Preston Tucker and His Battle to Build the Car of Tomorrow
Page 14
The plaintiffs also claimed that the Tin Goose had been nothing more than a “reconstructed 1942 Oldsmobile,” slightly modified to fool investors, and that Tucker had never built an operating 589 engine.5 In fact, the complaint suggested that the Tin Goose was not even capable of driving in any direction—forward or reverse—because its engine “was not equipped with mechanical abilities.” It is unclear if the plaintiffs or their attorneys were aware that the Tin Goose had been driven at its world premiere in front of thousands of witnesses. Tucker told the press, “It is inconceivable that supposedly intelligent attorneys could file a suit so rampant with inaccuracies as this one.”6
Judge Igoe consolidated several of the bankruptcy hearings for the sake of simplicity, and set the matter for hearing at a later date.7 The parties pushing the bankruptcy asked the judge to order Tucker and the corporate officers to come and immediately testify about the company’s financial condition, but the judge denied the request, noting it was premature.8
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Even with all his legal problems, Preston Tucker still believed that if he raised a few million dollars he could reopen his plant and resume manufacturing cars. It was a long shot. Rumors abounded of “angel” investors, even after Howard Hughes had publicly stated his lack of interest in the project. On January 3, 1949, an attorney appeared before Judge Igoe and said he represented an “unnamed interest” that was “willing and ready” to help put the Tucker Corporation “back on its feet.”9 The attorney would not publicly identify the interest but offered to tell the judge in chambers. The judge considered the possibility and temporarily stayed the legal proceedings.
Automotive insiders thought the most likely suspect was the Willys-Overland Motor Company, whose president had visited the plant recently.10 Nothing came of this overture, but more than one company may have been considering a partnership with Tucker. The Checker Cab Manufacturing Company had also done some serious investigation into the possibility. Checker sent an engineer on January 4 to examine the factory, and Preston Tucker had lunch with Checker’s president a little over a week later. The deal fell through but was of enough substance to be reported by the New York Times.11
To give Tucker time to locate new funding sources, in early 1949 Tucker’s attorneys asked the court for permission to reorganize the company with their client still at the helm while litigating the claims against it. Tucker’s attorneys told the court that the company had assets of $14,434,380 against liabilities of $1,643,175.12 These figures must have surprised some people, with so many people claiming that the Tucker Corporation was financially ruined. Preston Tucker explained the rationale behind the numbers. The Tucker Corporation owned Aircooled Motors, the company in Syracuse it had bought to provide the ’48’s engine. The purchase price had been $1.8 million, and the company produced a steady profit of $400,000 annually. Tucker believed Aircooled was actually worth closer to $5 million.13
The court granted the request and appointed trustees to oversee the reorganization. They wouldn’t have to make their first report until May 2. All the civil actions were put on hold. Tucker had bought himself a reprieve, but the new arrangement caused other complications. The SEC had not yet returned the corporation’s financial records, and now with court-appointed overseers in place, the agency turned the documents over to trustees rather than giving them back to Tucker. Tucker would never be given access to them again.14
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One litigant whose suit was put on hold was adman Cliff Knoble. Although he had resigned from and filed suit against the Tucker Corporation, he remained entangled with the company. Because he had been the one sending information to the dealers, many of them continued calling and writing to him after his departure. He decided to publish a newsletter specifically for them, detailing the latest news and weeding out the rumors that were now overwhelming the Tucker story. The newsletter, As It Looks to Me, was published by subscription. He sent the first issue to dealers across America and asked them to send him four dollars if they wanted future issues. He promised to return their money if the newsletter was not continued.
In the newsletters, he distanced himself from Preston Tucker, even going so far as to suggest that Tucker ought to be removed from the leadership of the company. In the first newsletter, he said he was motivated by his desire to see the company succeed and that there were many others with similar motivation. “It can be stated bluntly that there is virtual unanimity of opinion among them that the corporation cannot progress under the management of Preston Tucker.”15
Knoble would remain one of the people who stood on the sidelines waiting to see what would happen, hoping to return to the Tucker Corporation if it emerged under new ownership.
The SEC Report
The SEC investigation culminated on December 20, 1948, with a 561-page secret report. It began with a fourteen-page introduction, telling Preston Tucker’s story in an extremely slanted fashion. From page one, it took the position that Tucker was a fraud:
In the wake of an extensive newspaper advertising program which gave widespread publicity to Tucker Corporation’s claim that, under the guidance of Preston Tucker (described as a recognized automotive inventor and designing genius), the company was about to mass-produce a revolutionary but completely tested and proved new passenger car, Tucker Corporation filed a registration statement . . .1
The notion that Tucker was not a “recognized automotive inventor” or a “designing genius” was a major theme throughout the report. The SEC writers never explained how one measured these things or determined if they were true or false. They spent more than five hundred pages, however, hammering away on these points.
