Thursday, June 21, 2012

The Tricks of the Wall Street Game, by Frederick Upham Adams,

June, 1909, Everybody's Magazine, Vol. 20, No. 6, The Tricks of the Wall Street Game, by Frederick Upham Adams, pages 804-813

EDITOR'S NOTE.—This is the fifth in a series oi articles on Wall Street, all of which are prepared and substantiated with the utmost solicitude for accuracy. We care nothing for a sensation, and are determined to be absolutely fair to all concerned. Our object is to expose the lure: and baits whereby the average man is tricked into the quest of "easy money" in stocks, and to show what hafzjzens to him within the tails will deny that there are honest brokers.

It is not denied that there are hundreds of speculative firms content to abide by all the rules of the game as specified by law and by the restrictions and regulations imposed by the various exchanges. It is also a certainty that there are individual speculators of large means who employ no advantage other than that conferred by good judgment and fair strategy. They need make no plea against the indictments previously made nor those which follow.

Where shall the unbiased student of Wall Street seek for data which will determine the question of the fairness or unfairness of its methods? Not even a legislative committee can wrest from the living brokerage housesof financialdom their closely guarded secrets.

Only by a post morlem examination can the truth be revealed—and even then only a portion of it. When a speculative firm goes down to death in the crash of a. panic, or through unfortunate operations on the part of its principals—then, and only then, is there displayed to public gaze those facts which determine whether or not it has followed the strict line of probity.

I take it there will be no contention that only dishonest Wall Street firms go into bankruptcy and into the hands of receivers. Surely it cannot be possible that Wall Street is the one place in which cheating is so impolitic that it is inevitably followed by bankruptcy. The cold truthof the matter is that most failures of speculative firms are charge

NO critic of \Vall Street and its methods able not to the fact that cheating was unprofitable, but to the fact that their unfair profits were insufficient to offset losses from other causes. We find in their books the plain imprint of all the expedients and methods, good and bad, fair and unfair, employed in the speculative business. Some of these bankrupts have books absolutely clean. Others show indications of slight lapses from the strict line of business and legal probity, while others fairly reek with evidence of crooked and absolutely dishonest methods.

I shall call special attention to certain evidence revealed by the books and court records identified with the failures of three VVall Street firms, viz: A. O. Brown & Company, T. A. McIntyre & Company, and Coster, Knapp 8: Company. Involved in the fall of the last named house was the disgrace and ultimate suspension of Marshall, Spader & Company.

It is a very easy thing to revile the corporate dead, but who was there three years ago who would have dared predict that these four firms were destined to bankruptcy or suspension, and the exposure of grossly questionable practices? For years I have kept in fairly close touch with Wall Street affairs, have associated with men most likely to be warned against concerns deserving bad repute, but until the crashes came the worst one heard was conjecture as to how they maintained their huge establishments.

These houses were officered by men who had been admitted to membership in most of the leading exchanges of the country. All ofthem were supposed to be backed by large capital, they had ample credit with the banks, they had no difficulty in borrowing hundreds ofmillions of dollars, they maintained luxurious home ofiices and scoresof branches scattered all over the United States, they enjoyed the confidence of a. high class of patrons, their firm names were regularly mentioned in the financial columns of the leading papers —there was absolutely nothing to warrant the prediction that they would fail, and in their failures disclose practices from which the surviving firms of Wall Street now claim exemption.

Before considering in detail the nature of the disclosures made by the books of these departed firms, I wish to offer a rather important statement. There is nothing to show that A. 0. Brown & Company, T. A.McIntyre & Company, or Coster, Knapp 8: Company ever devised or introduced one devious new method or one novel sharp practice in the Wall Street game. They simply attempted to take advantage of tricks invented by others, and probably perpetuated by others. They did not fail because of these tricks—please keep that in mind.


Much of the crookedness in unscrupulous brokerage houses is concealed in what are known as “numbered” or “dummy” accounts. It must not be inferred that such an account is a certain indication ofunfair practices. There are legitimate “dummy accounts”; legitimate, at least, by Wall Street’s rather twisted code of ethics. The big financier who wishes to conceal his position in the market, who meditates a campaign which will net him vast profits or advantages, or who for any reason whatever desires to work in the dark and strike an unseen blow, conceals his identity under a “dummy account.”

