by Paul R. Spitzzeri
We continue our look at a remarkable white-collar criminal financial scheme concocted around an alleged massive railroad merger involving brokers Thomas M. Hennessey and Harry D. Hibbs with early coverage by the Los Angeles Times in its 9 May 1925 edition as it reported that investigators working for Los Angeles County District Attorney Asa Keyes were seeking a third man for arrest.
It was added that the unidentified figure was present in a “mysterious black book” kept by Hibbs and which recorded transactions and other information concerning the scam, which, to date, involved about 200 “prominent citizens,” though many of those listed on a “sucker list” were hardly that,” who were allegedly “bunkoed out of sums varying from $50 to $50,000.”
The paper remarked “though it is believed that this third man will not be as deeply implicated” and that he “believed in the sincerity of the get-rich-quick plan” having “sank a considerable portion of his own money into the scheme,” authorities wanted to question him. Moreover, it was observed that “it was through his enthusiastic coaxing that so many prominent Los Angeles citizens made their generous and unwise investments.”
Hennessey and Hibbs, meanwhile, remained incarcerated, even as they hired the well-known attorney, Paul Schenck, whose enthusiastic arguments in court were a trademark, to defend them as they struggled to raise the $100,000 and $50,000, respectively, for bail (this despite Hennessey’s claims that he inherited millions from his deceased parents and uncle.)
With respect to the victims’ list, “publication . . . caused a wave of gossip to reverberate through the business marts of the city” as “it revealed the names of leading business and professional men, county officials and motion-picture executives, capitalists and working girls,” this latter not meaning prostitutes. The Times, like the Los Angeles Record of the prior day, quoted several figures on the list, but added comments from Keyes, who told the paper:
Los Angeles county is again becoming infested with our old-time enemies, the bunko men . . . I am now starting a drive on this bunch of crooks . . . I am issuing this statement as a warning to the public in general not to be inveigled into any scheme outlining a plan to make easy money . . . as fast as possible I am going to drive this class of crooks from this community and do my best to keep them out of here.
The Times’ edition of the 10th reported that the 10 to 1 “pay-off day” for investors was to have been the previous day, but, of course, nothing was done and a deputy D.A. indicated that “investors will be fortunate if they are able to save anything from the wreck.” Moreover, it was remarked that Hibbs’ bail was reduced by half and Hennessey’s remained the same because the latter was considered the “brains” of the enterprise. Supervisor Woodley, denoted by the paper as the effort’s biggest loser, filed a civil suit seeking the attachment of bank accounts.
As for Keyes, he and a subordinate were headed to San Francisco to find out more about the purported rail merger and talked of going to New York City from there, though he added that he wanted the matter to go to a grand jury as quickly as possible. Lastly, despite all of the marital strife, Edna Hennessey, stood up for her spouse and the paper paraphrased, “she declared that her confidence in her husband’s integrity remains unshaken and that his statements relative to his employment as a financial agent for eastern railroads are absolutely true.”
Salaciousness sashayed in to the controversy, when Bertha Ross, with whom Hennessey was said, the previous year, to have an affair, was confronted at her apartment by a Record reporter and “angrily cried” that “I have known Hennessey more than eight years, and I’ve invested $7000 in his railroad merger” before uttering “I don’t know anything about his business affairs, but I’m sure everything does is all right” and concluding “I have no fear for my money.”
Ross’ mother offered her two cents (if not her own funds to the scheme) by declaring, “Hennessey belongs to my church, and a fine Christian gentleman he is” before remarking “I don’t see why people will make such a fuss about his affairs” given the return of Brokaw’s money (which, as he noted, was likely strategic for his defense). More striking, however, were comments made by Ross’ (former? estranged?) husband, who filed and then dropped a suit against Hennessey for alienation of affection.
That action detailed some $5,000 in gifts given to his spouse and Ross continued,
We only lived together three weeks out of the three years we have been married, and this fellow Hennessey kept coming around to take my wife out to places, cabarets, shows and all that sort of thing. I stood it as long as I could, and then decided to punch his head off the next time he took my wife out. This was the time he reported to police that bandits had waylaid him one night. It wasn’t bandits at all. I did it. He brought my wife home after midnight from the Green Mill [nightclub in Culver City]. I waited for them and jumped into his car when she got out. Then I certainly punched his head off.
