CURRENCY EXCHANGE | CURRENCY CONVERTER |
EXCHANGING MONEY
Frank Fayant wrote a
series of exposés about stock market fraud. But this recounting of stock frauds
connected with the radio industry, while extensive, made up only a small
percentage of his work -- there were much longer articles about other topics,
especially mining and oil frauds. The review of the radio industry began as a
section within one of Fayant's "Fools and Their Money" articles, and was
expanded in a separate, two-part series, "The Wireless Telegraph Bubble".
Success Magazine, January, 1907, pages 9-11, 49-52:
A Rendezvous for Dreamers
With this little spending money Mrs. White was enabled to buy the "silverware,
china, and linens" needed for the country mansion. Another little incident in
Mr. White's stock market career is told by his authority in this fashion:
"He lunched with a member of the brokers' firms with which he had been dealing,
and, as he could keep in close touch with the ticker at the same time, he
laughingly exclaimed to his host, 'Billy, I 'll give you an order to buy
something every minute we are at the table.' He really was joking, but he
actually did it. At the end of the meal, which had lasted fifty-eight minutes,
he had bought an aggregate of 58, 000 shares of various stocks--Union Pacific,
Southern Pacific, Amalgamated Copper and Pennsylvania among others. His
speculations carried on during his luncheon had netted him a profit of about
$25, 000. Is it any wonder he subsequently remarked he had had a pleasant
luncheon?"
White installed himself amid the luxurious surroundings of the famous McCall
mansion, and it at once became the rendezvous for "millions-in-it" dreamers. Men
with lean pocketbooks and fat imaginations, picked up by White in the highways
and byways of the metropolis, spent week-ends at "White Park" and dreamed of
$100, 000, 000 companies that were to spring up in the great marts of the world.
Ambitious but unknown inventors, scientists, attorneys, speculators, miners, and
near-capitalists gathered nightly in the great foyer hall of the McCall mansion,
sipped their host's good wines and dreamed great dreams. It was at one of these
Arabian Nights' entertainments that White conceived the idea of merging all the
wireless telegraph companies in the world in one grand, glorious, glittering
aggregation. The De Forest and Marconi companies had been engaged for years in
costly patent litigation, and each promoting crowd had been calling the other
names, and claiming that it had the only simon pure wireless telegraph monopoly.
The idea looked so big to White, that, without making any overtures to the
"enemy" (the Marconi people), he announced in the newspapers one Sunday morning
in November the formation of the United Wireless Telegraph Company, capital
$20, 000, 000, "organized for the purpose of uniting the American and foreign
systems of wireless telegraphy, including the Marconi and American De Forest
systems, as well as acquiring the latest and most approved methods and
inventions employed in the art of wireless telegraphy, and continuing its
development and expansion throughout the world on the broad and comprehensive
scale which the enterprise merits."
A Merger That Was One-Sided
The directors included Mr. White and his satellites, together with a member of a
well known New York Stock Exchange firm and a prominent Pittsburg banker. These
two men were in the board just twenty-four hours. The moment White displayed
their names in his half-page advertising, a stream of incredulous inquiries
poured in on them from their friends. They withdrew with as good grace as
possible.
An angry protest immediately arose from the leading Marconi promoters on both
sides of the Atlantic, and even Marconi himself cabled from Italy that it was
all Greek to him. Former Governor John W. Griggs of New Jersey, president of the
Marconi Wireless Telegraph Company of America, emphatically denied that any
merger of the Marconi and De Forest companies had been even thought of, and he
characterized White's "merger" as "antagonistic and repugnant to the Marconi
companies." But these denials from the "enemy" did n't bother White. He went
right on "merging." He did capture one of the Marconi directors, who has since
been forced out of the Marconi board, and he took possession of a notorious firm
of brokers in Broadway, who for several years had been hawking Marconi shares
around the country at fictitious prices. This was the firm of Reall and Company,
formerly F. P. Ward and Company. The full-page advertising put out by this stock
selling crowd to entice investors to pay fictitious prices for Marconi shares
was even more fanciful than the De Forest advertising. It resembled rather
closely the circus poster advertising that flooded the Sunday newspapers in the
heyday of Lafayette E. Pike's career as a wireless promoter. The Marconi
promoters said they did n't like it and did n't approve of it, and offered a
reward to any one who would show them how to put a stop to it, but, so far as I
have been able to learn, the Marconi people never made very strenuous efforts to
put the brakes on F. P. Ward and Company, or their successors, Reall and
Company.
