by John Brooks
At his constant urging, his newfound friends bought Bruce stock—and so did his parents, his sister, his cousins and his aunts and anyone else susceptible to his persuasion. The buying began to approach its climactic phase in March 1958, when Bruce was selling on the American Stock Exchange at around $25 a share. All that spring, the Gilberts and their relatives and Eddie’s friends accumulated the stock, until in June it had reached the seventies and was bouncing up and down from day to day and hour to hour in an alarming way. What was in the process of developing in Bruce stock was the classically dangerous, sometimes disastrous market situation called a corner. As the price had risen, the Bruce family management had come, belatedly, to realize that a raid was in progress; their defensive countermeasure was to begin buying the stock themselves, thereby redoubling the upward pressure. Meanwhile, a third group, consisting of speculators, had been watching the wild and apparently illogical rise, and had seen a chance for a profit in short sales—sales of borrowed stock that could presumably be bought back and delivered at a lower price later, after the bubble had burst. Thus it came about that in May and early June, much of the stock bought by the Bruce side and the Gilbert side alike was bought from persons who did not own it at all. Borrowed from a “floating supply” that was more theoretical than actual, it was stock that really did not exist; and in June when the price reached 77, the two antagonist factions together owned, or had documents to show that they owned, more shares than were actually outstanding. The short sellers were squeezed; if called upon to deliver the stock they had borrowed and then sold, they could not do so, and those who owned it were in a position to force them to buy back what they owed at a highly inflated price.
Corners have a long and infamous history in Wall Street. Old Commodore Vanderbilt engineered three of them in the eighteen sixties, causing disaster not only to the short sellers he had trapped but to the companies whose stock he manipulated. The Northern Pacific crash of 1901 was the sequel to a corner that came about in exactly the same way as the Bruce one—through a contest for control; its result was a national panic with worldwide repercussions. The last corner on the New York Stock Exchange occurred in 1922, in the stock of Piggly Wiggly Stores. In the Bruce case, probably neither Gilbert nor the Bruce mangement had wanted a corner—it was an accidental by-product of the fight for control—and, because of the insignificance of Bruce in the larger economy, there was no danger of a national panic. There was, however, a danger that Bruce stockholders not involved in the fight would become accidental casualties, and, moreover, in Wall Street—including even the 1958 American Stock Exchange—the very word “corner” was frighteningly evocative of a disreputable past. So in mid-June the Amex acted, suspending trading in Bruce to protect the innocent bystanders. Immediately the stock began to be traded over the counter, and the short sellers, wildly buying what few shares were available in a scramble to fulfill their commitments, sent the price rocketing insanely up to 188. (The available shares came from the innocent bystanders, and perhaps a few from the faithless among Gilbert’s friends, who sold their loyalty for quick profit.) The S.E.C. stepped in, there were negotiations and recriminations, moves and countermoves, and at last a compromise was reached between Gilbert and the Bruce family; when the dust settled in September, Gilbert had 50 percent of Bruce stock and was made chairman of the Bruce board. Empire took notice of its new enhanced status by changing its name to Empire National; later, in 1961, when Empire National and Bruce were formally merged, the surviving company took the name of E. L. Bruce and Company.
