Flynn’s Weekly Detective Fiction. Vol. 27, No. 2, September 24, 1927

Cheaters by Lin Bonner

It cost the somondoco mines $62,000 to produce “A Spoonful of Emeralds,” Which sold for only $5,000, or at a loss of $57,000.

George graham rice, who on at least three occasions had found himself on the inside looking out — sentenced for breaches of the law — has every reason to heap curses upon the heads of a band of swindlers who were run to earth by the minions of Keyes Winter, deputy attorney general of the State of New York.

They not only made him an innocent party to their depredations, but they put him afoul of the Martin Anti-Stock Fraud Act; caused him to face two prosecutions on the charge of stock swindling and cost him a sum of money estimated variously at one hundred thousand to half a million dollars.

One of the most essential things to the stock selling business is a “list,” called a mailing list in polite language, but more generally referred to as a “sucker list.” Without such a list, the stock salesman, legitimate or otherwise, is helpless. He has nowhere to start.

Therefore, when a crew of high pressure operators, whose playground is the brightest part of Broadway, found themselves in immediate peril of being broke, they cast about for a scheme that would put them in funds in a hurry. Like the monarch who offered his kingdom for a horse, these birds of prey would have given anything, just then, for a “sucker list.”

But sucker lists are the chief asset of the stock game and they are most jealously guarded by their possessors; and this particular band of workers did not happen to possess one at the moment.

The gang included Jimmie “Red” Quinn, Billy Rankin, Billy Neeley and Eddie Harrison, all of more or less unsavory repute. “Slippery Dick” Guest was named by one of the gang as the brains of the outfit, but, as on many previous occasions, he escaped capture when the trap was finally sprung on them.

Jimmie Quinn is credited with the inspiration that gave the gang their start on what looked like a chance to get a million dollars in a hurry.

At any rate, he or some one else suggested that George Graham Rice, mining stock promoter, winner and loser of millions of public money, had fine offices in West Fifty-Seventh Street, wherein were located lists which are said to have been productive of millions of dollars for various Rice promotions.

What this list had cost Rice is a matter of guesswork, but that it had an intrinsic value aside from income possibilities is a certainty, for each name on a good list represents an expense of from ten dollars upward.

In Wall Street, it is estimated that it costs a broker an average of sixty dollars to land each market trader on his books. This expense arises from postage, telephone calls, advertising matter and time involved in personal solicitation of the individual.

Consequently, it was out of the question that Rice would lend his precious list, carrying many thousands of names, to the Broadway bandits. Ergo, they had to devise another means of obtaining it. And that means turned out to be downright burglary.

At first the boys considered bribing the watchman of the building to enter Rice’s offices at night and purloin the list. But that plan had to be abandoned, for upon cultivation by one of the gang, the night watchman proved to be a steadfastly honest man, above lending himself to a crooked deal and liable to spoil the scheme by informing Rice that some one had designs upon his property.

So, on the theory that there are more ways of killing a cat than by choking it with butter, Quinn, et al, decided to make the watchman a party to their plan without his knowledge.

Thus, on a selected night, the advance man, who had been cultivating the acquaintance of the watchman, appeared at the building and engaged the guardian in friendly conversation. Then he suggested a friendly drink and, by this means, lured the man away from his post of duty. It was not long before the man was drunk, helpless and unaware that he had been betrayed by his supposed friend.

This all sounds very melodramatic, but we must keep in mind that truth is stranger than fiction and that this particular crowd of swindlers — at least one of whom was involved in the fleecing of a New York State banker, who since has gone to his grave — is given to dramatics.

While the watchman lay helpless a few blocks away, guarded by one of the gang, others gathered at the building. For lookout purposes, while two were ransacking Rice’s offices, they used a beautiful young woman, a former stage and screen notable who was at that time acting as hostess in a night club.

She, dressed in splendid evening finery, stood outside the building chatting merrily with two young men in dinner suits, to throw off police or others who might become inquisitive. In due time the men who had committed the burglary rejoined the group on the sidewalk and all left the vicinity of the crime.

After getting the list, the swindlers hid it away for several days, then they opened an office, using names identical with those of several prominent banking firms in Wall Street.

