by John Brooks
Gilbert now admitted to himself that he was beaten. He said later that he spent the rest of Monday “like a punch-drunk fighter going through the motions.” Bruce closed for the day at 23, down 9 3/8, and Celotex closed at 25, down 6. Gilbert’s personal losses for that Monday came to $5 million. In addition to the creditors, he had to deal all afternoon with the friends he had tipped to buy Bruce and Celotex, who now had disastrous losses of their own. In the big turnaround on Tuesday, Bruce gained 5 3/8 points, but the recovery was too moderate and too momentary to save him; Celotex did not recover at all, and his other, unredeemable debts, including the $2 million he had taken from the unsuspecting Bruce company, remained outstanding.
Late on Tuesday, Gilbert assessed his position as coolly as he could. Clearly, the dream of capturing Celotex was ended. It was a question now not of building an empire or even protecting one, but of avoiding bankruptcy and, if possible, the penitentiary. His hope, as he saw it, lay in finding a block buyer for all or most of his Celotex holding, and using the proceeds to pay back what he had “borrowed” from Bruce. He remembered that a company in the building-materials business called Ruberoid had expressed interest in taking a position in Celotex. Whatever the chances of swinging such a deal, they depended on his availability in New York for more than one-day flying trips. So, with only a couple of weeks remaining in his Nevada residency term, he abandoned another dream, that of getting his divorce, and on Wednesday, the Memorial Day holiday, he flew to New York and moved back into his suite at the Waldorf.
Thursday the storm around him gathered new force. Gilbert found that the earliest appointment he could get with the officials of Ruberoid was the following Monday, June 4. Yet all day Thursday his Waldorf suite was besieged by creditors, some of whom had come from Switzerland for the purpose. He could give them no satisfaction, only vague hopes of a possible sale of Celotex. On Friday, friends to whom he confided his position, and the criminal action it had led him into, urged him to declare bankruptcy at once. Rueful and contrite, but still stubborn, he refused.
In fact, Gilbert still had a little time—to be precise, six business days. Tuesday, June 12 was the scheduled date of the next Bruce board of directors meeting, at which the matter of $2 million loans to Rhodes Enterprises and Empire Hardwood Flooring was almost certain to come up; so he would have to have some solution ready by then or stand exposed. The six borrowed days were the last loan he could negotiate—a loan of time rather than money. On Monday the fourth—Day One—he met with Ruberoid officials as planned, freely admitted to them that he was in a squeeze, and suggested that, since they wanted to purchase a block of Celotex shares anyway, they might take profitable advantage of his distress by assuming his Celotex holdings. The Ruberoid men seemed interested, but stopped short of giving him a firm and binding commitment. On Day Two, still desperate, he told the whole story to his lawyers at the firm of Shearman and Sterling. Understandably, they were horrified, and set about taking such defensive steps as were available. To prevent Gilbert from compounding his felony in panic, they instructed Bruce officials not under any conditions to sign any more checks on his instructions. As a first step toward redeeming the felony he admitted to having committed, they ordered him to give the company personal notes backed by his personal property.
Day Three passed without any promising developments, but on Day Four—Thursday the seventh—there suddenly appeared a ray of hope when the executive vice president of Ruberoid gave Gilbert the almost incredibly good news that he believed his firm was ready to buy 300,000 shares of Celotex at a fair price. The sale, when and as consummated, would not save him from bankruptcy, but it would enable him to save his friends and followers, and to bail himself out of his improper borrowing from Bruce.
Gilbert spent the rest of Thursday and then Friday frantically rounding up the Celotex shares from his friends, to have them ready for delivery; and on Monday the eleventh, the last day before the Bruce meeting, with the shares safely in hand, he savored for a few hours the feeling that he might still end the affair with some sort of honor, and perhaps without losing everything—his villas, his followers, his place in the great world. The Bruce meeting convened at 10:30 Tuesday morning; Gilbert was there smoking a cigar, dapper in a gray suit and black loafers. For two hours he told the other directors—some of whom already knew, or knew enough—the story of his frantic, reticulated dealings and of how they had led at last to an unauthorized withdrawal from the funds with which the men in the room were jointed entrusted. There followed a heated debate; some wanted Gilbert’s immediate resignation, while others counselled caution, or at least a delay until after the day’s market closing to forestall a further panic in Bruce stock. It was in the midst of this tense and gloomy discussion that word came to Gilbert from Ruberoid that the company had withdrawn its offer to buy his block of Celotex shares.