Eddie Gilbert, coming out of the fray in the fall of 1958, seemed to have arrived at last—apparently paper-rich from his huge holdings of high-priced Bruce stock, rich in the esteem of his society backers, nationally famous from the publicity attendant on the corner he had brought about. Because of the parallel to 1901, his name had been linked in the press with those of J. P. Morgan and E. H. Harriman—giants of the past. The goal of this new, apprentice giant was one that the old ones might have treated with Olympian scorn: to become a leader of what was essentially a parasite society, the international social and fringe-artistic group that was just about then beginning to be called the Jet Set. But Gilbert did not see it that way. The metaphor he used for Bruce during his long struggle to seize it showed the texture of his aspirations; it pleased him to call it the Tiffany of the building-materials industry. Now, as the winner, he began to spread himself. He kept a regular Monday box at the Metropolitan Opera—a lover of music, as not all of his fellow-box-holders were, but one who loved appearing among them, too. He cultivated the two leading arbiters of Café Society, Elsa Maxwell and Igor Cassini; sometimes he would self-indulgently ask Cassini if he knew anyone Gilbert’s age who was richer and more important than he, and Cassini, with a smooth smile, would shake his head. He hired Cassini’s firm, Martial and Company, as public-relations counsel for Bruce; it does not seem to have bothered either man that the items about Gilbert’s doings that appeared in Cassini’s newspaper column had been supplied by Cassini himself as Bruce’s press agent, meaning that in effect Gilbert was simply buying, and Cassini selling, space in the column. He sent his wife, a beautiful Brooklyn girl named Rhoda, to a speech therapist and a posture school. Eventually his market transactions came to be handled by Francis Farr, clubman and broker, brother of a member of the aristocratic law firm of White and Case and a vestryman of St. James Episcopal Church. He installed flooring in Le Club, a raffishly élite New York membership-by-invitation discothèque, in exchange for a charter membership. He acquired a huge Fifth Avenue apartment and, when and as he could, filled it with French antiques, a fortune in generally almost-first-rate paintings, and a staff of six. Sometimes he lived in a mansion at Palm Beach, epitome of Real Society in faded turn-of-the-century photographs. He took an immense villa at Cap Martin on the French Riviera, where he mingled when he could with Maria Callas and Aristotle Onassis and their like, and gave huge outdoor parties with an orchestra playing beside an Olympic-size swimming pool. At his parties, Eddie was always the maestro, directing, giving whimsical instructions, trading hospitality for the right to command. “Let’s all go bowling!” he might shout to his assembled guests after lunch, so ingenuously that forty or fifty of the rich and chic or almost-rich and almost-chic of the world would dutifully jump into their cars, or into one of his waiting limousines, and be off to Monaco’s elegant four-lane bowling alley to indulge him. He was living a dream, filling out its details as he went along, and waiting, like Gatsby, for the sound of the tuning fork struck against a star.
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And he was not really rich, in any genuine sense. Probably he spent beyond his income every year except 1961. It was believed that at his peak he had a paper net worth of around $10 million, but in retrospect this seems unlikely. His paper profits were built on borrowing, and he was always mortgaged right up to the hilt; to be thus mortgaged, and to remain so, was all but an article of faith with him. In 1959 he borrowed money from the Empire National treasury without informing the company’s board. This was clearly an improper act; but he repaid the loan with interest before it was discovered by the S.E.C., and the matter was allowed to drop. He was habitually so pressed for cash that on each January first he would draw his entire $50,000 Empire salary for the coming year in a lump sum in advance. By the summer of 1960 he was in bad financial trouble. Empire National stock was down, Gilbert’s brokers were calling for additional margin, and Gilbert was already in debt all over New York. He owed large sums to dozens of art dealers. Some sources maintain that, counting his personal debts to his father, he was by then insolvent by at least $1 million. But he hung on gamely; when friends advised him at least to liquidate the art collection, he refused. To sell it, he explained, would be to lose face.
What saved him at that particular moment was the bull market of 1961, and a timely psychological boost that came about in an odd way. On the advice of a friend, he sought to hire as a consultant Jerry Finkelstein, the powerful business and polit
ical figure (later New York City Democratic chairman) who was then generally considered the top financial public-relations man in the country. Depressed as he was, Gilbert made an offer to Finkelstein expecting rejection. But to his joy and amazement Finkelstein accepted, taking on the job in exchange for a fat allotment of Bruce stock options. And then came the curious part: his self-confidence restored by the mere fact of Finkelstein’s acceptance, Gilbert was transformed into a demon and proceeded to do on his own the job that he had hired the leading expert to do. The act of hiring a champion released the champion in himself, and Finkelstein had little to do but collect his profits when Bruce stock rose sharply. Now Gilbert had gained clear-cut precedence over his father; when Bruce was merged with Empire National, Eddie Gilbert became president of the combined company and Harry Gilbert “chairman of the executive committee,” a title that meant—as it so often does—“kicked upstairs.” And now he had also, for the first time, become respectable to important segments of the business community; as a result of his success with Bruce, investment bankers who would scarcely have let him through their doors two years earlier were knocking on his and suggesting that they be allowed to help finance his subsequent ventures. Gilbert’s buying power in the market had also been vastly increased, not only by the rise in value of his own holdings but by a swift and apparently miraculous increase in the number of “friends” who would gladly put their money where he told them to. It all induced a dangerous new euphoria. By May 1961, Gilbert was feeling so flush that the urge for expansion overtook him again, and he embarked on the venture that would destroy him.
