by Paul R. Spitzzeri
Though C.C. Julian sold his interest in his namesake oil company to Sheridan C. Lewis at the end of 1924 and continued to raise controversy and legal issues with subsequent lead mining ventures over the next couple of years, it wasn’t as if “Julian Pete” was resurrected as a totally legitimate firm, either.
Lewis, with his right-hand man, Jake Berman (a.k.a., Jack Bennett), employed much of Julian’s advertising and marketing flourishes and vernacular and recruited some high-powered Los Angeles banking, business and film figures to partake in stock schemes with the company.
Julian Petroleum had the general appearance of a resurrected and respectable business, with its investors playing with stock pools, in which groups of stock traders and investors traded together in a stock. Obviously, if the marketing of a company was successful enough and traders could help drive the price up and then sell, enormous profits could be made—regardless of the performance of the business for which it was actually in existence.
Moreover, some of Los Angeles’ largest banks, Pacific-Southwest and First National, were willing to loan Lewis hundreds of thousands of dollars, with officials of these institutions alleged to have received substantial “bonuses” for these transactions.
Meanwhile, although there were state-mandated limits on how much stock “Julian Pete” could issue, Berman purportedly was very busy in the issuance of enormous numbers of stock that was sold rapidly. This work was manifestly aided by Lewis’ purchase of the stock brokerage firm of A.C. Wagy and Company, which was one of the first to offer Julian stock in 1922.
Despite commentary on this acquisition and what it could mean for Julian stock sales and values, Lewis aggressively advertised both the company’s stocks and defied anyone to prove that there were problems with how Wagy dealt with these instruments. Of course, it helped his bottom line that the brokerage was profitable with plenty of legitimate stocks in its portfolio.
Similarly, as was noted yesterday, Lewis hoped that, in purchasing the Marine Oil Company, which was operating in greater Los Angeles, he would add both legitimacy and substantial capital to the “Julian Pete,” now officially known as California-Eastern after the merger.
Then came the astounding collapse of the Julian Petroleum/California-Eastern conglomerate in May 1927 after the state revoked its stock-selling permit under the premise that the stock was vastly overissued. Lewis immediately resigned, saying that he did so “in order to permit me to devote my exclusive time and attention toward the unraveling of the situation.” He also pledged to be involved in a reorganization and aid any investigations and offered to hold a mass stockholder meeting to explain all–and which did not happen. He also declared bankruptcy shortly afterward.
California-Eastern Chairman and former U.S. Senator from California, Frank P. Flint (for whom Flintridge is named), tried to calm the waters by asserting that “Julian Pete” “passes out of the picture” after the merger with Marine and that California-Eastern would assume control of Julian’s wells, stations, refinery and other assets, but could not fully do so “until the Julian stock books are audited” and the corporation commission and courts “are satisfied with the status of the transaction.”
As for Berman, he slipped out of town and the country, leaving a wife and newborn child in New York, while he roamed Europe for several months, reputedly sustaining himself was something like $630,000 in cash absconded from “Julian Pete.” He did return to Los Angeles, however, and turned himself in.
Los Angeles County District Attorney Asa Keyes, who counted Julian as a major supporter, appeared slow to act on the growing problems associated with the company, but finally did work with the grand jury in securing dozens of indictments. Notably, the DA was involved in 1926 with a battle royal against the county supervisors–he charged them with embezzlement of public funds and they fired back, charging him with misuse of public monies, involving his use of a discretionary special fund.
Consequently, state Attorney General U.S. Webb came down to Los Angeles to address the Keyes matter (it was thrown out as without legal merit), but also in the matter of C.C. Julian and his mining stock troubles. Meanwhile, Keyes turned to the growing “Julian Pete” scandal in the first months of 1927, leading to the mass indictments that May of many prominent figures in business, finance, and film.
Keyes announced that the county grand jury “will begin an investigation of the financial entanglement of the Julian Petroleum Corporation which caused the concern’s stock to be dropped from the local and San Francisco stock exchanges . . . when an asserted overissue of securities became apparent.”
Berman, largely still known as Jack Bennett, was to be called to provide “a full and complete statement regarding the trading in Julian stocks for the past two years,” but was known to be in New York. Lewis was said to have told an assistant district attorney some “remarkable revelations concerning the methods of trading in Julian stocks.” Additionally, a federal investigation was said to be underway.