It was the coup de grace for Gilbert. The meeting broke for lunch, but he did not join his fellow directors in the meal. Instead, he went home and packed a suitcase, visited his bank vault and picked up $8,000 in cash, and made a reservation on a plane leaving that evening at 7:30 for Brazil. His last legitimate escape hatch sealed off, he had decided on literal and figurative flight. Brazil at the time had become a secular sanctuary for erring American financiers; down there already, wasting time, boasting about old triumphs, playing poker, and putting together such penny-ante local deals as they could manage, were Lowell Birrell, the well-brought-up eviscerator of companies; the giant Texan embezzler BenJack Cage; and Earle Belle, almost equally Runyonesque by baptism, a youthful jobber of watered bank stocks. Gilbert must have hated the prospect of geographical association with these grimly comic rogues; later he would maintain with indignation that he had nothing in common with any of them. But the fact was that on June 12, 1962, he had one thing in common with them all—the pressing need for a distant jurisdiction like Brazil that had no effective extradition treaty with the United States.
Gilbert appeared back at the Bruce meeting, cool and confident, when it reconvened that afternoon at 2:30. His need now was to persuade the Bruce board to postpone public announcement of his resignation and its disgraceful cause until he was out of the country. Just until 7:30! he pleaded. Why that particular hour? He explained that he needed just five hours to approach one final potential lender. After another long and heated argument, the board acceded, and Gilbert breathed again. Of course, the potential lender was mythical. He departed his Bruce office around 5:30, ostensibly to see the last-hope lender, saying he would be back around 7:00 with news of the results. While the other directors waited tensely, Gilbert hired a limousine and picked up his parents, who then accompanied him to Idlewild Airport. In the car, Harry Gilbert said later, Eddie was “frantic and hysterical.” But at the airport he was calm enough to pay cash for his ticket and board his Rio-bound flight without attracting attention. The plane’s departure was delayed for some reason, giving him a final fright, but shortly after 8:00 it took off.
At the Bruce offices, the directors became progressively more apprehensive. At 8:15 they called the S.E.C. and reported all that they knew. It was too late. At 8:30, as Eddie Gilbert’s jet reached altitude and sped southward, Harry Gilbert called the Bruce directors to say, ruefully, that his son would not be back.
6
In Brazil he lived in relative quiet, taking an only moderately plush apartment in the Copacabana section of Rio, often going unshaven, avoiding nightclubs and casinos, writing letters, dabbling a bit in local business, exercising his language skill by studying Portuguese. (He did allow himself a chauffeur-driven Cadillac.) From time to time his ever-loyal parents sent him money. “I just can’t face people,” he told the Times’ Rossant, who visited him there; but he also said more resolutely, “I will pay back everything if it takes the rest of my life.” Meanwhile, he was sometimes heard to put the blame for his debacle on anybody and everybody but himself: on Lazard, on Loeb, Rhoades, on Collins of Celotex, on faithless friends, on President Kennedy
. To one visitor from home he complained, “I’m just an ordinary guy. They called me a genius, but I’m not. If they hadn’t blown the whistle on me, it could all have been avoided.”
That was his line, and that of such of his friends as chose to remain loyal to him: Gilbert, without the undue impatience of his creditors and the bad timing of the May market crash, would have bagged Celotex, covered the Bruce borrowing before it became public knowledge, and emerged a hero. In the light of retrospect, it is a line that simply does not correspond to reality. In fact, it would later appear that his debts exceeded his assets by somewhere in the neighborhood of $14 or $15 million. It is probable that neither the most indulgent set of creditors nor the most complaisant of markets could have saved him permanently from the consequences of his overweening ambition; and almost certainly the May crash merely accelerated his demise.
