Stutz Swindle

A notable feature of the early 1920's was the Stutz Bearcat, a fast & flashy automobile that rode, looked, and sounded like a racing car. About the same time that Bearcats were reaching the peak of playboy popularity, Stutz Motor stock provided some excellent advertising by rising in a brief period from $70 per share to $724. That was the notorious "Stutz Corner" engineered by Allan Ryan, son of the late Thomas Fortune Ryan who in his will cut off his speculative heir with a set of pearl studs.

With the exception of the Piggly Wiggly corner in 1923, the Stutz coup was the last big corner ever executed on the New York Stock Exchange. In a pious moment a few years later the Governors took steps to prevent them by rules & regulations. Another result of that squeeze was to dump considerable amounts of Stutz stock in the hands of the good friends of Allan Ryan's father--principally Charles Michael Schwab. Except for one short interlude, Bethlehem Steel's aging chairman has had Stutz ever since.

Last week Stutz again made rousing news, this time in connection with what smart young SEC Attorney John L. Flynn called "a gigantic interstate stock swindle." Revealed at SEC hearings in Chicago were methods of mulcting the public that have seldom been surpassed for devastating certainty.

Few years ago when Stutz was short of cash it approached its traditional patron by way of his brother, Edward Schwab, who now manages most of the old steelmaster's business affairs. Brother Edward said he had no funds available but if a buyer could be found for the Schwab Stutz holdings, he would loan the proceeds to the company. Forthwith the Stutz bankers produced one Samuel Genis, who took an option on the 30,000 shares and who was missing last week when SEC wanted to question him. So far as the Schwabs were concerned, the transaction ended then & there.

Samuel Genis did not get Stutz stock for investment. He optioned it together with an additional block to a slick group of Chicago promoters now known as John J. Burke & Co. Burke in turn optioned the stock to other stock-jobbers variously doing business as Gould & Co., Kopald, Quinn & Co. and Kenyon & Co. (McCormick & Co. until SEC cracked down on them once before). These retail firms proceeded to sell Stutz stock to citizens of the Midwest on an installment plan, 50-c- on the dollar down. Meantime John J. Burke & Co. strong-armed Stutz stock in the open market from about $4 per share to more than $10.

So successful was the campaign that the retailing firms sold not only the 40,000 shares under option but a total of 300,000 shares, more than one-half of which did not exist at all because Stutz had only 132,000 shares outstanding.

The fact that they had sold more stock than Stutz ever issued embarrassed the sharpers not a whit. Burke merely pulled its market plug, plummeting Stutz stock lower than it was before they started. On the ground that the installment purchases were now under-margined, the retailing houses "sold out" their customers accounts (i. e. pocketed the deposits). Profits amounted to $800,000. Early this year Burke put on another Stutz campaign that netted $100,000 and was set for a third when SEC intervened. On the basis of its findings SEC will seek indictments.

Charles Michael Schwab was already 23 and working for Carnegie steel when Edward Schwab was born in Loretto, Pa., youngest of eight children. Brother Edward studied and taught law at Notre Dame, practiced in South Bend. In 1911 he moved to his brother's town of Bethlehem, where he organized a spark-plug company later merged with Splitdorf. Now 50, he is chairman of Herbrand Co., a large Ohio drop forging concern but spends most of his time in his Manhattan office minding Brother Charles's assorted investments in silk mills, country banks and woodworking plants. He has reacquired an interest in Stutz but the company, short of capital as usual, is not producing.

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