The list which they had obtained was that of people who had invested in Idaho Copper stocks, one of several then being promoted by Rice. The attorney general has charged that Rice, owning the bulk of this company’s stock, purchased at ten cents a share, had created a fictitious market for it by “rigging” it on the Boston Curb from fifty cents at the start to as high as six dollars per share; and that in that way, he had swindled the public out of millions of dollars.

The fact remains, however, that at the time Rice’s list was stolen, the stock was quoted at several dollars per share and, therefore, of immense value to the hundred per centers who had looted the promoter’s office.

When they had opened offices, the swindlers went to work on the persons who appeared on the list as shareholders. In complaints which were received by Winter, it was alleged that these men called their victims by telephone and represented themselves as Rice; that they represented a forthcoming drop in the market and urged the owners of the securities to send them in to such and such banker for deposit and disposal at the best possible figure.

How much stock was sent in to the swindlers probably never will be known, but it is a fact that at the time their plot was blown up they were awaiting the receipt of several hundred thousand dollars’ worth.

As soon as this stock should get into their hands, they would sell it on the Boston Curb and present to the shareholder utterly valueless stock in some other proposition. Thus, whatever they received for the Idaho Copper shares on the Boston Curb was all profit.

Naturally, this was a game which had to be worked fast, because George Graham Rice is himself too shrewd an operator to remain long in ignorance of the fact that something was wrong, whether he was aware of the theft of his list or not.

Any sudden raid on the market, involving a sudden drop in price of the stock, or one complaint from one of his shareholders would be sufficient to stir him into action. And it so happened that it was an inquiry of the latter sort which did finally give him an inkling that all was not right with his world.

But, before Rice knew he had been victimized, Winter, through underground channels, had learned of the enterprise and had set his Secret Service to work to land the gang. The swindle, though only about a week old, seemed so gigantic in potentialities that he determined to try and get the gang in such a way that they could not by any possibility escape a term in prison.

He first had two of his operatives get places in the gang and these men later stood for arrest and indictment in connection with the swindle, without disclosing their real identity.

Their chief duty was to obtain some of the stolen securities and, upon pretense of selling them, to return marked money to the gang. They actually did obtain a batch of the securities, but the amount involved was so small that they were simply checked and recorded for future use as evidence and no money was turned over for them, because the operatives had been told several hundred thousand dollars’ worth would be received in the mails within a few days, and it was decided to get the larger amount in hand.

For these Winter men to get into the confidence of the gang was not such an easy task, it may be imagined, and they were let into the plot only after a series of negotiations over costly luncheons and suppers.

Their arrest, also, almost destroyed Winter’s plan for rounding up the real crooks, and it was only the quick-wittedness of the men in keeping their identities secret that prevented complete collapse of the structure built up by the attorney general’s office.

While Winter was working on the case, Rice tumbled to the fact that somebody was tampering with his investors, and a search revealed to him that his list had been stolen. He employed private detectives to try and locate the thieves.

Then the city police came into the case and thus three agencies were out after the band, though the State’s men were in the lead. It was city police who arrested Winter’s Secret Service agents, though they were not aware of their connection when they took them in.

After this premature occurrence, the gang went into hiding, and the Winter men kept in touch with some of them, still preserving their incognito. Up to this time, the real heads of the proposition had not been made known to the Winter operatives, but finally one of them learned that the hostess of a leading night dub, the former luminary of stage and screen, was the sweetheart of one of the chiefs.

The man-hunters began to lay siege upon this girl. Night after night, correctly attired in evening clothes and armed with plenty of money, the operatives haunted that club, currying the favor of the pretty hostess.

Ultimately, they gained her confidence to such an extent that she revealed to them that she would, on a given afternoon, meet Jimmie Quinn in the Waldorf-Astoria, at Thirty-Fourth Street and Fifth Avenue. At the appointed time, Jimmie was there — and so were a squad of Winter’s men.

He and the girl were taken to Winter’s office and questioned, Jimmie being held on the charge of grand larceny. To make sure that he should not get away, he was taken up to Bronx County, where he was wanted in conjunction with the swindling of a college professor, and on this charge was held in bail of twenty thousand dollars.

