by Paul R. Spitzzeri
In fall 1927, as the scandal involving the collapse of the Julian Petroleum Corporation was leading towards the trial of officials involved in the business and its shadowy operations, Sunset, a magazine founded in 1928 and now known as a “lifestyle” publication, issued an early and extensive expose about the firm.
Written by the magazine’s vice-president, Walter V. Woehlke, the article, titled “The Great Julian Pete Scandal,” was issued in three parts. Last night, we covered the first, as it appeared in the September number. Tonight, we look at part two, which begins with a lengthy exposition on the matter of faith and miracles.
Woehlke observed that “Los Angeles believes in miracles. It has seen the transformation of a drowsy, dusty, half-Mexican cow town on the edge of nowhere into the largest city west of Chicago.” With tremendous growth, he went on, in real estate, film, and oil, it was “why Los Angeles still believes fervently in Santa Claus” and why C.C. Julian, who “came to Los Angeles broke” was able to achieve what he did in so short a time.
Though his first five wells at Santa Fe Springs came in as productive and gave him an aura as an uncanny developer of oil, “the ‘Julian Pete’ venture was not a success,” continued Woehlke. More wells did not lead to more product, investigations hammered on Julian and his stock-selling practices, and stock prices plummeted.
Julian, though, was not through; “he merely gave the suckers a short rest” and then returned with his Western Lead Mining Company scheme and generated some $1,200,000 in stock sales and promised investors that there were experts raving about the potential of the project, situated near the Nevada border. He even declared a world lead shortage and predicted a generous rise in lead value to boost the value of his stock, but his so-called $100 million mine proved to be anything but that.
Undaunted, the wily promoter then launched Julian Merger Mines, for which he sold stock without a permit and sold 1.25 million shares with “the suckers taking the bait with an ecstatic smile, a wide open mouth and closed eyes.” Then came the collapse of “Julian Pete” and Julian saw an opportunity to distract and deflect.
Because he owned a Los Angeles radio station, Julian took to the airwaves to “drag into the dust some of the greatest financial names in Los Angeles” by claiming that they were responsible for the failure of the firm, not his own manipulations or those of his successor, Sheridan C. Lewis (who apparently arrived in Los Angeles about as financially destitute as Julian.)
Julian told Woehlke that his enemies “offered me a million dollars in one-thousand-dollar bills if I would keep quiet, but they couldn’t have shut me up for fifty millions. I had ’em where I wanted ’em . . . They didn’t have the money to buy me off.” His opponents claimed that he approached them with an offer to lay low if they would use their influence to get him a stock selling permit.
Woehlke wrote that, when Julian gave his first broadcast, speakers were placed outside the studio and huge crowds gathered there and hundreds of thousands listened at home “with rapt attention, with that semi-malicious satisfaction nearly all of us feel when we see a large handful of mud land on the cloak of the respectable and the great.”
The mudslinging was aimed at such powerful figures as Henry M. Robinson, president of First National Bank; Motley Flint, vice-president of Pacific Southwest Trust and Savings Bank; and Harry Haldeman of the far right-wing Better America Foundation and president of Richard Nixon’s notorious chief of staff.
Julian threatened these men and others with having taken control of Julian Pete and wrecked it through loans with extremely high interest, along with bonuses and commissions that bled the firm dry. He demanded indictments and pledged to see them convicted and put in prison. While he repeated the accusations with more vehemence and was shielded by libel laws that protected the spoken, if not written, word. Those accused were resolute in their silence, but Woehlke added that “the mob, lashed by Julian’s reiterated charges, began to growl for revenge.”
When the county grand jury was convened to look into the Julian Pete failure, Julian and Lewis testified, but with more restraint and this, the writer claimed, had great effect on the jury, which, as noted here before, returned indictments on many businessmen, bankers and film industry leaders.
Lewis, Woehlke wrote, was particularly effective in, once he took control of the company, getting Los Angeles banks to loan large sums, presumably to make Julian Pete a legitimate firm. Production did increase for a time and Lewis even declared a dividend of a dollar a share of preferred stock and a bonus on those who held common shares.
Still needing some way to prop up the enterprise, Lewis then borrowed money to buy the Los Angeles brokerage house of A.C. Wagy and Company, which was a profitable and respectable firm. Jake Berman (a.k.a., Jack Bennett), a Julian figure was put in charge of Wagy and he went to work, along with a transplant from Portland, Oregon, John Etheridge, to sell stock by whatever means were necessary to increase the value of Julian Pete, manipulating the market and raising more money.
