by Paul R. Spitzzeri
In spring 1927, the spectacular collapse of the Julian Petroleum Corporation, established four years earlier by the brash, blustery C.C. Julian and then sold to Sheridan C. Lewis, a New York oil operator, was headline news throughout much of the country, but was particularly a big deal in greater Los Angeles, where the firm was most active and where Julian built up a clientele of up to 50,000 stockholders.
Although there was substantial press coverage of Julian and his firm (as well as his post-“Julian Pete” projects in lead mining), a comprehensive investigative analysis of him and his namesake firm finally came together in September 1927 in the magazine Sunset, founded in the late 1890s as a promotional vehicle for the Southern Pacific railroad and now a home-and-garden and lifestyle publication.
The magazine’s vice-president Walter V. Woehlke wrote a three-part blistering critique of “The Great Julian Pete Swindle” that ran through the October and November issues and which is the focus of tonight’s post through the three editions that are in the Homestead’s collection.
Woehlke launched right in, declaring “the Julian Petroleum swindle is the biggest, most spectacular fraud of its kind ever perpetrated on the Pacific Coast.” Thought not stated in the article, it was likely the biggest business bust in Los Angeles since the dramatic failure of the Temple and Workman bank a half-century before.
While the scale of the scandal was impressive, Woehlke said “the feature of the ‘Julian Pete’ crash that made the horses of Los Angeles laugh is psychological rather than financial.” That is, the biggest dynamic of the fiasco, he reckoned, was that “it bears on the natural history of the sucker, on the question whether he is born that way or learns to take the hook.”
Particularly paramount was “the skillful use of propaganda . . . by the nimble-witted magicians” who took investors’ funds “without giving anything in return except gilded, glowing promises.” Notably, Woehlke had a genealogical link between Julian and E.G. Lewis, who was the subject of a previous post in this blog with his shady and audacious development at Palos Verdes.
Julian, the author added, “profited by the methods” of Lewis “and improved them” in his scheme. Like his forebear, who “made his followers believe that the authorities were their enemies, got his victims’ sympathies” and so on, Julian manipulated his stockholders into supporting him in his battles with government and competing companies.
This was despite the fact that “his broker’s license was revoked, his stock-selling permit withdrawn and criminal proceedings against him were started.” Moreover, Woehlke continued, Julian “rigged the stock market and manipulated it to his great personal profit,” both through employing cut-throat salespeople and cultivating “powerful financiers and bankers in a project to save the Julian Petroleum Corporation by enlarging, reconstructing and refinancing it.”
So, the suckers included ordinary small investors and the rich and powerful, with both enticed by profit, though on a much larger scale for the latter, who, however, awaited an audit of the company’s books, only to find about the massive overselling of Julian Pete stock. Otherwise, Woehlke wrote, “the reorganized Julian Pete would have had its face washed and would now be out in a new pair of overalls working industriously.”
Instead, the overselling under Lewis’ regime ruined the reorganization, “yet Julian and Lewis were able to convince most of the stockholders and a large part of the public that the Julian Petroleum Corporation had been wrecked primarily through the greed of the bankers who were trying to save it!” As mentioned here before, Julian, who was removed from active management, claimed to be the champion of the stockholders and “the Galahad whose flaming sword of righteousness” would secure the return of lost funds.
Woehlke was at a mass meeting held by Lewis and broadcast by radio where stockholders cheered as he announced grand plans to secure justice for the company’s shareholders and adroitly took control of the narrative before the bankers, stunned by the scandal, could seize the reins. Julian, using his radio station as a platform, supported Lewis in relentless attacks against the bankers, who chose to remain silent with one stating “we won’t engage in a squirting contest with a skunk.”
Woehlke outlined Julian’s background, which was discussed in brief summary in the first part of this post. The basic point was that Julian was drifter through much of his first 37 years, wandering through western Canada, the Pacific Coast, and Texas in search of the big payoff. When he settled in Los Angeles and set up shop with his oil enterprise at Santa Fe Springs in 1922, the City of Angels “was tense with the tales of easy money” and Julian was on the make.
To raise the funds he lacked to buy into the booming oil town of Santa Fe Springs, Julian employed his considerable talents at propaganda to raise a large amount of money to finance those initial efforts. It was “the frankness of the appeal, the homely, pungent language in which it was clothed” that brought staggering success so quickly. The fact that five wells proved to be productive masked the fact that what Julian did was largely smoke and mirrors.