At home, meanwhile, there were the predictable recriminations and unseemly squabbles, lending a sort of false dignity by contrast to the lonely exile pouring over Portuguese grammar. At the end of June, the Bruce company sought and got a court injunction to prevent Mrs. Gilbert from disposing of the couple’s furniture and art collection for her own benefit: particular reference was made to Boucher’s La Toilette de Venus and Psyche and Cupid, asserted in the injunction plea to be worth $95,000; Monet’s Flowers, $75,000; and Fragonard’s Portrait of a Young Woman, $92,000. At about the same time, the Justice Department got an indictment against Gilbert on fifteen counts of securities fraud, and the Internal Revenue Service added a touch of comedy by filing tax liens against him dating back to 1958 and amounting to over $3 million. In mid-July, he was further indicted in New York for grand larceny in connection with the Bruce misappropriation. As for his friends, a few of them loyally insisted that he was a misunderstood man who had never meant to do wrong; others, however, would no longer acknowledge that they knew him. His old pal and business associate Igor Cassini, who had lost money on Bruce and Celotex, now found it appropriate to pronounce Gilbert “a crook.” And then, in November, by which time there were federal and state charges outstanding against him the penalties for which added up to 194 years in prison, Gilbert suddenly came home. He got off the plane at New York flanked by federal marshals. He was arrested, and then promptly released on bail.
He said he had returned because he was bored with inaction and the Latin American spirit of mañana, and surely this was true. (Some of his friends joked that five months is as long as a Jewish boy can stay away from home.) But it also seems clear that Arnold Bauman, the New York criminal lawyer whom Gilbert’s father had hired in his absence to defend him, had told him that the coast was now as clear as it would ever be. And that, it turned out, was pretty clear. Gilbert remained free on bail for no less than four and a half years, while he and his lawyer dangled before the various prosecutors the promise that he would implicate other wrongdoers. He could implicate various people, he said; he had something on Lazard and Loeb, Rhoades. These promises were never fulfilled. In May 1963, he and Rhoda Gilbert were finally divorced, and a week later he married a Norwegian airline stewardess named Turid. The villas, the art collection, and the poolside parties were now in the past, but Gilbert and his new bride did well enough for a time. They dressed well; they lived in a Park Avenue apartment; they had two children, and went to Puerto Rico on vacation. With help, as usual, from his father, Gilbert set himself up in a new business, the Northerlin Company, flooring brokers. He was still a good salesman. Northerlin made over $200,000 its first year, and Gilbert, besides beginning to fulfill his promise by paying off some of the smaller of his old debts—$2,300 to a painter of his old Fifth Avenue apartment, $138 to F.A.O. Schwartz—began trying to live in his old way on $100,000 a year. He began again to wheel and deal in the market—in his wife’s name. Very tentatively, a few of the not-so-beau monde began to take notice of him again.
There are second acts in some American lives, but not Eddie Gilbert’s. Given his temperament, his comeback attempt could not succeed, but even so, it was quite a feat. Still under multiple indictments, free on bail, bankrupt for over $10 million all the while, between 1963 and 1967 he twice “got rich,” twice “went broke,” once even managed to get himself investigated by the S.E.C. He cut too many corners in his operations at Northerlin; the promising young company began to lose money, and finally had to be sold for a tax loss. And time ran out on his unfulfilled bargain with the civil authorities. In 1964 he pleaded guilty to twelve counts of grand larceny and three of securities fraud; in each case a sentencing date was set, and in each case, when the date arrived, sentencing was postponed. It almost seemed as if he might escape imprisonment indefinitely. But in 1967 the authorities finally lost patience with his failure to come up with usable state’s evidence. That April—with only a trivial fraction of his 1962 debts repaid, and with a flock of new ones accumulated—the federal penitentiary doors finally closed on him. He would be paroled a little over two years later, but by that time his career as Gatsby was gone for good.
7
As a financier Gilbert cannot be taken seriously; at the gambling tables and in the stock market he operated by the world’s oldest and surest formula for failure—to double your winning bets until the law of averages overtakes you, and you are wiped out. As a catalyst for reform, he has little importance; neither his speculative methods nor his ultimate crime were original in conception or execution, and the exposure of them did not lead to new loophole-closing S.E.C. rules or legislation. Nor, indeed, were large numbers of innocent investors, apart from his too-trusting friends and relatives, significantly hurt by his operations. Why, then, need he detain us?
