Preston Tucker and His Battle to Build the Car of Tomorrow

by Steve Lehto

  Hayden knew Harry McDonald at the SEC very well and was surprised to hear that the SEC had failed to act on such an obvious violation of securities law. The next day he met with McDonald. “What is the matter with the SEC?” Hayden asked. “You are supposed to be protecting the investors of the country, and now it takes the Justice Department to find out what is going on?”

  Taken aback by the accusation, McDonald told Hayden the SEC had done a thorough investigation of Tucker. “Why, the whole Justice Department action is based on a report that we prepared for them. We gave them all the evidence.” To prove his point, he made an offer: “I will show you the report, and you can see it for yourself, that we have not been lacking in diligence in our duty.”

  * * *

  The grand jury convened on February 21, 1949. The investigation was led by US Attorney Otto Kerner Jr. The panel had a copy of the monstrous SEC report to use as an outline.

  The grand jury subpoenaed what amounted to several carloads of documents. Preston Tucker decided to make good use of the opportunity for some free publicity. To underscore his operation’s legitimacy, Tucker loaded all the requested documents into eight Tucker sedans and drove them to the courthouse,4 where he gave an impromptu press conference from the front seat of one of the cars. He noted that he had not been personally called to testify but would be happy to if asked. “I have nothing to hide.”5 “I don’t know of anything we’ve done that’s wrong. We can account for the $27 million which we collected. We have $15 million in assets, including $7 million in current assets. We’ve run a total of fifty or sixty cars through our assembly line and we have 100 cars in various stages of production.” The New York Herald Tribune said Tucker expected the investigation to clear his name and allow the corporation to get back to business. The paper also, however, noted Tucker’s other problems, including a “flock of lawsuits.”6

  The grand jury called ninety-five witnesses over three and a half months and created a ten-thousand-page transcript.7 Eddie Offutt recounted the Indianapolis tests and was grilled about whether they had actually driven the cars to the track under their own power.8 The testimony was taken in secret, but rumors abounded as to what others had testified to. At least one person was said to have told the grand jury that the SEC’s prosecution was driven by Senator Homer Ferguson’s desire to “get Tucker.”9

  On March 3, 1949, SEC commissioner Harry McDonald spoke to a meeting of stockbrokers in Chicago. He did not mention that his organization was busy attacking the Tucker Corporation on the other side of town, but he did address the role the SEC and its people played in the business. “May I make this one observation? After having served two years on the SEC, and having come daily in intimate contact with not only the other commissioners but the directors and staff members of the various divisions, I am satisfied that they have only one, sincere purpose—and that is to be constructively helpful.”10

  Less than a week later, McDonald contacted Martin Hayden again and offered to make good on his promise to prove that the SEC was doing its part in prosecuting Tucker. He asked Hayden to meet him at the Statler Hotel, where McDonald was living. There, McDonald handed Hayden a copy of the SEC report, telling him he could read it and write a story based on its contents, as long as he kept his source a secret.11 It was important for McDonald to ensure Hayden’s discretion, as the commissioner was breaking the law by sharing the report.

  Hayden studied the document and drafted a story that ran on the front page of the Detroit News on March 13. Hayden simply parroted the charges raised in the report without examining or questioning any of them. The headline read, GIGANTIC TUCKER FRAUD CHARGED IN SEC REPORT.12 Hayden did not bother to check any of the story’s facts, nor did he talk to Preston Tucker. He later claimed he did not need to. Whether the report was accurate was irrelevant: he was reporting on the report’s existence, not its contents.13

  After the Detroit News ran its piece, other newspapers around the country ran similar pieces, savaging Tucker and his business. Hayden could not prove it, but he was certain that McDonald had shown the document to the other reporters as well. Many of their stories contained information he had not reported which could only have come from someone else with access to the report.14

  * * *

  On June 10 the grand jury issued indictments against Preston Tucker and seven of his associates on charges of mail fraud, conspiracy, and SEC regulation violations.15 Indicted alongside Tucker were Mitchell Dulian, Floyd Cerf, Robert Pierce, Fred Rockelman, Otis Radford, Abe Karatz, and Cliff Knoble.16 Knoble learned of the charges against him while on a visit to his hometown, when a friend showed him the story on the front page of a newspaper.17 Of the eight men charged, only six had been proposed as defendants in the SEC report. Amazingly, the SEC had not suggested prosecuting Karatz, the financial promoter with a criminal record. The SEC might have thought he would be more useful as a witness. The grand jury indicted him anyway. Likewise, Otis Radford, who served as the company’s treasurer, had not been mentioned by the SEC as a possible defendant.