Eight additional wells, financed by “units” sold to investors, were drilled, but only one, Woehlke reported, was a producer. While most investors got nothing, Julian’s hefty 20% commission on all unit sales put a lot of money in his personal banking account and funded his lavish lifestyle. Not only that, he pocketed 30% of all proceeds from the producing wells and this, on top of the lease to the owner of the ground on which the wells were drilled, left about 30% to the shareholders.
More ingeniously, Julian took his royalties and capitalized them into shares that were sold to more investors, from which he took his 20% commission. There were also likely profits from drilling contracts, manipulation of the stock market and other sources. Of course, when state and federal investigators looked into his stock selling practices and his lack of income tax filings, storm clouds loomed heavily over Julian.
Yet, like Lewis who battled with the federal post office department over mail fraud allegations and others, Julian battled harder against authority and the “oil trust” of large companies that he claimed conspired with government the media like the Los Angeles Times to drive him out of business.
Woehlke wrote that other companies stopped buying from Julian, who’d promised shareholders that, though his corporation which was organized in early 1923, he’d have his own pipelines, refineries and filling stations to circumvent the big players, but he never had the funds to follow through. Investors believing in him bought enormous quantities of Julian stock, enriching its creator.
As detailed here, though, the company badly underperformed in production and was investigated for its stock-selling practices leading to the revocation of permits and the seizure of company funds by the state. The Los Angeles newspapers refused to print his ads and stock prices plummeted from $50 to under $10, while production of his few successful wells declined. This led to the sale to Lewis at the end of 1924.
While Julian claimed to have gotten nothing in the deal, he was awarded $500,000 of advanced funds, but Lewis, too, got into the game with virtually nothing to his name. What he did have was the self-assurance and guile of Julian and E.G. Lewis, so Sheridan Lewis kept up the pretense of success with Julian for a little more than two years.
As to C.C. Julian, Woehlke poured out the story of the wily operator’s “most astounding promotion,” that of Western Lead Mining Company, of which there were the kinds of astronomical promises embedded in the Julian scheme. He claimed there was a world shortage of lead, which was not the case, and that there were inflated prices per tonnage and understated costs of production and distribution of ore that he quoted his superintendent as saying was “on top of the greatest silver-lead deposit on earth.”
Just two months after that statement, trading stopped and Western Lead was off the Los Angeles Stock Exchange. None of the claims Julian made were true and almost no work had been done at all to prove them. Woehlke related that Julian “admitted to me that he didn’t know much about mining when he went into Western Lead, that he had made a mistake and learned a lot.” He added he went into the project with just $75,000 and walked away with some $1.2 million.
To this, the author wrote that the promoter’s promises were either from
a self-confessed reckless ignoramus, who should be held civilly liable for the huge losses he caused, or else they were the deliberate utterances of a designing crook against whose activities the public should be protected through criminal action.
As with Julian, he said stock prices in Western Lead, offered first at 50 cents a share would rise to $8 because of the ore he guaranteed was in the $100 million mine, and it did climb to $3.50, giving him substantial profits though the par value was apparently just a dime per share. Woehlke went on:
The entire 2,000,000 shares of the Western Lead Mining Company had a total par value of $200,000. Read that and weep, oh, you incurable suckers. At the peak price established through Julian’s efforts that $200,000 had been transmuted into seven millions!
Despite the shutting down of Western Lead, Julian simply repackaged the scheme was Julian Merger Mines, Inc., offering an exchange of stock from the former to the latter, which was capitalized at 15 million shares at $1 each. He claimed several mining locations and, despite having no stock permit, he sold nearly 1.3 million shares in a month in fall 1926 before the state corporation commission stopped him yet again.
Once again, many of the same people “who got whang-doodled” with Julian Pete, and then “had their financial eye teeth extracted without gas or novocain” in the Western Lead project, were with Julian Merger Mines “with their gums still bleeding” while they handed more money “to the man with the long vulpine nose and the close-set eyes [who] did all the extracting, but never put in the promised gold-bridge work.”
At press time, the latest Julian enterprise was the New Monte Cristo Mining Company, which was “all dressed up, painted and powdered and lipsticked and rouged, but it’s got no place to go.” Stock was “mildewing in the vaults,” salesman paced at the company office, and “the suckers are getting hungrier and hungier for the new bait.
Woehlke closed by stating that Julian took to the radio to attack the bankers in the Julian Pete disaster because he
would be a ‘good dog’ and say nothing if they would use their influence to put him in a position to sell his new stock legally and to open the columns of the Los Angeles papers to his advertisements.
This first part ended and we’ll look at the next part of the Sunset expose tomorrow.