Subsequently, this was reduced to seventy-five hundred dollars and he was able to obtain his liberty. As soon as he was freed, however, he was taken to Tombs Prison on the Idaho Copper deal and spent eight weeks there before obtaining bail. As this is written he is awaiting trial, along with one of his companions in the enterprise.

With Quinn in jail, the Winter forces, with those of the United States Post Office Inspector and the city police, continued their search for the rest of the gang, and it fell to the lot of the uniformed force to apprehend Bill Rankin, one of the ringleaders, so-called.

He was taken in the office of a telegraph company where, it was said, he was awaiting the arrival of a large amount of “sucker dough.” From Rankin the authorities obtained admissions giving away the entire scheme, from the time of the theft of Rice’s list until the break-up of the conspiracy, following the first arrests.

Rankin, like Quinn, was able to obtain bail and his freedom, but it was not long before he was again in the toils.

In the course of their hunt, the Winter forces learned that one Billy Neeley, an exconvict, had opened an apartment house; an exclusive apartment, it may be said, in that only proved crooks or ex-convicts could obtain lodgings therein. The doors of the place, which was located on West Seventy-Second Street, New York, were elaborately armored and secured by heavy bolts, to provide against assault by pestiferous policemen.

A keen and continued search of speakeasies, night clubs and other known haunts of the high pressure gang having failed to produce any more of the hunted men, it was determined to raid Neely’s place.

Thus, one afternoon, State Troopers, Secret Service operatives, post office men and city detectives went to the Seventy-Second Street house in force. They quickly surrounded the building, and two stalwart State Troopers went to the door of Neeley’s apartment.

They rang the bell, received no answer; then they hammered on the armored door with their automatics. Soon, with much rattling of chains and sliding of bolts, the door was cautiously opened.

A face appeared in the aperture. It was that of Rankin. Before he could close the door again the State Troopers were inside the apartment, guns in hand. Other officers followed.

A search revealed that Rankin was the only person on the premises, and he was again taken to Winter’s office, for investigation on a charge separate from the Idaho Copper transaction. Like Quinn, he is now awaiting trial on the latter charge.

While Quinn and Rankin were the only two bagged in this case, their alleged activities in Idaho Copper turned the attention of Winter to George Graham Rice and his affairs. The result was that Winter began two prosecutions against him, charging him with defrauding the public through “wash sales” of Idaho Copper and Colombia Emerald Development Corporation stocks.

In the former case, which has been treated in another article, Rice beat the case on a technicality and the State appealed from the decision of the lower court. In the Colombia Emerald case the State was victorious and Rice took an appeal. Neither has been finally decided as this is written.

In the Colombia Emerald affair, which had to do with an emerald mine in the South American country of that name, Rice was accused of taking an old and abandoned property and, by means of false engineering reports and boosting the stock in his newspaper, the Wall Street Iconoclast, of placing a two million dollar value on a property worth, at most, only a few thousand dollars.

With him as defendants in this action were the Wall Street Iconoclast, Frank J. Silva, Colombia Emerald Development Corporation, Nash Rockwood, Edmund J. McNamara and Frederick H. Lewisohn. The State obtained a preliminary injunction under which Rice and all others concerned were prevented from promoting or selling the stock, except under certain restrictions.

Part of the court record in this case is illuminating as showing the alleged methods employed by Rice in his dealings with the public. A memorandum to the Supreme Court, prepared by Deputy Attorney General Winter, first tells of the Wall Street Iconoclast, thus:

“The fraud in this case may be summarized briefly as follows: The periodical, the Wall Street Iconoclast, is published by defendant, Wall Street Iconoclast, Inc., and is edited by defendant George Graham Rice in the City of New York, with a large circulation throughout the United States.” (It is said Rice sends out about six hundred thousand of each issue, paying first-class mailing charges.)

“This periodical is a ‘tipster’ sheet, dressed up to appear as giving its readers, who pay six dollars for the information, impartial and disinterested news and advice about securities. It is designed to establish a relation of confidence and trust between its editor — and its readers.