Investors Paid Their Own Dividends
Reall and Company, last winter, offered me American Marconi stock, that could be
bought in the open market around $35 a share, for $115 a share. They also
offered to sell me the same stock at $140, with five years' guaranteed interest
at five per cent. My correspondence shows that they sold a great deal of this
"guaranteed" stock. Any schoolboy, with a knowledge of addition and subtraction,
can readily see how Reall and Company could sell Marconi stock at $140 a share,
deposit $25 of this amount with a surety company to be repaid to the investor in
five yearly installments of five dollars, and then take $35 of the remaining
$115 and buy a share of Marconi in the open market to be delivered to the
investor. The remaining $80, less advertising and office expenses, would
represent a very handsome profit on the deal--to Reall and Company. No broker
could be sent to jail for turning an honest penny in this way. A man has the
right to get as high a price for an article as he can, providing he can find the
victim to pay him the price.
Reall and Company, while they were letting investors into this "good thing, "
published a promotion newspaper under the title of the "Marconi Wireless News."
When White, in conjunction with Reall and Company, formed the United Wireless
Telegraph Company, he made Reall and Company his selling agents, and they
continued to publish the "Marconi Wireless News" as a publicity organ for White.
The first issue under White's direction carried a large portrait of White, the
story of his career by a friendly biographer, and a glowing history of wireless
telegraphy over White's signature. Then there followed a detailed record of the
De Forest companies, with some little incidental mention of the Marconi
companies. Reall and Company, who had so generously sold American Marconi stock
at three or four times its market price, offered to exchange United Wireless for
Marconi. For one share of Marconi and $35 in cash--the cash is never forgotten
in these offerings--Reall and Company offered to give twenty shares of United
Wireless. For twenty shares of Canadian Marconi and $35 in cash, they also
offered to give twenty shares of United Wireless. Reall and Company ceased to
advertise the Marconi shares and devoted their publicity to United Wireless,
picturing the new wireless stock as one that would increase two thousandfold in
value. To make this wonderful picture clear to the most unintelligent, they got
an artist to draw a picture of a heap of two thousand gold dollars, which, by
some magic, was supposed to grow of a single gold dollar.
To Bring Order Out of Chaos
But, since the publication of this story of the wireless telegraph bubble was
announced in SUCCESS MAGAZINE, the De Forest promoters and these generous
bankers have parted company. The wonderful advertisement, picturing the heap of
two thousand gold dollars, no longer appears in the Sunday papers. A Westerner,
with western ideas of common honesty, some months ago acquired a very large
interest in American De Forest, and he has been trying to bring order out of
chaos. He refused to allow the bankers to go ahead with their circus poster
advertising, and White himself concluded that the advertising was too farfetched
for even a wireless telegraph promotion. And so Reall and Company were cut off.
In the meantime, some plan had to be formulated for the exchange of United
Wireless for American De Forest stock. This was a problem. Many of the
stockholders had paid anywhere from $4 to $10 for their De Forest common; many
more had bought stock for a few cents a share. The promoters could n't see their
way clear to taking all this stock on the same basis. The stock sold at high
prices included heavy advertising expenses and agents' commissions; the stock
sold at low prices did not include these large items.
Some months ago, while investigating the peculiar methods employed by the De
Forest promoters in selling wireless stock to the public, I wrote to the general
office of the company in St. Louis, to the New York office, and to several New
York brokers, asking for quotations on American De Forest common. From the St.
Louis office I received an alluring prospectus, in which the stock was quoted at
$7.50 a share, and nine reasons were given me why I should put my money into the
stock at once. One reason was this:
"Because a few hundred dollars invested in this stock now and given to your
children should make them independent for life, or should provide most
handsomely for your own future."