  Tucker’s response to the charges was firm: “The only crime I have committed is starting a new business.”18 He told reporters that the prosecution was being driven by sources with ulterior motives. “The government put me into business, and now it’s trying to wreck me.”19 One paper quoted Tucker blaming the prosecution on “a few people in high places who are tools of vested interests. . . . The auto tycoons of Detroit are behind it.”20

  At least one stock exchange suspended trading in Tucker Corporation stock, which had fallen from five dollars to forty cents a share. Newspapers unanimously clamored for Tucker’s hide, reporting on the “flop” of his company and all but saying he was guilty of a massive fraud. Most articles stressed how much money Tucker had raised and compared it with how few cars had been produced. And even those, according to the slanted reporting, were “unable to run backward.”21

  Time magazine’s report on Tucker’s indictment reflected the new spin:

  The indictment made no attempt to set forth the complex schemes by which Tucker had raised—and spent—$28 million collected from the sale of stock and dealer franchises for his Torpedo 8 [sic]. The grand jury merely totted up Tucker’s statements and labeled each one “false.” Said the jury: Tucker & Associates, “seeking to capitalize on the unusual demand” for autos, falsely “represented [Tucker] as an automotive inventor and designing genius” and obtained money “for [their own] personal benefit and profit” by “payments of excessive salaries and expense accounts to themselves, by the creation of fictitious experimental and development projects.”22

  The magazine left readers with no doubt that Tucker was guilty. “The investors in Tucker had only themselves to blame; the Securities & Exchange Commission had said practically the same thing when it blew the whistle on Tucker’s initial effort to sell stock.”23

  The article noted that each defendant faced a possible 155 years in prison and $60,000 in fines.24 It also threw in some “facts” that were simply untrue, such as that the Tucker ’48s were built with “motors lifted from the cars of other manufacturers.”25 Tucker had said the grand jury indictment was “the biggest rape of free enterprise ever perpetrated on this country”; Time told its readers to wait for a jury to “decide who had been raped.”26

  Collier’s and Reader’s Digest

  On June 25, 1949, Collier’s, a magazine with a circulation of over three million,1 published a negative piece about Tucker.2 To boost readership, the magazine ran ads in the New York Times, New York Tribune, and the Cleveland Plain Dealer with the header HOW TUCKER MADE A SUCKER OUT OF AMERICA.3 Reader’s Digest would republish a shorter version of the piece in its September 1949 edition, for which the publication paid $2,000.4 The Collier’s article, in one form or another, would be read by millions.

  “The Fantastic Story of the Tucker Car” reminded readers how Tucker had promised a futuristic car with so much fanfare. But “behind the glamour the Torpedo looked a little different,” th
e article’s description of the Tin Goose’s failings began. It had taken seven hours of frantic work to prepare for its debut. It needed auxiliary batteries to start. It had no reverse gear. It was nothing more than a reworked Oldsmobile. Much of the story was inaccurate, but that was of little importance. The real gist of the piece was that Tucker’s car was a facade to allow him to rob innocent Americans. The subtitle of the Reader’s Digest version was “Preston Tucker’s 26-Million-Dollar Bubble.”5

  Major portions of the article were clearly taken verbatim from the SEC report. But other elements were more inventive. At one point, Lester Velie, the Collier’s writer who received $1,750 for writing the piece, referred to the carmaker as “P. Tommy Tucker” and “P.T. Tucker,” associating Tucker’s name with the circus man P. T. Barnum.6 He repeatedly referred to the Tucker sedans as “handmade” and wrote that the Tin Goose “had no reverse gear,” “could not back up,” was “non-reversing,” and, in a later passage, called it the “hand-made car, the nonreversing, seldom-driven Tin Goose.”7