“It consistently and continuously, in its weekly editions, comments on the stocks of four corporations — Idaho Copper, General Mines, Belcher Extension and the defendant Colombia Emerald Development Corporation.

“To further inspire confidence and trust in its news and advice about these securities it publishes a large number of letters from correspondents appealing for information and advice, together with the editor Rice’s answers to the same, in certain instances misrepresenting the value and condition of the securities held by the inquirer, and advising the sale of such inquirer’s securities and the purchase with the proceeds of the four securities ‘sponsored’ by this periodical.

“Nowhere in this periodical is there any disclosure that the defendant Rice or the ‘Rice interests’ have any interest in the profits which will accrue to the defendants from the public’s purchase of the four securities sponsored by this periodical; but, on the other hand, there is a studious concealment of such fact, in direct violation of the relation of trust and confidence that the periodical is calculated to inspire.

“To further inspire the relation of trust and confidence, the periodical contains inflammatory attacks upon the New York Stock Exchange in the interests of the public, and also to induce the public to purchase sponsored stocks it contains cunning references to quotations of these stocks from transactions on the Boston Curb Market, purchases and sales which the testimony of defendant’s accountant, Reis, and the transcript of the defendant brokers’ accounts conclusively demonstrate were ‘cross’ or ‘matched’ sales.”

This latter reference means sales where a person in control of a stock sells a given number of shares to himself in the open market at a price determined by him, the transaction being intended to show an activity which the stock does not actually possess. Where the price of a stock is progressively advanced by this method, it is known as “rigging” the market, and there have been a number of cases where big stock exchange operators have been expelled by that organization for indulging in the practice.

In addition to the boosting in the Iconoclast, the attorney general charged that Rice used a corps of high pressure salesmen to induce the public to invest in Colombia Emerald stock, of which he owned or exercised control over practically all that was available to the public.

As to the emerald mine itself, the State presented a graphic historical picture, stating in part, with reference to an affidavit filed by the defense:

“The history of the Somondoco Mines, owned by the defendant Colombia Corporation, is set forth with great detail. Disrobed of its romantic verbiage, it baldly discloses that these mines, although known to history and to the public generally, were permitted to lay buried for over two centuries, until 1896, when they were resurrected by the Colombian Company, which produced nothing.

“That, in 1919, some German interests attempted a promotion which proceeded no farther than an option; that in December, 1919, the original promoters of the present project, the McFadden-Gross group, obtained options and transferred the mines to the Colombian Emerald Syndicate, ‘which started to sell their stock on the New York Curb Market at fifteen and one half to twenty dollars a share in October to December, 1919, representing six to eight million dollars for the four hundred thousand shares at a time when they did not even own the property and even their options were of dubious, if of any value.’

“This promotion, according to Breger — a witness — went on the rocks and that corporation — Colombian Emerald Syndicate — was petitioned in bankruptcy in the United States District Court for the Southern District of New York; as a result of which proceeding, the trustee in bankruptcy, in the latter part of 1924, sold its entire assets, including the two mines, the canal and other paraphernalia, together with a stock of unsold emeralds to a dummy for McFadden for seven thousand eight hundred dollars.

“Thereafter, according to Breger, in 1924, the Chivor Emerald Corporation was organized by McFadden and took over the identical property now owned by the ‘Lewisohn interests’ and again promoted a stock jobbing proposition on very little production.

“After this unhappy career, according to Breger, the ‘well-known Lewisohn interests’ were introduced into the picture and organized the defendant Colombia Emerald Development Corporation to take over and operate this unfortunate property. The two mines were thereupon, in the latter part of 1924, transferred by the Chivor Emerald company to defendant Colombia Emerald Development Corporation for the entire capital stock of that corporation, consisting of one million shares of no par value.

“The Lewisohn interests thereupon paid defendant Colombia Emerald Development Corporation fifty-one thousand dollars cash and receive five hundred and fifty thousand shares of the stock, leaving four hundred and fifty thousand tied up in escrow for the benefit of the Chivor Corporation.

“Shortly afterward one hundred thousand shares of this stock was returned to the treasury of the Colombia Emerald Development Corporation, fifty thousand from the Chivor Corporation and fifty thousand from the ‘Lewisohn interests.’