Just what Mr. White would consider a "handsome provision" for my future I am
unable to say, but even a very modest provision arising from an investment of "a
few hundred dollars" would mean a dividend return of several hundred per cent. a
year. As the great railways and industrial companies of the country have
difficulty in returning even six per cent. on their capital, an investment
returning several hundred per cent. is worth looking into. Near the close of
this prospectus I learned that there was "very little stock left-not enough to
go around." The closing advice to me was:
Prices to Suit All Purses
"Consider the matter carefully. You have the opportunity. Will you grasp it at
the flood tide (now) and ride on to the shore of plenty, high and dry above the
adversities which often beset old age, to the land of our dreams, where wealth
is unbounded and every wish gratified, where comfort admits of enjoyment, and
wealth admits of opportunities for yourself and those you love? Or will you
hesitate and doubt, and let the chance go by, to remain in senile dependency
upon the bounty of others? Think! It is for you to decide. Think well! Buy! Do
it now!"
While I was thinking over this golden opportunity, I received a letter from the
New York office of the company offering the same stock for $6 a share.
Meanwhile, I was, in receipt of offers from various brokers to sell me the stock
for 90 cents, 85 cents, and 80 cents a share. I again wrote to the New York
office asking why there was a difference of $1.50 between the company quotations
in New York and St. Louis. A telegram came back stating that $6 was the only
official price for the stock. A day or two later I received a letter from the
Greater New York Security Company, stating that the New York office had no
authority to offer the stock at less than $7.50. I then timidly asked for an
answer to the riddle of the 80 cent stock offered by brokers. "We have never
paid any attention to what the enemy or the cut-rate brokers may do with the few
shares they may obtain from weak stockholders, " the company answered. "We have
received a great many complaining letters from persons who have invested their
money with brokers and afterwards have been unable to obtain delivery of the
certificates, and it is a source of deep regret to us that some people have
suffered a loss in this way, and we wish to warn you in time."
Not long after, brokers offered me the stock at 75 cents. Knowing as much as I
did at the time about the hippodrome methods of selling wireless stock, I still
doubted that the stock offered me by brokers at 75 cents was the same that Mr.
White was trying to sell me at $7.50. If I could get several hundred per cent.
on my money at $7.50 a share, I could get several thousand per cent. by buying
stock at 75 cents. Some weeks later, I gave an order to a broker of standing to
buy me ten shares of American De Forest common. He got the stock for 30 cents a
share, sent the certificate to the Greater New York Security Company and had it
regularly transferred to my name.
Profitable While It Lasted
A little while later, the same broker sent word to me that I could buy all I
wanted for 15 cents a share. That is, in the open market I could buy fifty times
as much stock as Mr. White would sell me for the same amount of money.
While the De Forest promoters were openly selling stock for a few cents a share
in New York last winter, Mr. White and his agents all over the country were
throwing dust in the eyes of investors and selling them the same stock anywhere
from $4 to $7.50 a share. Stock agents in the West took orders for the stock at
$4, and then filled their orders by buying the stock in the New York market for
a few cents. This was a very profitable business while it lasted, and it
probably would be going on to-day but for the warning given in the January
article of the "Fools and Their Money" series, in SUCCESS MAGAZINE. One firm of
selling agents alone made $250, 000 in selling De Forest stock.
The sales at fictitious prices were very large in the West. An investor from one
of the Western States came to New York last winter to pick up some cheap De
Forest stock. He appeared one day in the office of a broker in lower Broadway
and asked for a quotation on the stock. "What can I get a thousand shares for?"
asked the Westerner. "Oh, about 30 cents a share, " replied the broker. The
Westerner gasped. "You must mean another stock, " said he; "I'm speaking of
American De Forest Wireless." The broker took some stock certificates out of a
pigeonhole and exhibited them to the investor. The Westerner drew out of his
inside pocket a certificate for one thousand shares of De Forest and compared it
with the certificates the broker had. They were all off the same printing press.
"I paid $4 a share for this--$4, 000 for the lot!" exclaimed the Westerner. "Do
you mean to tell me that I can buy the same amount of stock in the market here
for $300?"