  Still, the most defamatory portions related to Tucker and those around him:

  Tucker’s people at this time were a mixed group. Shuttling with him between Chicago, Detroit and Washington were Karatz and another contact man described in a pamphlet of the William J. Burns International Detective Agency as a “check passer and confidence man” wanted by police of two cities. In his entourage also was a Countess Consuela Talalla, of piquant accent and vivacious manner, who had met Tucker in a New York night club. Divorced later, she was seen much with Tucker and once sought to intervene with Chicago police when they jailed another Tucker aide for passing a bad check.8

  Velie never gave his source for the information on Tucker’s dark associates. Interestingly enough, it was not in the SEC report; even the SEC never sank so low as to accuse Tucker of founding his corporation with help from wanted criminals and future divorcees. Some of Velie’s information may have come from Homer Ferguson’s 1946 hearing into the awarding of Tucker’s plant by the WAA.

  Velie also never mentioned that he had lifted major portions of his story verbatim from the SEC report.9 He misled his readers into thinking he had interviewed SEC officials and others mentioned in the report. In retrospect, it seems clear that Lester Velie condensed the agency’s monstrous volume into a shorter piece that he could sell under his byline and sensationalized what he could.

  Velie ended by suggesting that the SEC needed more authority to enforce security laws and that the laws needed improvement. “Perhaps if the SEC had required the prospectus in the Tucker case to be written in simple English, and in four pages instead of 15, the facts might have trickled down to the public.” Nowhere in his article, though, does he give examples of any of the “stilted and tortured legalistic English” he claimed was in the prospectus, nor does he name any facts that were omitted.10

  Velie admitted he went for a long drive with Tucker in one of the cars he ridiculed. “This writer drove with [Tucker] from Chicago to Detroit in his handmade, pearl-gray Tucker Torpedo. We paused for lunch near Lansing, and a crowd gathered about the sleek, dashing car. ‘The only car in town,’ said one admirer. ‘No other car can touch it,’ said another. ‘Why don’t those fellows in Washington and Detroit let you build it, Mr. Tucker?’”11 Velie did not address the irony of having ridden in a supposedly sham automobile.

  Tucker and others wondered if Collier’s had been motivated to publish the article by its many advertisers with ties to the auto industry. In 1949 alone, Collier’s sold $4,341,955 worth of advertising to sellers of automobiles and automotive accessories.12

  More periodicals piled onto the story. Coronet, a general interest magazine with a circulation of two and a half million, ran “Good-Bye to Tucker’s Dream Car” in November 1949. The article was a mishmash of the negative things people were saying about Tucker, most of it unsourced. Many of its facts were wrong. According to Coronet, Tucker’s advisers told him he needed a factory before he could raise money, when in fact they insisted that he needed a car. The magazine also claimed that Tucker’s dream car would have a periscope through its roof allowing the driver a better view. The body would be aluminum and the car would be able to stop on ice. The engine could be replaced at any service station, “just like a battery.” The Tin Goose needed to be pushed by hand because it did not run. The inaccurate description of the Tucker sedan was so outlandish, readers would believe any investor to have been a fool to invest in the venture.

  What few facts the story got right were garbled, misstated, or given out of order. At this point it was clear: the American press felt it could print anything it wanted about Tucker, the uglier the better. The piece ended with: “At his trial in Chicago, Preston Tucker will confront a new job of supersalesmanship when he tries to disprove the government’s charge that his ‘Dream Car’ was a fraud.”13

  The Trial

  As the media uproar grew throughout mid-1949, Preston Tucker’s trial was getting underway. The proceedings were held in the Chicago Federal Building, famous for being the site of the trial of Al Capone.1 It was the same courthouse where the corporation’s bankruptcy proceedings were being held.

