The Go-Go Years (6 page)

If the role of the specialist seemed to make a particular and perhaps even an unreasonable call for men of good character, this call was not always answered. According to the S.E.C. complaint, it was not in the case of the two Res, who had, it seemed, consistently yielded to the temptations while failing to meet the responsibilities. Over a period of at least six years, the S.E.C. charged, the father and son had abused their fiduciary duties in just about ever conceivable way, reaping a personal profit of something like $3 million. They had made special deals with unethical company heads—Lowell Birrell in particular—to distribute unregistered stock to the public in violation of the law. In order to manipulate the prices of those stocks for their private benefit and that of the executives they were in league with, they
had bribed the press, given false tips by word of mouth, paid kickbacks to brokers, generated false public interest by arranging for fictitious trades to be recorded on the tape—the whole, infamous old panoply of sharp stock-jobbing practices. Between July 1954 and April 1957, according to the complaint, they had improperly disposed of more than half a million unregistered (and therefore legally unmarketable) shares of Birrell's Swan-Finch Oil Corporation; in 1959, their operations had been so pervasive as to account for one in every twenty-three shares traded on the Amex for the year. To cover their tracks, they had used the standard dodge of trading through dummy nominees. Two of their nominees were alleged Cubans who, in the S.E.C. men's opinion, may never have existed. A third, one Charles A. Grande, through whose account the Res had filtered several million dollars' worth of securities, did exist, though he had no money of his own to speak of; he was a retired horse trainer, and his chief asset as a dummy was his interesting home address—10 Downing Street, which, to be sure, was not the London residence of the British prime minister but an old apartment house in the Italian section of Greenwich Village, New York. Among those the Res had managed to make victims of, the S.E.C. noted, were a number of political figures and celebrities of various kinds, including Vincent F. Albano, Jr., a New York State Republican leader; Abraham J. Gellinoff, a New York City Democratic leader; Toots Shor, the restaurant owner; Chuck Dressen, manager of the Milwaukee Braves baseball team; and—most eye-opening of all—the Amex's own president, Edward T. McCormick.

The investigation had been conducted under the leadership of the S.E.C.'s young assistant director of the Division of Trading and Exchanges, Ralph S. Saul, of whom, one way and another, the Amex would hear much more over the coming years; and when, on May 4, the charges—unrefuted by the Res—were presented to the full Commission, the upshot was the fastest punitive action in its history: permanent expulsion of the Res from the securities business, after only two hours of oral arguments.

3

Justice done, then—the bad apples had been detected and removed, if rather belatedly, from the Amex barrel. Two aspects of the affair remained disturbing. One was the ominously exact way the Res' methods of cheating had aped those of the manipulators in the bad and presumably gone old days before the New Deal had brought the S.E.C. into being. The other disquieting aspect was the presence on the S.E.C.'s list of Re associates of the name of Edward T. McCormick. If the Amex's president had been a personal participant in Re transactions, was it not implied that the Amex authorities, or at least the chief of them, may have known what was going on all along?

Before examining that question we may well take a look at those authorities. To a marked extent, they were a breed. President Ted McCormick, Arizona-born of an Irish father and a Spanish mother, a former S.E.C. commissioner who had jumped the fence from bureaucrat to businessman; Chairman Joe Reilly, slum-bred, one of nineteen children, a tough-talking self-made man who had worked his way up from floor page on the Curb to his present eminence; Vice-chairman Charley Bocklet; Jim Dyer, finance committee chairman; and Johnny Mann, chairman of the important committee on floor transactions—it was they who ran the Amex in 1961 and, with some variations, they who had run it over the preceding seven years during which the Res had romped. By and large, they had the blunt good humor and the disinclination toward fine moral distinctions of men who have bulled their way from nowhere to somewhere. Few, like McCormick, were scholars with advanced academic degrees; few had
any
degrees, and some had never finished high school. Virtually all of them were hard drinkers who brought indoors an old and honored tradition of the Curb that, in the outdoor days, had at least enjoyed the justification that alcohol helped keep out the cold and the damp.

