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Wall Street’s 10 Most Notorious Stock Traders
The country’s financial hub has a long history of lying, cheating, and stealing
Spring 2009 | Volume 59, Issue 1
By the 1850s the American economy had both flourished and diversified, 13 states had grown into 31, and the population had increased by a factor of five. The discovery of California gold in 1848 started a great boom that powered the American economy for several years.
But nothing changed the economy more than railroads. By 1850 more than 9,000 miles of railroad track crisscrossed the country, predominantly in the Northeast. But railroads were expensive to build, averaging around $30,000 a mile. Locally raised capital built some short, early lines, but longer routes needed financing from Wall Street or London. Railroad mileage tripled in the 1850s, and activity on Wall Street also increased markedly. By 1854 volume on the New York Stock and Exchange Board, a name shortened in 1863 to the New York Stock Exchange, often exceeded 7,000 shares a day.
One prominent member of the Wall Street community was Robert Schuyler, from one of New York’s most distinguished families of the old Knickerbocker aristocracy. His grandfather had been a major general in the Continental Army, and his aunt had married Alexander Hamilton. In 1836 Robert became a founding member of what swiftly became New York’s most exclusive social organization, the Union Club.
Educated (Harvard, class of 1817), personable, and well connected, Schuyler opened a brokerage firm and became interested in railroads. He served successively as president of the Illinois Central and the New York and New Haven railroads and of the much smaller Harlem Railroad.
The boom began to falter in 1854, threatening some weaker Wall Street firms, including Schuyler’s. That July a regular audit of the books of the New York and New Haven Railroad revealed some minor discrepancies. Schuyler assured the press and stockholders that they could be explained. No one doubted him. When Schuyler’s brokerage firm failed, several friends offered assistance, including “Commodore” Cornelius Vanderbilt—nobody’s fool—who loaned him $600,000 on the security of New York and New Haven stock.
But the directors of the railroad soon reported a huge shortfall. It turned out that Schuyler had privately printed 20,000 shares of stock and sold the bogus securities (or used them for collateral on loans) for nearly $2 million—in a year when the entire federal government had total revenues of only $74 million. By the time this news became public, however, Schuyler had fled the country.
Further revelations scandalized not only Wall Street but society as well. The secretary of the Harlem Railroad admitted forging 5,000 shares of railroad stock and swapping them for New York and New Haven securities. He had even helped Schuyler find an apartment for Schuyler’s mistress. It eventually turned out that Schuyler not only had a mistress but also a secret wife and several children, living a few doors away under the name of Spicer.
Schuyler was never captured, nor was the money he had stolen recovered. A year after he fled, he mailed a letter from England that said he was much weakened in body and disturbed in mind. The New York Times noted drily that this condition was “what we might expect.”
Daniel Drew was raised in a family of hardscrabble farmers 60 miles north of New York City and received hardly any education. By the time he was in his teens he was working for a circus—perhaps where he learned the arts of flimflam he was to practice for so long.
But while Drew seldom missed a chance to separate the unwary from their money during the week, on Sundays he seems to have been a genuinely religious man. One contemporary wrote that “he seemed actually to draw aid and inspiration from his faith for the execution of the schemes in which he appeared at his worst.”
By the 1850s Drew had made a fortune in steamboats and Wall Street speculation and served on the board and as treasurer of the Erie Railway, one of the nation’s largest railroads. During the Civil War, the price of Erie stock moved up and down almost without regard to its profits or prospects. Instead it moved according to Drew’s manipulation. It is impossible to trace Drew’s complex speculations in Erie stock in any detail, but one maneuver will illustrate his techniques.
In 1868 Drew, several fellow directors, and a few others formed a pool to bull the price of Erie upward. The members of a stock pool—a speculative technique subsequently outlawed in the 1930s—bought and sold stock among themselves to make it look as though the stock was rising, thus luring in outsiders. If the timing was right, the pool would unload its stock at a profit and then the artificial price would collapse.
Drew was in charge of the pool’s funds. But the stock did not move the way some pool members thought it should. While the early acquisition phase of the pool was supposedly still in progress, and the price should have been rising, it broke suddenly from 79 to 71. It looked as if a bear raid—one of Drew’s favorite tactics—was in progress. (In a bear raid, short sales of stock cause the price to drop, causing others to dump the stock as well, making the price decline further. The bears aim to buy in at the bottom, closing out their shorts and making a tidy profit.)
One pool member had borrowed pool funds from Drew so he could buy Erie stock, but he became suspicious and investigated the origins of the stock he had purchased. It had come from the pool’s own brokers. In other words, Drew was dumping the stock on one of the pool’s own members.