The great speculative pools and syndicates which force stocks up and down also insist on the secrecy thus assured, It is seriously urged by most of the scientific defendants of Wall Street methods that our present civilization would go to ruin if the “dummy account” were prohibited by law. It would be almost as fatal to progress as permitting poker players to look at their opponents’ hands before the draw.

But when a brokerage firm maintains a dummy account for its own use, it renders itself liable to suspicion. There is no law or rule prohibiting a broker or a firm from open participation in the market. In such cases his name, or that of the firm, should appear on the books. Many conservative firms are founded on the agreement that none of its members shall buy or sell stocks for themselves or for the firm account, this excellent restriction being based on the reasonable certainty that the game will eventually get any and all who bet against it. But there is no valid reason or excuse, so far as I am informed, why a brokerage firm should maintain a dummy account. On the other hand, without such an account it cannot readily take advantage of its patrons.

The dummy account in the name of a firm is the accepted medium for the bucketing of orders against a customer; it is a bookkeeping device for covering and obscuring most of the tricks by which the patron of stock gambling is swindled by those whom he is compelled to trust. How many existing Wall Street concerns have such accounts on their books? There is no way of answering this question, but we do know that most of the firms which have fallen into the hands of receivers disclose such accounts, and we also know that an analysis of them reveals the fact that they were employed for purposes of fraud.

The books of A. O. Brown & Company, as well as the proceedings in open court, throw a strong light on methods which had their origin years before that firm began its wonderful career. In justice to the members it is proper to state that a careful study of the firm’s books fails to indicate any settled policy of wrongdoing. It was not until unfortunate investments and unfavorable market conditions had driven them into a corner that they grasped and attempted to use the unfair weapons shaped by others, and undoubtedly still used by others.


Their books show thirty-three dummy and numbered accounts. Seventeen of them represent small profits ranging from $20 to $900, and bear such designations as “U. X. 247,” “C. N. 48,” “Bx. 665,” and “Rd. 21.” “Account No. 24” showed a profit of $180,000, and the membersof the firm stated in court that they were of the opinion that it belonged to Mr. F. R. Payne, of Williamsport, Pennsylvania. It subsequently developed that Mr. Payne had officiated as the manager of the branch ofiice of A. 0. Brown 8: Company at W illiamsport. Another employee was credited with dummy account “X,” which showed him ahead to the extent of $2,300.

“Account No. 2” showed a loss of $450,000, and was charged against George 1. Whitney. To this was subsequently added $70,000, which once stood in the name of a female relative of a member of the firm. Mr. Whitney did not protest against this item. He failed in Pittsburg in 1907 for a large sum, a part of which was due to A. 0. Brown & Company, and seems to be indifferent to such small items as $70,000. When a brokerage firm is in distress it is quite convenient to have an account against a person who makes no objection to having miscellaneous losses charged against him.

The identity of “Account No. 5,” showing a loss of $45,000, is still shrouded in mystery. No member of the firm seems able to identify it. Mr. L. G. Young, one of the unfortunate firm, admits ownership ofDummy “Account No. 7,” with losses of $185,000. The firm concedes that it is responsible for Dummy “Account No. 500,” which shows an approximate loss of $8 50,000. Before considering the very interesting factors pertaining to “Account No. 500,” I wish to take up other details as revealed by the exhibits in the books of A. O. Brown & Company.


The first utility of a dummy account is to facilitate the bucketing oforders by a house with a Stock Exchange connection, despite the rulesof that organization.

In legitimate stock transactions a brokerage firm accepts an order to buy a certain amount of stock, and proceeds actually to buy it. The customer advances, say, ten per cent. of the purchase price in margins. The broker advances a second ten per cent., and then pledges with a bank enough securities to procure the remaining eighty per cent. for the actual purchase of the stock. If, however, one customer buys a certain amount of Pennsylvania, and on the same day another customer sells the same amount of Pennsylvania, the brokerage firm is not required to make an actual delivery, the accounts offsetting themselves in the Clearing House.