The SEC investigators had not only removed all the records and documents from the Tucker Corporation to comb through for ammunition but also interviewed at least forty-three people they considered important witnesses in the case against Tucker and his associates. Their report listed eight people the commission believed should be charged with crimes and then five other “possible Defendants.” Among the latter was Charles Pearson, and the only allegation against him was that he had written the Pic article that started the Tucker public relations juggernaut.2 Pearson would ultimately not be charged with any crime, but it was a remarkable suggestion: that a man face prison time for writing a magazine article.
A critical reader would notice problems with the report and its allegations almost immediately. Cliff Knoble was named as one of the “possible Defendants” and would eventually be charged and tried along with Preston Tucker. What had he done wrong, according to the SEC? Despite its best spinning of the facts, the worst they could say about him was:
He was active in the composition and dissemination of various letters and news releases which materially assisted Tucker Corporation’s publicity program, apparently directed during most of that time at lulling its security holders, franchise holders, and the public in general into a belief that all was going well in the operations of the company and that production of Tucker cars was constantly “just around the corner.” When the company’s affairs had so deteriorated (Summer, Fall, 1948) that it was necessary to admit publicly the impasse which its operations had reached, Knoble was active in the accompanying campaign in which letters were sent to the distributor-dealer organization claiming that this result had been caused by many factors (including political pressure, government interference, opposition by the major automotive manufacturers, strikes, etc.) which actually had nothing to do with the situation.3
Amazingly, they did not even suggest that Knoble knew the truth to be different from what he described, nor did they take into account that his job involved taking official statements of the company and simply passing them along to others. The SEC assumed the “factors” Knoble described “had nothing to do with the situation.” They noted he had received “benefits” from “the Tucker venture” in the form of a salary.4 For this, the SEC suggested he ought to be prosecuted.
The SEC report also maligned the progress the Tuc
ker Corporation had actually made, hinting that many of its successes had been somehow illegal. Broker Floyd Cerf, the report noted, had never handled a stock offering of more than $2.51 million and only had a net worth of $87,000 at the time of the Tucker offering. Yet he had been confident “that the issue could be sold merely on the basis of the widespread public interest created by prior publicity concerning the organization and its plans.”5 While some people may have found it admirable that Cerf successfully sold a stock offering under these conditions, the SEC believed it was a crime.
The SEC knew that some people would ask why they had decided to investigate Tucker in the first place. What had the corporation done to draw attention to itself? It had filed a registration statement with the SEC—as required by law—and the SEC had decided “to determine whether stop order proceedings should be instituted.”6 It is unclear why the SEC jumped to that step, rather than simply examining the statement to see if it comported with the law. The agency just assumed that the Tucker Corporation had probably done something illegal already.
After scrutinizing Tucker and the corporation’s affairs, the SEC admitted that when Tucker had submitted the amended registration statement earlier, “there remained no legal basis for a refusal by the Commission to permit the registration statement to become effective.” Then what was the problem the SEC had with Tucker? “The Commission, however, was shocked by the character of the extensive publicity which had appeared” and felt the need to render an opinion above and beyond merely allowing the Tucker Corporation to sell its stock to the public.7 In other words, the registration statement issued by the Tucker Corporation was proper and contained appropriate statements regarding the company, but the SEC was upset about the publicity Tucker had been receiving:
Since January 1946, there has been extensive publicity concerning the Tucker organization and its plans to manufacture a modern automobile. In many periodicals, newspapers, sales brochures and company advertisements, which are part of the record before us, there has been widespread comment as to the radical features the Tucker car possesses, elaborate and conflicting claims as to its expected accomplishments and performance, and exaggerated statements as to the funds invested by the management. Many of the statements that have been publicized in the past appear to be grossly misleading and, in many cases, false.8
So the SEC felt the need to warn the public about investing in the Tucker Corporation. In fact, the SEC appeared to have been upset that the stock-buying public had ignored its warnings and bought the stock anyway: “Little heed was paid by purchasers of stock and franchises to the amended registration statement or to the related prospectus. Far more importance was attached by such investors to the Tucker literature, advertisement, oral addresses, and exhibits, judged by the findings of the investigation upon which this report is based.”9 Again, Tucker had done nothing illegal. The SEC faulted the legal activities of the Tucker Corporation in getting good press.
The SEC report was filled with guesswork by SEC investigators. It described the Tin Goose’s debut and derided the fact that the car was a one-off and not a production model. While most people at the time knew this, the SEC wrote that the exact opposite was true: “Many, if not all, of those present assumed from the display and from the comments of company officials that this car was a perfected, finished automobile which contained the various features which had been previously advertised and which was ‘frozen’ for imminent volume production.”10 The SEC did not address how it divined what “many, if not all, of those present” believed to be true.
There was another common theme to the SEC report: that the Tucker ’48 sedan “was not a tested, proved automobile of sensational and revolutionary character, but, rather, an untested, unproved conglomeration of highly questionable engineering ideas in a very preliminary experimental state with no reasonable prospect for perfection in the foreseeable future.”11 Today, it is clear this SEC opinion was wrong—at least, the owners of the forty-seven Tucker ’48s still extant would disagree with it. More important, what right did the SEC have to weigh in on how good an automobile the Tucker ’48 sedan was?