This was despite the fact that the state imposed limits on the number of stock to be issued and the use of the funds thereby generated. But, the scheme went on for an extended period, despite the fact that Etheridge had been indicted in Oregon and Berman served time in New Jersey. It included having investors reinvest profits in more stock than receiving cash, which wasn’t really there for them if they tried, as well as an alleged million dollar entry on the books by a nominal president of Wagy installed by Lewis.
There was also the matter of stock pools, which as Woehlke explained through an example, could involve a scenario in which “a hundred men agree to put up $5000 apiece to buy a certain stock on margin [borrowing to buy the instrument.} As the pool manager buys, the price rises, other owners of the stock see the price rise, hang on or buy more and push the price still higher.” The trick was to know when it was opportune to sell to maximize profit without disrupting the pool.
Julian testified to the grand jury that Lewis induced him to out in $200,000 in a pool soon after the latter took over Julian Pete, but didn’t issue public stock, but rather Julian’s own shares. Not to be outdone, Julian said he then arranged a new pool and sold Lewis back the shares from the first pool.
Berman, working through Wagy and Company, kept plugging away at his manipulations, including the arrangement of loans on the buy back of stocks at advances per share and using one share of stock as security for each share acquired in a pool. Reinvested earnings, including paper profit, meant that, when Berman lacked cash for transactions, “the original pool stock plus enough of the security stock was sold on the open market to pay capital and interest.” Regardless of declining stock values, there was always the commissions on each transaction collected by Wagy, accruing, of course, to its owner, Lewis.
Using stock as security for loans was the only way to keep the scheme afloat, along with Wagy’s legitimate and profitable business and Berman’s busy selling of stock and obtaining loans with stock as security. He was accused of simply printing huge numbers of certificates, writing in names found in the phone book, forged company signatures and collected money from the issuance of these fraudulent documents. Lewis, meanwhile, arranged for Julian Pete’s books to be sent from company headquarters in Los Angeles to New York.
As noted, the state had a limit of 230,000 shares with a par value of $11.5 million, but Berman oversaw the issuance of 1 million shares at a value of $50 million. Stock prices, meantime, rose. In this nutshell summary, Woehlke wrote, “that’s the picture of Lew is and his mates playing marbles with millions on the Street,” while he and his cronies lived the high life.
Again, though, it wasn’t just small investors that were lured into the scheme. Lewis, who knew enough of the industry to lay out a convincing plan for acquiring more oil land, buying refineries, and building and opening service stations, got many powerful people in Los Angeles to jump on board. If he could keep outlays of cash small in any transaction where he purchased land or businesses, all the better.
The Marine Oil Company merger in spring 1926 was a master stroke, as was the purchase of Wagy and Company, because Marine had legitimacy in materiel and operations and it provided capital and infrastructure to make Julian look more like a serious and stable business—at least, for a time.
Motley Flint was persuaded by this merger and got big players in Los Angeles banking to sign up for major roles in loaning the funds that led to creation of the new California-Eastern Oil Company which emerged from the Marine-Julian deal. Lewis gave every public appearance of being a masterful executive and promoter, even as Berman continued to run his racket in the shadows.
The crucial question was how much Lewis was aware of what Berman was doing, but Flitn certainly noticed and confronted Lewis about it. So, what the latter did was to suggest that Flint raise $1 million to acquire Julian stock from Wagy and Company and from Lewis and then they could pay off outstanding loans and the interest due on them, while taking control of Berman’s stock pools. In turn, Wagy and Lewis would sell stock below value to the pool, buy these back at a stated higher price, safeguarding pool members by including their own shares in the pool and limit issued shares.
Flint took Lewis’ bait and got his powerful friends to raise the cool million for a new pool and the plot worked for a time, generating the transaction of 663,000 shares and raising the price of the stock to $25 from an opening par value of $10. Yet, when Lewis was asked to fulfill his end of the deal by gradually selling pool shares and returning profits to the shareholders, he argued against this.
Woehlke ending part two of his expose by invoking the metaphor of a “little imp [the devilish opposite of a guardian angel], chuckling fiendishly, [who] stirred the tar pot with greater vigor” as the situation developed. We’ll pick up the story tomorrow night with part three of the article.