Since there are more public buyers than sellers, this does not happen so often as would be desired by reputable houses. The unfair and inhibited method pursued by certain firms is to buy stock for the customer and then sell the same amount of stock and charge the sale to a dummy account backed by the concern. This offsets the account in the ClearingHouse. The brokerage firm oonsequently does not have to call on the banks for money. The ooncern simply bets that the customer is wrong. The margins advanced by the latter have not exerted a feather’s weight in the adjustment of prices. The customer pays interest on money which was not borrowed, swells the bank account of the broker with margins, and is debarred from the natural market advantage which comes from the actual purchase of a stock.

Here is an illustration of how this workstaken from the books of Coster, Knapp & Company: A customer purchased 100 shares of New York Central at 130 and deposited $1,000 in margins. The firm sold the stockand charged it to a dummy account. No stock passed the ClearingHouse. No money was borrowed from the bank. Yet for three months the customer paid compound interest on $12,012. 50, a total of$120.53. He then sold the stock for the same price at which he had bought it, the deal costing him in excess of $155, of which only $2 5 was really “earned” by Coster, Knapp & Company. The balance was the unfair profit of bucketing.

I submit four accounts taken from the books of A. O. Brown & Company under date of August 24, 1908:

“Account No. 2 ” was the one which later was said to belong to the bankrupt Mr. Whitney, and “Account No. 24” was the one later claimed by Mr. Payne, of Williamsport, the local manager of A. O. Brown & Company. Since Mr. Whitney had failed nearly a year before, it seems rather strange that he should be such an active participant in the market; and it must have kept Mr. Payne busy sending in hourly selling orders against those purchases made by the customers of the firm.

The unquestioned evidence of these records, as verified by expert accountants and substantiated by common sense, is that they were bucketing transactions of a type grown all too familiar of late.


The firm of T. A. McIntyre & Company had that respectability and those advantages which attach to membership in such institutions as the New York Stock Exchange, the New York Coffee Exchange, the New York Cotton Exchange, the New York Produce Exchange, the New Orleans Cotton Exchange, the Chicago Board of Trade, the ChicagoStock Exchange, the Liverpool Cotton Exchange, the Merchants’ Exchange of St. Louis, and bodies of lesser importance. It had an exceptionally high standing until it failed and its methods were revealed.

The firm maintained ten dummy accounts, the most important of which was “No. 275.” This was a truly stupendous account. When the firmfailed and its books were balanced, it was found that there was a credit to the firm on “Account No. 275” of about $3,413,000. Against this there were “ short sales ” of one hundred and ten different kinds oflisted stocks and bonds, a most imposing array, including 9,500 sharesof Reading, 1,735 shares of Great Northern, preferred, 1,800 shares ofAnaconda, 1,035 of Sugar, 518 of Pullman, 700 Atchison, 1,400 Pennsylvania, 2,300 Smelting, 2,000 Brooklyn Rapid Transit, 958 ofNorthern Pacific, 1,500 Union Pacific, 1,600 Corn Products, and smaller lots of nearly one_hundred other stocks and bonds.

The "losses" on these short sales were about $3,216,000, indicating a net profit of about $200,000 to the firm. It i; not to be inferred that allof these were sales for bucketing purposes, though the books of this defunct concern show that “Account No. 275” was used for bucketing and other questionable expedients. I call special attention to it as indicating the enormous volume of business charged by one firm against a dummy account for which the firm was admittedly responsible, and ofwhich it was the unfair beneficiary.

We will next take the case of Coster, Knapp & Company, whose comparatively recent failure had a train of suicide and disgrace.

On August 29—3r, 1906, there were entered on several pages ofCoster, Knapp & Company’s cash book and of the “purchase and sales book,” a large number of notations showing purchases of short stocks from Marshall, Spader 8: Company for the “J. G. Marshall” account, and sales to Marshall, Spader & Company of these same stocks for a “Marshall, Spader 8: Company Carrying Account.”