To a man, they were of Irish extraction. The boisterous Irish like Mike Meehan and Ben Smith who had first made their mark in Wall Street thirty years earlier were now followed by a generation that had captured a key Wall Street institution, or come near enough to capturing it so that, in the middle fifties, to speak of the Irish-American Stock Exchange was almost a definition, rather than just a joke. But they did love jokes, too, loved them as few in dour Wall Street had ever done before them, and they gave the place a kind of rough levity. Old Joe Haff, for example, an Amex man, used to like to jump off ferry-boats and race them to shore swimming, and at Christmas on the Amex floor, a clerk would dress up as Santa Claus, other clerks would mount headlights on one of the posts and pretend it was a truck, and everyone would get gloriously drunk.

The reasons this rather aberrant Establishment undertook to shelter the Res—for, in retrospect, it is fairly clear that they did in fact shelter them—can only be inferred. It was not chauvinism; the Res were of Italian extraction. Plainly, it was not a case of conspiracy for profit; there is no evidence that the Amex officials shared in the Res' boodle. On the other hand, some of them were good friends of the Res, and frequent house guests of the elder Re at his place in Florida. More important, they were by temperament boosters; they believed passionately in the Amex, wanted it to grow and to rise in public esteem; and they knew that the Res were powerful old timers who could not be eliminated without a scandal. Like politicians, they would do almost anything to avoid a scandal. As for McCormick, he may well have had only the vaguest notion of what the Res were up to. Unlike Reilly, Bocklet, Dyer, and Mann, he was seldom actually on the floor, and, as the Amex's paid administrator rather than a member, he did not know the intricacies of stock trading at first hand. He was the upstairs man, the front man, and when he wasn't upstairs he was out on the road spreading word of the expanding Amex and bringing new business to it.

During his ten-year term as Amex president, McCormick had functioned chiefly as a salesman. The holder of a B.A. from the University of Arizona (Phi Beta Kappa, at that), an M.S. from the University of California, and a Ph.D. from Duke, in
1934 he went to work for the S.E.C. in a lowly job that paid $1,900 a year. Over the subsequent years, while clambering up the bureaucratic rungs, he wrote a standard text entitled
Understanding the Securities Act and the S.E.C.
, and in 1949 was appointed a S.E.C. commissioner by President Truman. In 1951 he made the familiar switch from low-paid government work to high-paid private-industry work that has been the bane of the S.E.C. from its beginnings, constantly draining it of talent. Never before, though, had a S.E.C. man—commissioner or staffer—left to become head of a major stock exchange. McCormick's appointment to the Amex was hailed as the beginning of a new era in which government and the securities business would work in happy cooperation for the public good. As a booster for the Amex, McCormick was notably successful; by 1961, daily share volume had more than quadrupled in a decade, and the price of an Amex seat had jumped from $9,500 to $80,000. The scholar and bureaucrat had turned out to be a born salesman. But with the Amex's growth, it began to appear toward the end of the decade, a certain laxness of administration had crept in. Restless at his desk, Ted McCormick was always out selling up-and-coming companies on listing their shares on the Amex, and while he was in Florida or at the Stork Club drumming up trade, sloppy practices were flourishing back at Trinity Place.

Or so it seemed in the light of the S.E.C. report, which pointed out that as early as 1957 a federal court had enjoined the Res against further violations of the Securities Acts and further trading in the stock of Swan-Finch, and that in 1958 the elder Re had been formally accused by the Amex's Business Conduct Committee of willfully violating the rules governing specialists. Late in 1959, this matter had finally come to a vote of the Board of Governors, which had inexplicably exonorated the Res, 18 to 5. Immediately the Business Conduct Committee had held its own meeting and showed its defiance of the Board by voting to suspend Jerry Re from trading for the month of January—a painless sentence, to be sure, since January was the month Jerry Re customarily spent in Florida.