  On June 23, Tucker and six codefendants voluntarily appeared in court to answer the charges and posted bail. Karatz was in California and the prosecutor indicated he could appear later. News reports that reported his plea—“Preston Tucker Pleads Innocent”—also noted that “Tucker drove to the courthouse in his gray Tucker.”2 Tucker, Karatz, Cerf, and Pierce posted a $25,000 bond each. Dulian, Rockelman, Radford, and Knoble had to post $10,000 apiece.3 Some defendants had moved out of the area after the plant closed and now needed to find ways to pay for a legal defense and a place to stay, and still support their families. Even though the SEC had spent a year preparing its case, the defendants had to prepare their defense in only ninety days.4

  Those who could afford to hire good attorneys did so. Cerf hired Floyd Thompson, a former Illinois Supreme Court justice who was one of the nation’s most respected attorneys. Thompson had successfully defended Samuel Insull, the man who ran Commonwealth Edison before its stock crashed during the Depression.5 Insull was tried three times on charges that included mail fraud, and Thompson guided him to acquittal each time.

  The defendants were working on their defense as the nation’s news outlets released more and more pieces bashing the Tucker Corporation, based on information that could only have come from the “secret” SEC report.6 Yet the SEC still refused to share the document with Tucker and his codefendants. The prosecution insisted to the court that in accordance with the law, the SEC report had been kept strictly confidential—that it had never been shown to anyone outside the SEC or the US Attorney’s Office—and thus it was not something Tucker was legally entitled to see. It was clear that the agency was going out of its way to try the case in the media, and the report was its biggest weapon.

  Albert Dilling, Robert Pierce’s defense attorney, was so frustrated by the negative pretrial publicity he asked Judge Walter LaBuy, who was overseeing the criminal trial, to hold the publishers of Reader’s Digest and Collier’s in contempt and order an adjournment of the trial, hoping something could be done about the negative press. The judge said he would take the request under advisement. But jury selection began the next day, October 4.7

  * * *

  The prosecution hoped to get many of Tucker’s friends and associates—the ones not charged with conspiracy—to testify against him. Many of them knew they had dodged a bullet when they weren’t charged, since the prosecution’s net had caught some people whose only possible sin was an association with Tucker. If the prosecutors asked you to turn on Tucker and you didn’t, would you be charged next?

  Before the trial, prosecutors had contacted Alex Tremulis. Would he come in and talk with them before the trial? He met with Robert J. Downing, an assistant prosecutor, who asked him about the Tin Goose. Wasn’t it true that the name Tin Goose was given to the car because it was “hodgepodge .
. . built from an old Oldsmobile”?8 Tremulis explained to him that the name was a term of endearment and was not meant to denigrate the car. He told Downing that the Ford Tri-Motor airplane was also called the Tin Goose, likewise in a positive fashion.

  As for the Oldsmobile, it had been used as a buck—a frame upon which to assemble the parts as they were fabricated—when Tremulis was given the task of building the prototype in sixty days. The alternative would have been to make the framework out of wood, but the Tucker Corporation did not have a pattern shop at the time. It was faster to make one out of metal because they had an excellent team of metalworkers. Tremulis sensed that the prosecutor did not care to hear his explanation. Later he said, “Had I known that the name Tin Goose would be used as an instrument to pound nails into the coffin of the Tucker Corporation, I would have personally carved the automobile out of marble.”9

  Interestingly, even though Tremulis would be called as a witness at trial and was a major figure in the design of the Tucker ’48, the SEC gave no indication that it had interviewed him during its own investigation. His name is absent from the list of “Supporting Witnesses” in its report.10 One wonders if his supportive attitude toward the company led to him being omitted. How many other unfavorable witnesses did the SEC leave out?

  * * *

  As the trial date approached, a group composed of Tucker dealers, stockholders, and distributors announced they wanted to reopen the Tucker plant and manufacture cars without Preston Tucker. To do this, they proposed a stock offering to raise $20 million. Then they would seek more funding from the Reconstruction Finance Corporation.11 It was similar to the path Tucker had been on when he was sidetracked by the criminal charges. Anticipating that some might wonder what would be different about this effort, they said the money raised would “be used only in the process of manufacturing automobiles.”12