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The damning report would be the foundation of Preston Tucker’s subsequent prosecution. Tucker would not be able to read it until long after his trials were over, but his prosecutors would use it as a road map, and others would use the report as ammunition in what would become an all-out assault on Tucker and his company. For a few months, though, almost no one would even know the report existed. By federal statute, the report remained protected from disclosure to anyone outside the SEC. The Code of Federal Regulations governing the “Commodity and Securities Exchanges” (section 230.122) specifically prohibited “any member, officer, or employee of the Commission to disclose to any person . . . any information . . . obtained by the Commission” during an investigation.12
Despite these safeguards, more negative stories about Tucker began appearing in the press, many of them sprinkled with facts and information from sources with access to the Tucker Corporation’s records and books. Tucker wrote a letter to the head of the Chicago SEC office that included clippings and articles containing information that had obviously originated within the SEC. Thomas B. Hart, the agency’s regional administrator, responded:
This is to acknowledge receipt of your letter of January 11, 1949, together with two newspaper clippings. I wish to advise you that at no time has this Commission ever furnished or made available any information to any newspaper or to any other unauthorized person, nor has any information ever been made available to any attorney representing or purporting to represent any group of Tucker Dealers.
Please be assured, as I have advised you in the past, that the Commission’s investigation has at all times been conducted in a fair and impartial manner and in the strictest confidence and only for the purpose of ascertaining the true facts.
Very truly yours,
(s) THOMAS B. HART
Regional administrator13
Tucker did not know it yet, but Hart was lying. Still, there was no question that the press’s information was coming from within the SEC, despite the federal statute that prohibited the disclosure of any of the information or documents uncovered in the investigation.
Tucker’s own public relations staff attempted to counter the relentlessly negative publicity of the past few months. Around this time, the Tucker Corporation released a film, Tucker: The Man and the Car, a half-hour overview of the Tucker Corporation, its founder, and the Tucker ’48. A narrator gushed about the futuristic car and its patriotic and visionary promoter. “But first, let me tell you a little more about the man, Tucker. Preston Tucker is a man who believes first, last, and always in the American way of free enterprise. Though there are those who believe there is no more room in this country for new industries or perhaps new competition.”14
Tucker’s life story filled the screen, from his first encounter with a car to his buying and selling cars as a young man. The narration was accompanied by film of Tucker at his desk and shots of his cars—several of them—driving on scenic country roads. A short section on his wartime efforts to create a combat car introduced the Tucker turret and may have been the origin of the myth that his turrets were widely used in the war.
The film walked viewers through the factory and down the assembly line, and made it very clear: the cars were real. The film also told of Tucker’s fight to get his plant and even a little about the troubles of selling the stock. After taking the viewer through the production process and showing the tests at Indianapolis, the film made a sales pitch: “Now, just imagine. You starting a pleasant weekend in a Tucker. Put the suitcases in the front and away you go.”
But the film ended with a comment about the obstacles facing Tucker: “If Preston Tucker and the corporation had not had to fight for their very existence, you, the great American public, would now be the proud owners of the first completely new car in fifty years.” The music built to a crescendo as the camera focused on an Am
erican flag, proudly waving in front of the Tucker plant.15
The Grand Jury
On February 14, 1949, the New York Times reported that a federal grand jury was being convened in Chicago to investigate Preston Tucker and the Tucker Corporation for criminal activity. If Tucker had thought the SEC investigation had been intrusive, it was only because he had not known what the US Attorney’s Office was about to do. That office served a subpoena on the Tucker Corporation that, according to the New York Times, “requisitions almost every conceivable Tucker record and paper dated from Dec. 1, 1946, to Jan. 31, 1949. Twelve to fifteen more subpoenas are expected to be issued before the end of the week.”1 At least publicly, though, Tucker remained optimistic; he said he was looking forward to the opportunity to “explain our side of the story.”2
A Detroit News reporter, Martin Hayden, had recently visited the Justice Department in Washington to discuss the Alger Hiss espionage case. In a conversation with Alex Campbell, the chief of the criminal division, Hayden’s hometown entered the conversation. Campbell said, “Incidentally, you are from Detroit. We are going to prosecute a lot of people from your hometown.” Hayden asked the nature of the prosecution. Campbell said, “The Tucker automobile fraud.”3
Hayden knew little about Tucker and did not follow up at the time, but after hearing about the grand jury, he asked Campbell for more details. According to Campbell, Tucker had pulled a fast one at the annual shareholders meeting, setting up a “fake assembly line” to fool investors. Campbell told Hayden that Tucker would be prosecuted, but there was another problem: the SEC was aware of Tucker’s fraudulent activities and had done nothing about it. It was because of the SEC’s inaction, Campbell said, that the Justice Department was being forced to act.