“According to Breger, therefore, the entire history of these Somondoco mines was one of failure, and as the record established, it ran true to form up to the time when this action was filed against these defendants.”

The brief then outlines “operation” of the mines from December, 1924, until May, 1926 — a period of seventeen months — and states that “during this period only a few hundred carats of saleable emeralds were produced, which subsequently realized not over five thousand dollars, and that the great mass of the production was practically worthless because of the flaws and the light green color.

“This spoonful of emeralds,” the State continues, “was produced at a cost of sixty-two thousand dollars, a net loss to the company during that period of fifty-seven thousand dollars, without including sales expense and the cost of cutting — three to five dollars per carat.”

The statement is then made that Lewisohn put approximately one hundred thousand dollars into the enterprise up to February, 1926, and had sold to the public, in a period of about fifteen months, only about twenty-five hundred shares of stock.

It was at this time that Rice came into the picture, the State alleging that his agents obtained an option on the hundred thousand shares of treasury stock previously mentioned, he agreeing to pay one dollar per share, and also an option on the four hundred thousand shares, more or less, held by Lewisohn.

With that held in escrow for the Chivor Corporation and others, it was charged that this deal left only twenty-five hundred shares out of one million free in the hands of the public.

Within a few weeks, it was charged, Rice, operating in the name of A. B. Brown, began to sell the stock, starting it off at one dollar fifty per share. Soon it rose to two dollars, due, the State charged, to manipulation by Rice.

The attorney general cited one day’s trading wherein a witness alleged that Rice sold on the Boston Curb seven hundred thousand shares of stock, and that it was all bought by the Wall Street Iconoclast, his newspaper.

The State contended that this huge transaction, representing several million dollars and commissions to brokers of fourteen thousand dollars, was made possible through Rice lining up seventeen hundred investors to purchase Colombia Emerald, General Mines and other “sponsored” stocks; that he obtained their purchase money in advance and just made the market gesture as a matter of form, although the brokers were instructed to make out the stock certificates in the names of the seventeen hundred investors, and did so, sending the certificates by registered mail.

Rice’s culpability, it is the State’s contention, regardless of any other consideration, lay in the fact that he guided them to buy stock controlled by him, at prices fixed by him, without disclosing that he was the seller.

“The relation between Rice and his customers,” said the plea to the court, “was one of confidence and trust. They were his clients, looking to him for his advice in the purchase and sale of stock, and for the selection of independent brokers who would represent them in the negotiations on the Boston Curb Market to procure the best price in that market. Such a broker would need to be free to select the highest price.

“Instead of this, Rice selected brokers on the Boston exchange who admittedly represented him, and dealt with him as the principal, buying stocks from other brokers employed by Rice to sell Rice’s own stocks.

“This arrangement offends one’s ideas of common honesty and decency, placing, as it does, Rice’s customers in a helpless position of being obliged to take what Rice has already predetermined that he shall sell to them, and depriving them of the independent services of a broker who may negotiate at arm’s length with his antagonists.”

In other words, the State charges that Rice was playing both ends against the middle, operating his newspaper as a “come-on” to bring lambs to the shearing table.

How much Rice or anybody else reaped from these operations, originally revealed through the theft of his list by the Broadway “dynamiters,” is not known, but it is said to have run into millions.

Lewisohn, the State pointed out, made one dollar on every share of his four hundred thousand which may have been sold after the first one hundred thousand shares of treasury stock optioned to Rice had been disposed of.

Assuming that all were taken over by Rice, the net return to Lewisohn, after deducting the original hundred thousand dollars he had put into the ingenious proposition would be three hundred thousand dollars.

Few men in Wall Street are more skillful in market affairs than George Graham Rice, and, despite the fact he has been behind bars several times in his career, he has put up one of the stiffest fights in this and the Idaho Copper affair that Winter, in his enforcement of the Martin Act, has encountered.

He has surrounded himself with an array of brilliant lawyers, has spared no expense to prove his operations were legitimate, and probably, if necessary, will carry the fight to the Supreme Court of the United States.