These entries were made in the regular manner and showed stocks purchased from, and cash paid out therefor to, Marshall, Spader &Company, and also stocks sold to, and cash received from, Marshall, Spader & Company. The inference was that these purchases and sales were actually made through the Stock Exchange, but it is possible that this technicality was not observed. Be that as it may, a comparison ofthe entries for purchases and sales shows that they were absolutely identical, and any well-informed Wall Street trader knows what that means.


It subsequently developed that Coster, Knapp and Co. had bucketed practically all the “long” accounts of its customers. One of the firm protested against this practice, and it was for his benefit that this formality was employed. He apparently was satisfied. Shortly after this, he retired from the firm, believing that its affairs were in proper shape; nor did he learn until after its failure that every purchase made was offset by a sale on the part of his own firm.

The books of this concern are filled with bucketing accounts. Again and again the record shows that when “purchases” were made for customers the same number of shares were “sold” -for “J. G. Marshall,” “Marshall, Spader & Company Carrying Account,” “C. Coster, No. 3,” or “C. Coster, No. 4.”

The firm of Marshall, Spader & Company had always enjoyed a high reputation. Its members denied participation in these bucketing transactions. When summoned before the Governors of the New YorkStock Exchange, they declined to show their books, and were suspended from membership for several years. They have since retired from business.

When A. O. Brown & Company failed, there were accounts in the namesof 910 customers on its books. We find that Williamsport, the home oftheir branch manager, Mr. F. H. Payne——-owner of “Account No. 24,” with profits to his credit of $180,000 —-numbered only nine customers. They surely were a profitable nine for the busy Mr. Payne. Since the annual expenses of A. O. Brown & Company were nearly $800,000, it follows that each of the 910 customers was compelled to contribute an average of between $800 and $900 to keep the ofiices open.

T. A. McIntyre & Company had 567 customers on their books, with annual expenses of about $450,000. They were therefore assessed an average of about $800 annually for the upkeep of that concern, to say nothing of what they paid in profits. Wall Street considers a customer as worth not less than $1,000 annually.

Here is an illuminating example of how business is transacted by a certain class of Wall Street concerns. It is taken from the books of A. O. Brown & Company under date of May 1, 1908, and deals exclusively with the trading in United States Steel common for that business day:

not less than $11,500—were not used for the purchase of stocks. It also means that these same customers were charged interest on so much of the $82,616 as they did not put up in margins. They were also charged $287.50 for stocks purchased, $25 for stocks sold, and $4 tax on sales. The debiting of the account to “No. 9" precluded the necessity of borrowing money from the banks, A. O. Brown & Company choosing to take the risk that their customers were on the wrong side of the market.


The dummy account serves still another and much more villainous purpose. Customers do not always make purchases of securities with cash. Often they put up with brokerage firms their own stocks or bonds to margin or cover their new investments. These are supposed to be placed in the firm’s safedeposit vault or in the bank as specific security for the funds advanced in the transaction in which they are concerned. To make use of such personally owned securities in any other connection is criminal, or at least grossly illegitimate. Following the suspensions of the large brokerage houses mentioned above, and indeedof most of the firms that have gone to the wall in late years, comes an aftermath of accusations of larcenies of securities. Hundreds ofcustomers are still trying in vain to get back shares or bonds left with bankrupt firms, which these concerns audaciously sold, diverting the proceeds to their own account. To conceal such transactions the dummy account is utilized. In the event of failure, the customer’s property disappears in the flood of the bankrupt’s general indebtedness, and there is no recourse save criminal prosecution.

Bucketing is the least dishonest of all the tricks of the financial game, and probably the most common. The expedient of the dummy account is used for other purposes, some of which are flagrantly dishonest, and allof which are intended to plunder the customer. '

In the first place it is practically impossible to verify the report of a broker. You must take him at his word. Suppose, for instance, you give a broker an order to purchase roo shares of Reading at 125. It is quoted at 126 when you place your order. Later it drops to 12 5, with a few transactions at 124%, but at once rebounds and closes a point higher. It_frequently happens in an excited market that sales will be made half a point and even a point apart at the same time. Your broker may inform you that he was unable to buy 100 shares of Reading‘ when it dropped to 12 5, and you cannot disprove his statement. You have absolutely no way of telling whether or not he has spoken the truth.