Curiously, or perhaps not so curiously, most of the Amex
members had known very little of all this. “Everybody knew there was something smelly in Jerry Re's corner of the floor, but only in general,” one of the specialists has since said. For many members, the S.E.C. complaint of 1961 provided their first knowledge of the court injunction, the vote of the governors, even the month's supension. It also provided their first knowledge of the fact that in 1954 and 1955 McCormick had been personally involved in stock transactions with the Res. There is some irony in the fact that he had actually lost money on the transactions. Still, what he had done had certainly been, to say the least, indiscreet. Leaving aside the whole matter of the Res' later-revealed misdeeds, for the salaried administrative head of a stock exchange to enter into deals with members of that exchange—and specialists at that—would seem to imply a perfectly clear conflict of interest. For one reason or another, only a handful of Amex members seemed to be disturbed by the revelation of McCormick's indiscretion, or by the implication that the disciplinary actions against the Res had been largely swept under the rug. The members most disturbed were another father-and-son specialist team—or more precisely, a father-and-son-in-law specialist team. They were David S. Jackson and Andrew Segal.

4

The big men of the Street are of two kinds: those who come to it from outside with a driving urge to conquer, and those who through inheritance belong to it from the start, and therefore, because they do not need to discover it for themselves, can bring it fresh perspectives. The first kind, obsessed with the need for money and power, are the ones who bring innovations and variations to the craft of money-making, and who usually become the richest. They treat Wall Street purely as an arena; they accept its rules and customs and exploit them, often with some
thing close to art, but they do not seek to change its ways. The second kind—who, curiously, often have a temperamental indifference to money but nonetheless stay in Wall Street, never dreaming of turning their backs on it, simply because it is their world—are the ones who most often seek to remold it nearer to their hearts' desire.

Jackson, although only a shade over five feet three inches tall, and not even a millionaire most of the time, was one of the big men of the Street in 1961, and one of the second kind. He had been born into it, though hardly in the silver-spoon tradition of, say, J.P. Morgan the Younger. His father had been a hit-or-miss trader on the outdoor Curb, in the money one day and out of it the next, and he himself had been born on Henry Street during the time that the Lower East Side was still a Jewish ghetto. Jackson had gone two years to Brown and one year to St. John's University Law School before joining his father's business. A Curb (and later Amex) specialist since 1925, he had achieved a measure of fame, and more than a measure of honor, in 1955 when a Walter Winchell radio tip had resulted in a buying panic in Pantepec Oil, one of the stocks he specialized in (and a venture, incidentally, of the notable progenitor William F. Buckley, Sr.). Jackson, at personal risk far beyond the call of duty, had saved the deluded public from the consequence of its folly by selling short a block of more than one hundred thousand shares of Pantepec, at a price more than six points lower than he might have sold it, in order to keep the market orderly. This quixotically high-minded act had made him, for a time, a sort of Exhibit “A” of the securities industry before Congressional committees (and, it appears in retrospect, an unwitting cover for the actions of other less scrupulous specialists of the era). It had also earned him—and, subsequently, his handsome young partner Segal, a graduate lawyer who joined him on the floor the following year—some surly glances from a few of their colleagues.

As a result partly of the Pantepec incident and partly of his predilection, so uncharacteristic of many Amex men, for moral issues, Jackson came to occupy a special position there, respected,
somewhat feared, and by no means universally liked. This is not to say that he was generally unpopular. As an ex-governor, he was fond of boasting that he was the first Jew ever to have finished anywhere but last in an Amex election; he attributed his assimilation to the fact that he was “a pretty good golfer and a pretty good drinker.” Far from being an evangelist at heart, he was a liberal by instinct, and a philosopher by choice. “Every institution needs a house philosopher,” he used to say. “I'm the Amex's.” During the ten years of McCormick's Amex presidency the two men had become close friends, and Jackson had practiced his philosophy on McCormick. Over those years Jackson had watched McCormick gradually changing from a quiet, reflective man into a wheeler-dealer who loved to be invited by big businessmen to White Sulphur Springs for golf, and the change had worried him. “Ted,” he would say, when they were at dinner at one or the other's house, “why don't you read any more?”

“I haven't got time,” McCormick would reply.