What he wanted for his empire, called Bruce but truly an empire now, was Celotex Corporation, a large and important manufacturer of building-insulation materials with headquarters in Chicago and a listing on the New York Stock Exchange. He began by buying its stock at around 30, stepped up the pace when it conveniently fell back to 24 later in 1961, and then chased it all the way up to 42 early in 1962. His acquisition work was cut out for him this time, since Celotex was bigger game than Bruce; half-again as big in sales, Celotex had more than three times as many shares outstanding. But Gilbert, convinced now of his infallibility, was confident. He held perhaps half a million Bruce shares, some in Memphis, some in Switzerland with moneylenders, some in other places; it gave him several million dollars’ buying power. He began using this to buy Celotex; he put his friends (and cousins and aunts) into Celotex up to the last dollar they would allow; he borrowed still more cash from his father, and put that into Celotex too. Even his old enemies, the Bruce family, became so mesmerized by the man who had wrested control from them that early in 1962 they authorized his use of $400,000 of the company’s money to buy Celotex shares, and later they raised the ante by a round million more. In March, Gilbert showed his cards. He held 10 percent of Celotex stock, he announced, and he wanted a place on the board of directors. Henry Collins, Celotex’s president, at first refused, but did so in such a tentative way that it was clear he felt he was simply postponing the inevitable. Gilbert seemed on the verge of a stunning success.
And then two events in quick succession, one public and one private, hastened the course of his destiny. The market started to go sour with the Kennedy-steel encounter, and Gilbert, whose marriage had gone sour the November before, flew to Las Vegas to serve the six-week residency that was a prerequisite to getting a Nevada divorce. Doubtless he felt, like the gambler he was, that the Celotex campaign was so near victory that he could command its final moves by long-distance telephone. Or perhaps, in what appeared to be his moment of approaching triumph, he had forebodings of disaster and yielded to an inclination to flee in panic. In any case, at the end of April, he suddenly left the suite at the Waldorf where he had been living since he and his wife had separated some months earlier, and flew to Las Vegas to establish residence.
Gilbert took elaborate security precautions, apparently to forestall any panic in the market for Bruce and Celotex stock that his flight might cause. Only a few people at Bruce were allowed to know where he had gone, and they were sworn to secrecy. He took an assumed name—Edward Heaton. (Edward with the heat on; Gilbert’s sense of humor had survived his tribulations so far.) He had a private telephone installed in his motel room and connected by tie line to the switchboard of his New York office, so that callers could be put through to him immediately, exactly as if he were in his office in Manhattan. His outgoing letters were sent first to New York or to Bruce headquarters in Memphis, and then remailed with the appropriate postmarks.
His personal predilections, and the turning of the earth, imposed a strange and exhausting schedule on Gilbert in Las Vegas. The three-hour time differential meant that the New York markets opened at 7:00 A.M. Nevada time. Every morning, therefore, Gilbert would be up at the desert dawn and on the phone getting early New York quotations from brokers. Then at the market opening the pace of his telephoning would be stepped up, and he would keep the wires humming until lunch time in Las Vegas, when the day’s trading ended in the East. In the afternoon he would wander into the casinos, where he would gamble on into the evening. Did he dream of the perfect jeux, the magic coup that would give him the means to bring Celotex within his grasp? If so, in vain; later he admitted that his gambling losses in Las Vegas had been heavy.