Now follow this: You are still anxious for 100 shares of Reading at 12 5, and keep your order standing. Reading drops to 124, with large transactions below 12 5. Your broker informs you that he has purchased your Reading at r2 5, and it is so charged against you. He may have bought it at 124%}, in which case he will have swindled you out oftwenty-five dollars, no matter what the future course of the stock. He may repeat this operation when you close the deal.

This cannot always be done when a customer fixes a set price at which he will buy or sell, but it is not a difficult thing to do in an active and rapidly fluctuating market. The trick becomes easy when the customer orders a stock bought or sold “at the market,” and a large percentage ofstocks is thus handled. The fraudulent profits will often be found in some dummy account helonging to the firm.


The point is that a dishonest broker would not hesitate to buy the stockat the low figure, place it to his credit in a dummy account, and charge it against you at any later fractional rise. The conventional answer to this accusation of trickery is that the broker is compelled to give his customer a statement showing the purchaser or seller of the stock, and that the transaction must pass through the Clearing House. The truth ofthe matter is that the average customer does not know what his statement means—if he receives one—and that he would be unable to verify it if he tried. In the second place, no reputable house would continue to accept orders from a customer who habitually traced its operations, and dishonest houses make a bluff to the same effect. And there you are!

In the vernacular of the Street this form of extortion is known as “the missing eighth,” but it is as often “the pinched quarter,” and sometimes “the ‘stolen half.” This dishonest tribute probably amounts to millionsof dollars annually.


When a stock drops to or below the point at which it is margined, the customer assumes that he is “wiped out.” The statement later received from his broker usually aflirms this. As a matter of fact, nothing of the kind may have happened. The broker may have been unable to sell thestock at or near the margin point. This may best be made clear by an illustration. '

Let us suppose that N. Y. Central is hovering around the 130 point, and that a tip is widely circulated that it will advance to 140. You buy one hundred shares at 130 and margin it for ten points, which means that you advance $1,000 to your broker. Two hundred other individuals buy at about the same figure, which means that the “public” has margined $200,000 on 20,000 shares of Central. They cannot be closed out, barring formal notice, until the stock falls to 120, and until all of thisstock is actually sold at or below this figure. If, during the selling of a portion of these 20,000 shares at 120, the price rises to a higher figure, all stock unsold is still legally protected by margins, and those who have speculated in it still have a chance. That is the rule, but not always the practice.

Now let us suppose that something disastrous happens—and disastrous things are always happening in Wall Street, and not infrequently to N. Y. Central. That stock quickly drops from 130 to I25, and then is smashed to 120, with 300 shares sold at thisfigure and 200 shares sold at a fraction below. It then rebounds and closes at 12 5. - If you are the ordinary type of stock gambler, you will take it for granted that you have lost your $r,000, and will not be in the least surprised to learn from your broker that such is the case. You know that N. Y. Centralstock was sold at and below the point at which you were protected by margins, and assume that it was your stock. Each of the two hundred fellow victims takes the same view.

Please consider this: Only 500 of the 20,000 shares of N. Y. Central bought at I 30 could legally have been closed out on the momentary break below 120. The remaining 19,500 were still protected by margins. You may have been one of the unfortunates actually closed out. You cannot prove that you were not. If you have an honest broker he will tell you.

Here is a situation in which a fictitious bid, a washed sale, or a matched order in a small ‘amount of stock may be made the means of wiping out a long line of heavily margined stock, and it is one of the most common and profitable tricks of the Wall Street game. A fraudulent sale of one hundred shares of stock may “shake out” twenty times that amount ofactually margined stock, and the victims will ascribe their losses to hard luck. The transaction will be recorded in some dummy account to the profit of the firm.


We will now consider the part played by dummy accounts in taking advantage of those customers who have placed with a firm large buying or selling orders. Employees of brokerage firms frequently participate in this profitable practice, most of them preferring to conceal their identity under a dummy number or letter.