Despite her protestations to the Times of her husband’s integrity, Ross told the Record that she said to him that Hennessey was “mixed up in so many questionable financial deals, that she was afraid for her life every minute.” Moreover, Edna Hennessey’s mother told the paper that Bertha Ross called her looking for Edna, saying “I want Edna to help get him out of jail—tell her to send her check” to post bail. This led to the rejoinder to Bertha to stop calling, given what she’d done as a homewrecker, while Edna’s mother added “I wouldn’t give a dime toward Hennessey’s bail, and my daughter would be foolish to do so.”
Some of Hennessey’s prior history came to light when his mother-in-law told the paper, “when I first knew him and he married my daughter, he ran a little one-horse real estate office near South Park [south Los Angeles]” and added that “he was fond of telling about his big deals and his rich folks, but I never put any credence in his stories.” Another tale concerned two alleged sons in the east, but it was learned that they did not exist, though it was remarked, “he always had plenty of money,” though how was unclear “because his business was only renting and selling property, just like any other neighborhood real estate man.”
Meanwhile, the Record reported that H.A. Willard, a Bank of Italy (soon Bank of America] collector, called some of the alleged scam victims to say he knew where a Hennessey and Hibbs account was located from which all investors could recoup their money. Keyes’ chief deputy, Buron Fitts, issued a subpoena for the grand jury so that Willard would appear and testify as to this claim.
The paper continued that another grandiose claim made by the brash brokers for the scheme was that “then we took part of the six million grand [that is, $6 billion] and bought the Bank of Italy,” but this was said to have taken place on the day “rude county detectives had thrown them in jail.” Another item was that federal postal inspectors were looking into the matter because of claims that the $6 billion was in escrow with the Interstate Commerce Commission and this was brought to Keyes’ attention.
The Record noted that Supervisor Woodley, said to have been without means when he joined the county governing board a decade prior, received a windfall in real estate investments in 1923, the peak year of the region’s latest development book and when Homestead owner launched his Town of Temple (Temple City) project. This, it was stated, was because, as a supervisor and knowing about a future dam project, he invested in property near the reservoir that had resort potential and cashed in—though he then put money in the railroad merger scheme.
Another revelation by the paper was that Hennessey and Hibbs told investors that, once the Bank of Italy purchase went through, the acquisition of the local First National and Pacific-Southwest banks were to follow and this “backed by $100,000,000 of Henry Ford’s money,” this meaning the powerful and wealthy owner of the Ford Motor Company. Also of note was that two local investment figures looked into the scheme the previous December and informed the Interstate Commerce Commission “that the deal was a huge bunco game.” A Commission investigator, Lawrence B. McCord, who was local, was working actively on the matter when it was found that D.A. detectives were on the hunt and the matter was turned over to the county officials.
With regard to their incarceration, the paper observed that “Hibbs joked jovially” about it as they were in the more cushy confined of the Beverly Hills city jail, but, once transferred to the crowded county lockup, the conditions “were not so pleasant.” A date on the highlighted photograph from the Museum’s collection for this post is 11 May, so it might have been taken after the transfer. Another item of interest was the release of another 26 names of alleged victims of the project, including dentists, doctors, druggists, the owner of the Bimini Baths, and an undertaker, as well as the I.C.C. investigator.
The Times, in its number of the 11th, reported on this last notation:
McCord, posing as an eastern capitalist, arranged to invest $25,000 with Hibbs and Hennessy; and Hibbs, McCord stated, even promised to “pay off” the disguised Federal sleuth with Bank of Italy stock. “He assured me very readily that he could easily obtain the stock, in which I pretended to be interested, although it was not publicly for sale,” McCord added.
Meanwhile, two investors, John Brokaw and C.J. Judd, alleged that there were three other associates of Hennessey and Hibbs and that these unnamed figures “are Los Angeles men and well known.” McCord added that the scheme “might have worked indefinitely” if the promoters hadn’t brought in the Commission as part of their sales job,” but, once he received a telegram from bosses in Washington, he began his investigation in December.
