The Farthest Fall

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A holding company is simply a corporation that exists to hold the securities of other corporations. When corporations’ stocks were pyramided one on top of another, the holding company allowed someone with little actual investment to control vast economic assets. To oversimplify somewhat, a person holding 51 percent of the stock of a holding company would control all the companies that the holding company held 51 percent or more of the stock in, and all the companies that those companies in turn held 51 percent or more of the stock in, and so on.

The downside, of course, was that holding companies were top-heavy. Producing no wealth of their own, they depended on the income from the companies at the bottom of the pyramid to finance the costs of their investments, and most of them were highly leveraged, financed almost totally with borrowed money.

As long as Wall Street was booming, however, all was well, and Instill could finance his house-of-cards financial structure by selling more and more bonds and stocks. In the first eight

The prosecution tried to use InsulPs own books as evidence. A lawman on the jury said the crooks he’d known kept no books.

months of 1929, the stock of Insull Utility Investments—one of dozens of Insull-controllcd companies—rose from $30 a share to $147. But the first eight months of 1929 were easy on Wall Street; it was the ninth and tenth months of that year that separated the men from the boys.

When the bears took over, the Insull empire, financed by ever more issues of securities, began to unravel, despite the fact that Insull himself tried his best to stem the disaster. He borrowed five million dollars personally from a New York bank and turned it over to the companies. He sold his four-thousand-acre estate, turned in his half-million-dollar life insurance policy, and finally gave all his personal property to his companies’ creditors. But it was no use. In April 1932 the Insull empire, or what was left of it, went into receivership. “I wish my time on earth had already come,” he said wearily.

It appeared that the losses would total nearly $800 million, a titanic sum by the standards of the day, and an army of examiners began poring over the bewilderingly complicated transactions among Insull’s many companies. Meanwhile, ambitious district attorneys piled on, hoping to exploit the public fury that was causing Insull to receive in the mail an average of twenty death threats a day. Two months after his companies had gone into receivership, Insull fled abroad, fearing he could not get a fair trial. Hc was soon indicted by both state and federal grand juries for embezzlement, mail fraud, and conspiracy to evade the national bankruptcy act. After months of seeking refuge in countries that lacked extradition treaties with the United States, he was taken into custody and returned for trial. A famous picture appeared in hundreds of newspapers, showing Insull entering the Cook County Jail, a look of utter defeat on his face.

The government tried to make its case using Insull’s own books as evidence. A former sheriff who sat on the first jury noted that the only crooks he knew about kept no books, falsified them, or destroyed them. After seven weeks of testimony the jury took exactly five minutes to find Insull not guilty and then for the sake of propriety waited two hours before announcing their verdict. Twice more he was tried; twice more the juries acquitted him. Samuel Insull was guilty of nothing more than having failed in business.

A few years later he died of a heart attack in the Paris subway, at the age of seventy-nine. With no papers on him his body lay unidentified for several hours, and police found only eight francs in his pockets. Newspapers reported that a man once among the richest in the world had died a beggar’s death. It was the ultimate indignity for this dignified and honest, if perhaps foolish, man. The truth, of course, was that when he collapsed, someone had robbed his corpse of his wallet.