The actual placing of a large order is reasonably certain to influence the selling price of a stock. If, for instance, you knew that Mr. Harriman was about to buy 100,000 shares of Union Pacific, you would be safe in acquiring a few hundred and holding them for the inevitable rise due to the execution of Mr. Harriman’s large order. In an ordinary stock the placing of a 5,000 share order is bound to have an influence, and inactive stocks move violently on far less encouragement. Mr. Harriman and other great operators and manipulators have mastered the science ofconcealing their movements, but the average speculator of even large resources is compelled to rely on the machinery of a brokerage house.

Orders generally first reach the office manager, are given by him to the order clerk, by him telephoned to an employee on the floor of theExchange, whov transmits them to the broker who represents the firm, or, in his absence, to a two-dollar broker or floor trader.

Suppose that overnight there accumulates a large number of orders to purchase Union Pacific. We will assume, for instance, that the firm ofSmith 8.: Jones finds itself commissioned to purchase for seventy-five customers a total of 30,000 shares of Union Pacific at the market. That is a fairly sure indication that other brokers also have buying orders. It is a certain sign of public confidence in the immediate future of Union
Pacific. We will also assume that you, dear reader, have intrusted Smith& Jones with authority to purchase 100 shares of that stock on your account. You naturally wish it as soon as you can get it. You only regret that you didn’t purchase it before the market closed on the previous day; but the favorable news failed to be printed or circulated prior to the close of the market.

What happens? A lot of things may happen, and none of them in your interest—you may be perfectly sure of that. There is nothing in the world to restrain Smith & Jones from first buying 2,000, 5,000, or 10,000 shares of Union Pacific on their own dummy account. You cannot force them to execute your little order in advance of theirs. You may be in Harlem, Chicago, or Omaha. Wait until your betters are served.


The oflice manager also buys as much Union Pacific as he can afford. The “public” is in the market, and the news at once reaches the order clerk. He holds back the flood of buying orders long enough to take a small flyer himself. The same with the telephone clerk on the floor ofthe Exchange. Union Pacific has closed at 17 5 the day before. It opens a full point higher. There are transactions of 50,000 shares in the first quarter hour, but yours is not among them. The papers give vivid accounts of the wild scramble to buy Union Pacific. It rapidly mounts to 180, and then you get action on your little roo-share order.

Possibly the order clerk sells you that particular stock. He was there at the start; you were somewhere else. He is on the inside; you are on the outside. Besides, you are a “producer.” The clerk nets nearly $509 as the result of his sagacity. The floor manager sells his stock, Smith &Jones dispose of theirs, and the dummy account is richer by $25,000. There’s no difficulty in doing this. The firm’s own customers stand ready to buy the stock at the market. The public’s orders are now being filled, not at 17 5, but at x80, and perhaps higher. The market may rise still higher, and you may be able to sell later at a profit, but the chances are ten to one that a professional bear clique will smash Union Pacific back to 175 or below. '

As an illustration of the extent of the system of robbing customers by means of false purchases and sales, I quote what was said to me by oneof the big market manipulators who employs the services of many representative Stock Exchange houses and who knows not only the diagrammed part of the stock game but all of its uncharted tricks: “There has never been a year in the past twenty fn which I have not caught some of my own brokers ‘scalping’ my orders. In the cases of the ones I have nailed, I have had little trouble in inducing them to ‘own up.’ The total amount of money I have been parted from in my operations by such practice must amount to hundreds of thousands of dollars. Single houses have robbed me in a single day’s transactions of as much as $10,000, and I have in my box the written admission of a few firms, not scrubs, but representative commission houses, that they have scalped my purchases or sales to the tune of 2 to 2% per cent. on single transactions on a very active market. And yet so common is this practice that though my complaint, with submission of proof to the Exchange, would bring about a scandal and the expulsion of the houses in question, I have made no protest, but, on the contrary, have continued to let them have my business because I knew that the houses which I would substitute for the ones caught might give me even a worse deal. “I don’t mean by this that all brokerage firms practice such robberies, for a few of the houses most popular, year in and year out, with manipulators, would put up their shutters rather than resort to such theft. I know one broker whose business for manipulators is so enormous that he could easily, if he resorted to this trick, pinch out hundreds of thousands each year without even being suspected of it. It is the few of his calibre that redeem the game. I assert that the larger per cent. of the commission houses obtain a large part of their income just this way. You can imagine the show a merchant in New Orleans would have in the execution of a 1,000 shares order on a panicky day when I give you this experience of mine:

“ On such a day, in which a certain stock I was handling covered a range of seven points, I gave four different brokers a selling order of1,000 shares each, and four other brokersbuyingordersof 1,000 each. Oneof my brokers sold the 1,000 shares which made the lowest price, and one of my buying brokers secured the stock, but the returns came in from two of my other brokers that they had each sold the r,ooo shares at the bottom price, which means that they had each sold their 1,000 shares at one or two points above the bottom and were scalping $1,000 or $2,000 apiece.”

The trick of manufacturing an active and rising market is performed by means of matched orders. Until recent years this interesting trick was turned by “washed sales,” but this was ruled out of order. There was no money in it for the system; besides, it was feared that it could be carried to such an extreme as to make stock gambling so absurd that the public would decline to engage in it. I doubt if there was any justification for this fear——the gambling public neither thinks not remembers—but pure and simple “washing” was' barred. This prevented two or more brokers from going through the form of buying and selling shares of a particular stock and recording the transactions, thus giving the fictitious quotations an official character. No shares changed hands, no money was borrowed from the banks——it was a pantomime, a juggling trick for the luring of victims. This work was so raw, also so devoid of profit to banks or brokers, that the Governors of the Stock Exchange placed a ban on it.


The device of matched orders was then invented, and with this invention a new use was found for the dummy account. Under the matching system, manipulators can have just as active a market as they are willing to pay for, and a clique of brokers can put prices up or down at little cost, save the risk of suspension for work which is too coarse.

One of the most sensational attempts to influence the stock market by means of matched orders and dummy accounts was that engineered by A. 0. Brown & Company in August of last year. The firm was heavily short of the market, and its position was largely due to the fact that it had “sold short” for bucketing purposes. Its books showed large profits in the event that the transactions could be closed out without sending prices skyward. The firm was handicapped by lack of money, but its members knew most of the tricks of the game, and were past masters in the manipulation of matched orders and in the handling of dummy accounts.

The firm later claimed that dummy account “No. 500" was started for the purpose of making good the amount of money lost to the concern owing to the failure of George I. Whitney. They started in with heavy short trading, but the market failed to respond. The crisis was reached in the latter part of August, 1908, and the dazzling climax was attained on the twenty-second of that month.


I now submit for the first time a record of the Stock Exchangetransactions of A. O. Brown & Company on that fateful day. It is an astounding exhibit; it has rarely been equaled, possibly never in the volume of trading by one firm; but there is nothing else uncommon in the nature of the transactions. They stand as a specific and authenticated illustration of the unfair expedients employed by manipulators for the manufacture of dishonest quotations.

A record of 800,000 shares traded in on the New York Stock Exchange is considered a fair volume of business for one day, and for months past the average has been far less than that figure. These orders pour in from thousands of ofiices scattered all over the United States. Mark this statement: Under the machinery of the New York Stock Exchange, operating in connection with its Clearing House and with the support of banks, A. O. Brown & Company, on Saturday, August 22, 1908, during the brief two hours between the opening and the closing ofthe Exchange, bought and sold 1,466,000 shares 0/ stock /or one dummy account later admitled to belong to the firm, and did this despite the [act that the firm was practically bankrupt before the Exchangeopened!

I submit that this is a fine commentary on an institution which asks that it be not criticised for fear that the legitimate business interests ofthe country will sufler.

There was nothing in the rules of the New York Stock Exchange which could be invoked to estop A. O. Brown & Companythen hovering on the brink of certain bankruptcy—from transacting in a few short hours a business in stocks having a par value of $146,670,000 and this does not include several hundred thousand shares bought and sold for customers.

To those who still think that Wall Street .is not justly subject to severe criticism I offer _this tabulation showing the transactions made by this single concern on August 22, 1908-—transactions intended to deceive and rob the public for the purpose of averting the firm’s deserved bankruptcy:

All of these transactions were charged against dummy account "No. 500." I submit that this may be classed as a specific and fairly convincing illustration of the possibilities which linger in a Wall Street dummy account backed by a brokerage house.