It is as a social figure, a reflection of the texture of financial life in the United States at the start of the nineteen sixties, that Gilbert’s career has a kind of resonance. The style that he embodied with instinctive perfection was a once-familiar but now-fading American one: the style of romantic self-destructiveness, of seeking risk for its own sake, of wild midnight rides in fast cars or on roulette wheels that ended in disaster not by accident but because the courting of disaster was integral to the style itself. The doomed and gilded youth of America, the beautiful and damned, had gone out with the depression, or certainly with World War II. But Gilbert did not know that; he had formed his unconscious stylistic aspirations early in life, and he clung to them and projected them into an alien era. A generation too late, he set out unknowing to destroy himself in the grand manner.
And so, perhaps, though in a smaller way, did all of the people who with high hopes sank their savings into the far-out new stock issues of 1961 and got wiped out in 1962. At the end of the decade, between 1968 and 1970, there would be an even bigger speculative boom and bust. But that one would be dominated by institutions; by that time the American stock market would be so huge as to be beyond manipulation by individuals or small groups operating for themselves, and Gilbert and his little band of followers would have been ineffective in it.
Coming just before the mutual and pension funds took charge of the stock market, the 1961–1962 investment scene was perfect for Gilbert, and he remains its symbolic figure. Tinsel-mad, he burned for personal transfiguration by riches and fame. Money-seekers later in the decade would set themselves more practical goals—to revenge themselves on the Establishment by joining it, to improve the nation, to thumb one’s nose at the whole world; they would know what Gilbert did not, that the possession of money cannot turn life to magic. He was the archetypal loser of 1962, a stock-market crash for romantics, and yet also a harbinger of things to come.
CHAPTER IV
Palmy Days And Low Rumblings
1
Usually after general disaster in Wall Street or elsewhere, one man takes charge of cleaning up and putting things back together, of dragging the bodies off stage and rearranging the set for the next performance—rearranging it neatly and primly, as if in hopes that subsequent action will turn toward drawing-room comedy rather than more bloody melodrama. There was
no such one person after 1929. That Street scene was a disaster of such magnitude that the whole cast of characters was left paralyzed for years, and an entire new federal government with a mandate to do anything was needed to supply resolution and to restore a semblance of order. In 1938, after Richard Whitney’s fall had disorganized the Old Guard that ran Wall Street by unmasking its impeccable leader as an embezzler, there was William McChesney Martin, Jr., a quiet, scholarly bachelor of thirty-one, who wore owlish round spectacles and never smoked, or drank anything stronger than hot chocolate. It was to this prudent and serious young man that the Stock Exchange turned in its extremity, making him acting chairman and then its first paid president, to undertake the necessary job of reform.
After the shambles in 1962, however, the man Wall Street turned to was neither on the inside like Martin, nor entirely outside like the New Deal. He was the chairman of the S.E.C., William Lucius Cary.
Cary in 1962 was a lawyer of fifty-one with the gentlemanly manner and the pixyish countenance of a New England professor. A late-starting family man, he had two children who were still tots; his wife, Katherine, was a great-great-granddaughter of America’s first world-famous novelist, James Fenimore Cooper. His reputation among his colleagues of the bar was, as one of them put it, for “sweetness of temperament combined with fundamental toughness of fibre.” In fact, his roots were not in New England but in Mount Vernon, Ohio, although there was some New England in his blood: a New England ancestor had fought in the battle of Lexington. The family had trekked westward to Ohio in 1814, and had stayed there. He had grown up in and around Columbus, the son of a lawyer and president of a small utility company; he had graduated from Yale and then from Yale Law, practiced law a couple of years in Cleveland, then done a long stretch in federal government—first as a young S.E.C. assistant counsel, later as an assistant attorney general in the tax division of the Justice Department, then as an Office of Strategic Services cloak-and-dagger functionary in wartime Roumania and Yugoslavia. In 1947 he had entered academic life, teaching law thereafter, first at Northwestern and later at Columbia. He was in the latter post, taking one day a week off to go downtown to the “real world” of Wall Street and practice law with the firm of Patterson, Belknap and Webb, when John F. Kennedy appointed him S.E.C. chairman soon after assuming the Presidency in January 1961.