Sometimes, like a wary spider, he would make a quick foray out into the real world, and then hasten back into hiding. The exigencies of Nevada divorce law made such a procedure necessary. To qualify as a resident, he had to be certifiably within state boundaries at some time each day over a six-week period. He hired a permanent Nevada resident to be his witness—and, incidentally, his bodyguard; the witness would accompany him to the airport to see him off in the afternoon, and would be there to meet him, and take formal note of his presence, on his return the following afternoon. Twice, early in May, he made such trips to New York in search of additional cash. But the stock market had begun its descent in earnest now, and with it Gilbert’s claim to solvency, and the moneylenders were unwilling to accommodate him. Indeed, his Nevada-based trips were not only worthless but probably counterproductive; the word spread swiftly among lenders that Eddie Gilbert was in trouble and running hard. At the middle of the month he went to Chicago to see Collins of Celotex (arising at midnight, touching foot to Nevada soil for the new day, passing the glittering lights of the Strip en route to the airport, and then flying off at 1:30 in the morning). In Chicago, Collins now offered Gilbert a seat on the Celotex board and the right to choose one other director. But Gilbert, for the sake of his crumbling credit status, needed the board seat immediately, and Collins insisted on holding up the announcement until after the next Celotex board meeting on June 20, so the victory Gilbert brought back to his desert hideaway was a hollow one.
Gilbert’s Celotex holdings now amounted to over 150,000 shares, and for each further point that the stock dropped, he had to find and deliver $150,000 in additional margin or risk being sold out by his brokers. Those of his friends holding Celotex on his advice now numbered around fifty, and they, too, since most of them held it on margin, were being squeezed as the price continued to fall. Many of them also had positions in Bruce. Their alternatives were three: to sell Celotex; to sell Bruce to cover Celotex, which would depress the price of Bruce and thus be equally disastrous for Gilbert; or to find more cash margin. Gilbert himself had all but exhausted his borrowing power. His debts to brokers, to friends, to Swiss bankers, to New York loan sharks on the fringes of the underworld, all loomed over him, and the market betrayed him daily by dropping even more.
The third week of May became for Gilbert a nightmare of thwarted pleas by telephone—pleas to lenders for new loans, pleas to brokers to be patient and not sell him out, pleas with friends to stick with him just a little longer. But it was all in vain, and in desperation that same week Gilbert took the old, familiar, bad-gambler’s last bad gamble—to avoid the certainty of bankruptcy he risked the possibility of criminal charges. Gilbert ordered an official of Br
uce to make out checks drawn on the Bruce treasury to a couple of companies called Rhodes Enterprises and Empire Hardwood Flooring, which were actually dummies for Gilbert himself, and he used the proceeds to shore up his personal margin calls. The checks amounted to not quite $2 million; the act amounted to grand larceny.
It was a bold stroke, based, of course, on the faint hope that the prices of Bruce and Celotex would suddenly rise enough to reduce Gilbert’s need for margin and enable him to redeem the improper checks and repay Bruce. By his own calculations—which no doubt excluded his huge debts to his father—he was solvent were Celotex above 31 and Bruce above 32. On Friday, May 25, Celotex closed at 31 and Bruce at 32 3/8, actually up a fraction for the day. Thus he still had a fingerhold on survival. But for the first time Gilbert was not optimistic. That Friday he told a part-time secretary, “The way this is going, Monday will be murder.” Later he told M.J. Rossant of The New York Times, “I suddenly knew that I couldn’t get through this without getting hurt and getting innocent people hurt.” It is ironic that Gilbert’s market prescience, such as it was, should have worked so well at a time when, through pyramiding of debt and then through misappropriation of funds, he had trapped himself in a net so confining that it prevented him from taking advantage of what he knew. As the reader will recall, the Monday he said would be “murder” turned out to be Blue Monday, the Stock Exchange’s second worst day of the century up to then.
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That fateful Monday morning Gilbert was closeted in his motel room, his telephones in constant use, learning minute by minute of the progress of the Wall Street collapse almost three thousand miles away. All morning long, Bruce held teeteringly at 30. The blow fell at around noon, New York time, when a broker told Gilbert that Bruce was now quoted at—23. Stunned into disbelief, he hung up and called another broker, who confirmed the devastating news. Hardly a moment later, the phones began jangling with incoming calls from his frightened creditors in New York and Switzerland.