Among those who were indicted by the grand jury were Lewis, Berman and five other Julian officials, as well as the ultra-conservative, anti-communist head of the Better American Foundation, Harry Haldeman, (whose son was the notorious chief of staff from President Richard M. Nixon during the Watergate debacle); former senator Flint, whose banker brother Motley was a Julian director and president of the First National Bank of Los Angeles; and Louis B. Mayer of the powerhouse Metro-Goldwyn-Mayer studio.
Julian, meanwhile, waded into the debacle by promoting himself as a defender of “Julian Pete” stockholders and claiming that, when he sold the firm to Lewis, it barely had an liabilities against a rock-solid portfolio of assets. This was hardly the case, but Julian put on his offensive utilizing press interviews and the radio through his own station KTMR.
One news article, titled “Julian Back, Vociferating,” and published in the Los Angeles Times on 27 May 1927, described how the colorful promoter returned by airplane from Canada (this flying by plane was a relatively new thing to do, incidentally) and declared his intention to “put the crooks in jail.”
While he claimed to be protecting the stockholders, the paper pointed out that Julian had a half-dozen schemes that were undertaken with “a consistent and persistent effort to evade the laws provided for the safeguarding of investors.” It was noted that he’d had constant run-ins with state and federal regulators and was involved in much litigation.
When it came to oil, Julian found success in the oil-flush field at Santa Fe Springs, though he attempted to evade California regulation of stock by going to Las Vegas, issuing himself $5 million worth and then offering those for sale. For this, he was arrested and his personal permit to sell stock suspended, though, after he promised to follow the law, he was allowed to sell the stock he brought from Nevada.
In late 1923, however, that permit was again revoked because the state disapproved of his advertising, which was considered highly misleading to investors, and which were eventually refused for publication by Los Angeles papers. By the end of the year, the corporation commission accused him of stock manipulation and illegal sales, claiming Julian’s books were taken to corporate-friendly Delaware, and seizing $1.7 million in Julian’s corporate funds.
After he yielded his namesake firm to Lewis, the article went on, subsequent ventures “which were productive of little more than gaudy promises.” This is when federal investigators stepped in and warned investors of Julian’s problematic methods of stock promotion and sales—his response was to file an unsuccessful slander suit.
His efforts to repackage his project as the Julian Petroleum Corporation and to get “unit” holders in his personal venture to exchange for shares in the new company created more difficulties, but gave him a 20% commission on all such transactions as well as in new stock sales. Unfortunately, his five producing wells yielded only 22,000 barrels in the last half of 1924 compared to 120,000 during the first half.
Notably, after he turned over “Julian Pete” to Lewis, production rose to just over 100,000 barrels in the first six months of 1926 and 126,000 the rest of that year. The problem, of course, was that Lewis presided over a situation in which, with or without full knowledge of Berman’s methods of producing and selling more stock than allowable, brought about the dramatic failure of the company in 1927.
In summer 1927, however, as a press photo highlighted in last night’s post suggested, Julian claimed that there were “pirates of the air” who somehow introduced shrieks and other noises during his broadcast to affect the delivery of his message. Whether this was more puffery on Julian’s part to distract attention from him and his namesake firm or some early radio espionage is an interesting point.
Meanwhile, prominent banker Jackson A. Graves, who came to Los Angeles in 1876 as the Temple and Workman bank failure became the city’s first major financial disaster, penned a pointed editorial in the Times:
The utter collapse of the Julian Petroleum Company may teach a few speculative idiots some sense. I have no sympathy with any individual or bank who loses on Julian stock. When the Los Angeles Times, a few years ago, refused to publish Julian’s advertisements the investing public should have taken notice. As to the statements broadcast by Julian, everyone must consider the source from which they emanate . . . Receivers and attorneys will now proceed to pick the bones of the rotten and odoriferous carcass of Julian Petroleum . . . Many will weep and wail, but they will soon be ready to listen to some other faker promising them immense returns on investments made.
We’ll pick up the story tomorrow as the “Julian Pete” scandal moved to Los Angeles County Superior Court and a dramatic verdict in May 1928 with an equally stunning legal jeopardy for the county’s top law enforcement officer.