000 more on contested policies. In exchange for giving up all claims to shares of stock in all her husband’s businesses, Lula was to receive $82,000 of the disputed life insurance money. She was also permitted to keep the house, which had always been in her name, and all its furnishings. Several items that had belonged to Walter but had been in the receiver’s possession—an umbrella walking cane, a small revolver, a gold pin, sixty miscellaneous books, and a lady’s wedding ring—were to be handed over to Dorothy. The agreement represented a compromise, with neither side getting all that each had wanted. Lula and Dorothy had hoped that some of the foreclosed property belonging to Fleming and Company might land in their hands, but the agreement mandated that they give up all such claims. With the equivalent of $1.5 million in today’s terms going to Lula, it was an agreement that seemed to prove Horace Hawkins’s talents as a negotiator. After all, Walter may have purchased and paid for those insurance policies, but he reportedly did so with money from the association.

  The settlement offers us the best evidence of what Turner believed he had on Walter and possibly Lula. It details Walter’s “unauthorized” annual salaries—one at $5,000 and another at $16,000. Then there was the $30,000 withdrawal from the City that Walter made on June 1 before fleeing the Springs for New York.25 Finally, the settlement also alleged that in October 1931, before leaving for New York, Walter arranged for Fleming and Company to execute a promissory note to him for $60,000 and another to Lula for $35,000. The loans were paid from proceeds of the sale of real estate belonging to Fleming and Company.

  Without a doubt Walter’s business maneuvers crossed the line ethically. Given Coloradans’ antipathy toward B&L men, my grandfather surely would have been convicted had his case gone to trial. But the authorities had a mixed record when prosecuting cases of financial wrongdoing. Take New York’s powerhouse banker Charles E. Mitchell. Senator Carter Glass damned “Sunshine Charley” as the banker most responsible for the stock market crash. Mitchell resigned his position, yet efforts to charge him with anything, including tax evasion, failed. He died some twenty years later an eminent Wall Street banker.26 Mitchell’s lawyer argued that the charges against his client were about “appeasing mob psychology,” as though they stemmed entirely from prosecutorial overreach.27

  Throughout the country the public did push prosecutors to go after bankers whose banks had failed. The problem for prosecutors was the inadequacy of the laws, which did not address a whole host of practices that should have been unlawful. For example, bankers routinely made loans to themselves and to friends and family. Prosecutors often charged bankers who made such loans with embezzlement only to have their cases crumble on appeal because such loans were not illegal.28 When it came to B&Ls, the inadequacy and ambiguity of the laws governing the thrift industry further complicated prosecutors’ efforts. One can see how this played out with the litigation involving Pueblo’s Railway Savings B&L. At the midway point in this drawn-out case, it had already generated twenty-seven volumes and a one-thousand-page abstract. Over the years convictions against the Pueblans would be secured and then reversed (for failing to prove intent) before finally being reinstated. Such vacillations happened in Los Angeles, too. Early in the scandal, the Rocky Mountain News departed from many papers in editorializing that the B&L heads who were under fire acted within the law, but only because the “law is worse than useless.”29

  According to standard accounts, the Depression was the period when the thrift industry sloughed off the last vestiges of its past as an amateur, semi-philanthropic movement and professionalized itself.30 In this it was aided by the federal government, which mandated a strict regulatory regime and established safeguards—a mortgage reserve bank, federal charters for associations, and a system of deposit insurance. Under the new regime, the central task of the thrift business would be residential mortgage lending, while banks would handle commercial lending, including commercial real estate lending. Thrift institutions would offer fixed-rate, long-term residential mortgages, financed through short-term passbook savings deposits, which were federally insured.31 It is true that by 1934 business
es calling themselves “savings and loans,” regulated and insured by the federal government, were starting up across the country—the result of a big push by the thrift industry’s trade group. “Savings and loan” would become the standard locution throughout the country, as the industry moved with speed to rebrand itself.32

  What these accounts typically fail to reckon with are all those building and loan associations that by decade’s end were still in receivership and winding down their affairs, and all those that had avoided receivership but were barely hanging on. One lawyer claimed, with some justification, that in contrast to factories and banks, which “owed their salvation” to the federal government, pre-Depression B&Ls had been abandoned by the government like so many “orphans in the storm.”33

  B&L depositors rather than operators were the true orphans of this storm, and depositors of the City found themselves in a terrible predicament. At the time of the insurance settlement in August 1933, co-receiver Turner predicted that depositors would receive their first dividend payment within two to three months. However, for reasons unrelated to the insurance imbroglio, this was not to be. First of all, there was considerable legal wrangling in the state over whether the claims of those who maintained that they had loaned money to now-insolvent building and loan associations should take precedence over the claims of association shareholders. Ultimately, the courts ruled that everyone would have to suffer equally, but this took two years to resolve, during which time no dividends could be paid.