"Greater Than the Telephone"
The broker said he could, and he might get it cheaper. The Westerner's $4, 000
worth of stock a few days later had a market value of $150, and he very wisely
concluded that he would n't send any more good money after bad. His experience
is like that of thousands of other investors all over the country who have
bought wireless stock at fictitious prices, only to enrich the wireless
promoters and their unscrupulous stock selling agents. In advertising for agents
the other day, the De Forest people said:
"The stock is selling readily, and men of ability can easily earn from one
hundred dollars to five hundred dollars a week. This is a rare opportunity to
become identified with an enterprise that will reflect both credit and profit
upon all who are connected with it. The company is now earning money every day
and every hour, and is a greater monopoly than the Bell Telephone."
In order to cover up the sins of the past, the United Wireless promoters have
evolved a fearful and wonderful plan of exchange of stock. In the whole history
of finance I have been unable to discover anything like it. Our American code of
financial morals has recently been under rigorous investigation, and some
doubtful practices have been uncovered, but never before, to my knowledge, have
the promoters of a $15, 000, 000 company attempted arbitrarily to fix various
values for the same stock. The financial management of the Union Pacific
Railroad has recently been severely censured, but the searching investigation of
the Government has failed to show in the minutest particular that one share of
Union Pacific was not as valuable as any other share, no matter when nor where
bought, nor at what price.
The Merger Did Not Help
Those who believed in the future of the Union Pacific property ten years ago,
when the financial outlook was dark, and who put their money into the stock at
$20 a share, are on an equal footing with present day investors, who have
tardily recognized the value of the property and have paid anywhere from $100 to
$190 a share for the stock. The courageous New Englanders who bought the shares
of the Calumet and Hecla mine a few years ago for $10 or less are on an equal
footing with those who now pay $800 a share for the same stock.
But this is not the case with the American De Forest. Investors in wireless
stock who picked it up for a few cents a share are no better off in the United
Wireless merger than those who paid several dollars for the same stock. The
circular giving the details of the plan for exchanging United Wireless for
American De Forest makes this offer:
"For every dollar paid by you for De Forest preferred or common stock, there
will be issued $1.10 worth of United Wireless Telegraph Company's preferred
stock, plus 5 per cent. thereon for every year the stock has been held by you
for over one year. To the holders of bonds who desire to exchange for preferred
stock, we will exchange by allowing 20 per cent. on the par value of the bonds,
and the holder will be allowed to retain his bonus stock. To the holders of
bonus, cut rate, or brokers' stock, we will exchange at the rate of one share of
United for six of American De Forest. This applies to either preferred or common
stock purchased prior to January 1, 1907. All stock exchanged must be held in
escrow in bank or trust company for two years."
As the De Forest stock is intrinsically almost worthless to-day, it probably
matters little to its holders on what basis they exchange it for more wireless
stock. The stock that the promoters were selling last year, with the alluring
promise that it would return hundreds and thousands of per cent. a year
dividends, can now be exchanged for a new stock that the promoters themselves
are not very certain will return any dividends at all. The bondholders are in a
sorry plight. They had a first lean on the assets of the American De Forest
Company. Now they have an opportunity to exchange their bonds at a discount of
eighty per cent., for part of a $10, 000, 000 stock issue. These bonds, the total
issue of which was $500, 000, were brought out late in 1904, when the company was
sadly in need of funds, and could not raise any more money by the sale of stock.
The bonds were brought out in a peculiar manner. White, as president of the
American De Forest, executed a trust deed to White as president of the Greater
New York Security Company. About $270, 000 of these bonds were sold, many of them
going to investors in the West, and the remainder to American De Forest
stockholders in New York, Atlanta, and other Eastern cities. They bear interest
at the rate of six per cent. The quarterly coupons were honored until last
December. Since then the interest on the bonds had not been paid. The
bondholders, if they have any faith in the future of their company, can exercise
their rights as creditors of the company and put it in the hands of a receiver.
They certainly ought to have as good a chance of getting a run for their money
this way as they will have by selling their bonds for United Wireless stock at a
discount of eighty per cent.