The exact manner in which such transactions are kept on the books is shown in the following schedules:

Here was a desperate attempt to buy and sell so much stock that it would counterfeit an activity that would permit the covering of short stock. The object was to make sales very prominent, but to keep buying in the background. It is a perfect illustration of what an unscrupulous or desperate brokerage house can do by means of matched orders charged against a dummy account.

Far more dangerous are the campaigns waged by pools and syndicates backed by unlimited money. In such crusades the brokerage houses may or may not be in the secret, but in either case they receive large pay for their services. Suppose that a syndicate selects Reading for a “leader.” It is, perhaps, desired to arouse the whole market to life and attract the cupidity of the public gamblers in stocks, or it may be the purpose of the plotters to unload a line of stocks purchased‘ at the bottom of the decline which has caused a temporary cessation of stock activity. Reading is to be pushed up as a sign that a new boom in the whole list is at hand. It is quoted at 98, we will say.

Broker No. 1 gets an order to buy 1,000 shares of Reading at 98}, and Broker No. 2 gets another order to sell 1,000 shares at the same price. They meet at the Reading trading post on the floor of the Exchange and put through the deal. Broker No. 2 makes a delivery of a “purchase slip” to Broker No. I. Broker No. 2, who was seller in the first transaction, may be given an order to buy 500 Reading at 981;, Broker No. I acting as seller. Another 500-share transaction in Reading may be made between Brokers Nos. 3 and 4 for a fractional advance—and the manipulators will still have possession of the stock, which, in the meantime, has scored a decided advance.

Such operations are complicated with the purchases and sales of the outside public, and must be conducted with skill and patience. In a campaign designed to stimulate the entire list, a score or more of stocks are used, and hundreds of brokers and specialists are retained. It is expensive work. Though the profits accruing to commission houses are enormous, the public must be lured back to the game at any cost. Powerful cliques do not hesitate to deal in from 200,000 to 500,000 shares daily, and it sometimes takes weeks before the public will begin to nibble at the bait.


The latter part of last March witnessed a brazen attempt at manipulationof this character, the outcome of which is in doubt at this writing. The New York Evening Post certainly will not be accused of muck-raking methods or of incautious language. It ranks as the foremost representative of Wall Street interests. I quote from its introductory paragraph under date of March 31:

“The manner in which the buying of stocks was resumed to-day, taken into connection with the skepticism of the professional speculators and the admitted absence of the general public, left no doubt of the sourceof the movement. It was one of those daring speculations, with which we became familiar last year, conducted primarily by a group of very wealthy capitalists, in entire disregard of any consideration except the low rates at which they can raise money. Nobody likes to discourage a demonstration of genuine public confidence and reassurance, even when expressed a little too impulsively on the Stock Exchange. But such markets as to-day’s do not fall under that description; they are not correct reflections of the financial and industrial situation, and, as many people learned at their cost in 1908, they are of a most precarious nature."

The paper quoted did not deem it necessary to go into details concerning the exact nature of the acts of the “group of very wealthy capitalists” which merited the rebuke administered. Its Wall Street readers did not need to be told. They are aware that, in the week ending April 2, this particular clique of manipulators sent stocks booming by means of matched orders in a volume not less than 2,000,000 shares. If they paid regular commissions—and they did, or else connived at a gross violation of the rules of the New York Stock Exchange—thisentailed an expense of $ 500,000. Fees paid to specialists, interest on money, and other items must have increased the total to a much larger amount; but $1,000,000 is a small sum to risk on even a chance that the public will be the /‘col that it ever has been.

A real stock boom, with the public crazy to purchase any form ofsecurity at dictated prices, is worth from $100,000,000 to $500,000,000 to the Wall Street powers that prey. Why not bait a hook occasionally with a mere million? The suckers will begin to bite again sooner or later.

Everybody's Magazine, Volume 20, January-June, 1909
page 639-648 The Cost of the Wall Street Game, by Frederick Upham Adams,

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