That work included contacting prominent auto dealer and radio station owner Earle C. Anthony, who told him his investment was only $1,000, but McCord, who had to return to the East on other Commission business, found that two other men were looking into the matter for clients, including film director John Griffith Wray. He urged them to keep digging and received important material from them for his work and the federal agent told the Times that the Pacific Southwest Bank, in which Hibbs and Hennessey had large deposits, was conducting its own investigation and information was obtained from a local branch of the investment firm, E.F. Hutton and Company, including contact with a man known only as Davis, who worked in the Hennessey and Hibbs office:
Davis gave me the full rail merger story, believing I was an easterner looking for a chance to invest. I fell into the trap, and asked to meet Hibbs, Norton [another employee] and Davis. Hibbs repeated the story told me by Davis, and also mentioned the Interstate Commerce Commission to me. I offered to invest $50,000, but they were pretty shrewd, and advised me that $25,000 would be “about right.”
I wanted to talk to Hennessy. I wanted to get him to say in the presence of witnesses what Hibbs had said about him—that he was representing the Interstate Commerce Commission in this deal [and admitting to impersonating a federal officer] . . . He wouldn’t come out flat-footedly and say he was representing the commission, [he] merely hedged on that point and implied it was the truth.
Judd relayed his role in getting Brokaw to pony up $30,000 through a meeting with the latter’s lawyer, who recommended staying away from the scheme, as well as Hibbs and three other men, Dick Pettibone, C.R. Norton and H.M. Reed, apparently part of the “sales team” for the enterprise. Pettibone went to Judd subsequently, saying he had a $20,000 commission at stake and offering a third to Judd if he could convince Brokaw to agree to invest, though this was done only after Brokaw insisted that Hibbs gave him notes for $20,000.
Additionally, Judd relayed that it was the Hutton branch manager who “first tipped us off that everything may not be as rosy as we figured” and arranged a confab with McCord, who showed a I.C.C. letter “proving to us the whole scheme was off-color.” Brokaw then told of how he demanded his money back, with Hibbs claiming he had no funds, but then arranging a gathering with the two principals and Norton at which he was handed a certified check. Subsequently, Brokaw, Judd and McCord went to see Keyes and the complaint sworn that triggered the arrests.
The Times further informed readers of the reach of the project, including $200,000 invested from Santa Barbara people, with a private detective agency telling them “it was a pure bunco game,” and reports came from as far away as Cleveland, with Reed telling people that his bosses “cleaned up $300,000,000 since 1912” with a million from citizens of the Ohio metropolis. Reed supposedly “lost heavily on the merger plan,” but his report probably came from Hennessey’s flights of fancy, along the lines of his huge inheritances and other titanic tales.
With respect to Keyes’ trip to San Francisco, he allowed that “of course, we know they didn’t” buy the story of railroad mergers, “but we have got to prove it” by interviewing Western Pacific Railroad officers, some of which were to be subpoenaed by the grand jury. Federal postal officials would not comment on reports of an investigation by that department, but McCord told the paper that he uncovered nothing that could lead to charges of using the mail to defraud because “the entire scheme was worked largely through personal solicitation.”
We’ll be back tomorrow with part three as the investigation into this audacious scheme continued, so check back with us then!
Ponzi schemes are very similar to multi-level marketing (MLM) programs. Both rely heavily on recruiting new participants and building an organization beneath each member, with promises of greater financial rewards as that structure grows. At the same time, testimonials and success stories are often used as major sales tools to attract new participants.
Supporters of MLMs argue that they differ from Ponzi schemes because they involve the sale of real products, whereas Ponzi schemes generally do not. However, critics point out that many MLM companies devote considerable effort to emphasizing this distinction because they must separate themselves from pyramid schemes, which were ruled illegal by the Federal Trade Commission (FTC) and have been prohibited under various state and federal laws since the 1970s. The debate often centers on whether the primary source of income comes from genuine product sales or from the continual recruitment of new participants.
In the 1920s, when Harry D. Hibbs and Thomas M. Hennessey operated their scheme, such distinctions were not yet defined. In any event, a Ponzi scheme may leave you with nothing but losses. An MLM may not be much kinder to your wallet, but at least if you fail and eventually give up, you may still have an entire garage full of products left for your own use.