These American De Forest bonds were the direct result of White's extravagant
management of the company in 1904. At the beginning of the year White made a
contract with the London "Times" to install the De Forest apparatus on a
newspaper despatch boat to report the naval engagements in the war that was
about to open between Russia and Japan. White profited by his early advices from
the Far East to make a turn in the grain and stock markets. His profitable
speculation enabled him to go ahead booming wireless stock. He put a good share
of his market profits into the De Forest company, spending money lavishly in
publicity and in the erection of useless stations. White himself says that he
spent $465, 000 that year in exploiting the company. One of the most extravagant
things he did was to spend $150, 000 in publicity at the St. Louis Exposition. A
big tower was erected on the grounds, and messages were flashed to stations in
various parts of St. Louis. White thought that this expensive object lesson
would result in large sales of the company's stock, but it did n't. The $150, 000
St. Louis station was almost a complete loss.
A big share of the receipts from the sale of American De Forest stock had been
spent in the erection of useless wireless stations. These stations had been
erected almost solely for the purpose of promoting the sale of stock. A station
was installed in Atlanta, Georgia, that connected with nowhere. The station was
erected because Atlanta investors were nibbling at wireless stock, and White saw
that there was a chance to sell a good big block by the right kind of
advertising. I am told that $3, 000 expended in the erection of this useless
station at Atlanta resulted in the sale of about $50, 000 worth of stock. After
the stock had been sold there was no more use for the station, and one day a
firm that had supplied some of the materials for the station came along and
seized it for the debt. The Atlanta investors now want to know what has become
of their money.
Another favorite publicity scheme employed by White and De Forest has been to
promise the early transmission of wireless messages across the oceans and across
the continent. As far back as January, 1903, De Forest sent a message to
President Roosevelt promising that he would be sending wireless despatches to
Manila, via. Hawaii "within eighteen months." That was only a dream. In 1904,
when American De Forest stock was offered to investors as "an alluring
proposition, " White's brokers made this announcement:
"The following wireless circuits have been opened for business--Chicago and
Springfield, Springfield and St. Louis, St. Louis and Kansas City, and Buffalo
and Cleveland; apparatus is now being made ready for a complete line of stations
connecting New York and San Francisco, and we are informed that wireless
communications between these two points will be established within the next
eight months."
This was also a dream. Only last November, when White was still counting the big
profits of his lucky speculation in the stock market, he was "planning to effect
instantaneous communication from the Pacific Coast to China in the near future."
This was another dream.
But the biggest dream that White and De Forest had in connection with the long
distance transmission of wireless messages was a little more than a year ago.
White devoted $500 worth of advertising space in one of the New York Sunday
newspapers of April 8, 1906, to a big type announcement that the American De
Forest Company was busily engaged in sending messages all the way across the
Atlantic, The Marconi promoters, some time previously, had induced President
Roosevelt to write a transatlantic wireless message to King Edward. It read in
this wise: "To his Majesty, King Edward VII., London. In taking advantage of the
wonderful triumph of scientific research and ingenuity which has been achieved
in perfecting the system of wireless telegraphy, I express on behalf of the
American people the most cordial greetings and good wishes to you and all the
people of the British Empire." The Marconi people say that they sent this
message, and we must take their word for it. Still, it seems rather strange to
the layman that the Marconi people stopped with this one message. White did not
intend to be beaten by the Marconi people. So he sent De Forest to Glengariff
Harbor, County Cork, Ireland, to receive a transatlantic message from the De
Forest Manhattan Beach station. White wrote an 800-word dispatch telling the
whole history of wireless telegraphy, and printed it in the newspapers, along
with a message from De Forest stating that the "aërogram" had been received in
County Cork. "The application of man's genius and the utilization of God's
natural forces represent a truly wonderful combination, " aërographed White to De
Forest; "this marvelous achievement recalls to mind that historic telegraph
message sent over the Morse cable many years ago, 'What hath God wrought!'" It
would be unkind to suggest that the 800-word history of wireless telegraphy,
which White says he sent through the ether to Glengariff Harbor, was in De
Forest's pocket before he set sail for Ireland. This great achievement in
aërography was recorded more than a year ago. Since then nothing has been heard
of the art in connection with the De Forest companies, and it may be that
transatlantic aërography is one of the lost arts. It certainly does seem strange
to a layman that after sending an 800-word message across the Atlantic nothing
more was heard of transatlantic messages. The cable companies still continue to
do business, and the owners of cable securities do not seem to be lying awake
nights worrying over aërograms.
While the De Forest people are not sending messages across the Atlantic, or
across the continent, or across the Pacific, they are doing some commercial
business. But this business is of infinitesimal proportion to the capitalization
of the De Forest companies. Instead of sending messages 3, 000 miles across the
Atlantic at ten cents a word, the De Forest people are doing a little coastwise
business within a limit of 300 miles at a charge of fifteen cents a word or
more. But this business is all handled by the Atlantic De Forest Wireless, a
sub-company that is White's personal property. This company is capitalized only
at $1, 000, 000, and the public has never had the opportunity of subscribing to
its stock. It delivers messages to steamers plying up and down the Atlantic
coast. I had occasion myself the other day to send a wireless message by the
Atlantic De Forest to the Ward liner "Merida" a day after she left New York for
Mexico. But no attempt was made to send the message directly from New York to
the ship. The message was first telegraphed to Cape Hatteras, and from there was
flashed over to the "Merida." Some effort has been made to do a land wireless
business, especially in Texas, but the land stations have been unable to compete
with the regular telegraph lines, and White himself tells his friends that land
wireless can never be profitable until hundreds of stations have been
established all over the country. Another dream that White had mid the splendors
of the McCall mansion was the Bonanza Gold Syndicate. A week after his
announcement of the United Wireless Telegraph Company, he devoted much valuable
space in the leading newspapers of the country to an appeal to investors for
$3, 000, 000 of capital to exploit "colossal gold deposits in gold-bearing sands
and gravel in the rivers and in many square miles adjacent in an accessible
country, showing such enormously rich wealth that the development of this
apparently mother lode of golden riches would startle the world as no other
great find in mining has done." Mr. White would n't tell where these colossal
deposits were located, but he promised to let the secret out after he had sold
the $3, 000, 000 of stock. He did, however, devote a great deal of space to
telling what a wonderful financier he was. Mr. White described himself as "a man
who has won conspicuous success in notable financial operations covering a
period of many years past, and who is one of the best known financiers in the
country." He also made bold to say that his operations were "the sort to
follow, " and that he was "the kind of man to go with in making investments." He
was going to issue $2, 000, 000 "to provide for the purchase price, plants
required, expenses and development of what were already indicated to be the most
colossal gold deposits ever discovered anywhere on earth." But finally, when
White brought out his Bonanza Gold Syndicate, the public appetite for mining
investments had been satiated, and there was no instant response to his appeal.
Not long after, White discovered that the "colossal gold deposits" were a myth,
and it is a pleasure to record that he sent the money back to subscribers.
· ·
A Correction
MARCONI WIRELESS TELEGRAPH COMPANY OF AMERICA,
Lords Court Building, 27 William Street,
NEW YORK, May 27, 1907,
FRANK FAYANT, ESQ., The Success Company, N. Y. City:
Dear Sir:--I have read your admirable article published in SUCCESS MAGAZINE for
June, and to only one matter would I take exception, viz.: that you state "the
De Forest instruments did their work and did it well, as was shown in the
competitive tests with the Marconi instruments." This company entered into no
competitive work whatsoever and it does not approve of such tests. In lieu
thereof we offered to show the Government our actual working on a commercial
basis.
As the above statement is rather misleading, if you can correct it I shall feel
much obliged. Yours very truly,
MARCONI WIRELESS TELEGRAPH COMPANY OF AMERICA,
By I. Bottomley, Vice-President.
More than nine decades later, Frank Fayant's carefully researched article still
resonates in U.S. communications policy. His landmark exposé even provided one
of the themes for a February 9, 1999 speech, Crossing Into The Wireless Century,
given by Federal Communications Commission Chairman, William E. Kennard, to the
Cellular Telecomunications Industry Association convention in New Orleans. But,
in a surreal twist, Commissioner Kennard did not refer to Fayant's article as a
cautionary tale about how unscrupulous companies can tarnish and hinder an
emerging industry. Instead, using a mixture of out-of-context quotes, plus
selective misrepresentations of what Fayant wrote, the commissioner painted
Fayant as the bad guy(!), and a supposed example of why uninformed journalists
should be ignored.
Courtesy:
http://earlyradiohistory.us/1907fool.htm
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