by Steve Lehto
A stockholder named Schmidt filed suit in the federal court on behalf of the stockholders of the Tucker Corporation, seeking $50 million from the US government for its malicious prosecution of Tucker.18 Characterizing the Tucker trial as an “inquisition,” the plaintiff pointed out what had by this point become apparent to anyone who followed the case: The SEC had surreptitiously leaked information about the investigation to broadcaster/columnist Drew Pearson, knowing that he would publicize it nationally. It had conducted an investigation that shut Tucker down and started rumors that it had uncovered fraud and corruption at the company. It had then handed the top-secret SEC report to journalists in Detroit, knowing that it would be the basis of national news stories bashing Tucker.
The US government was again defended by Otto Kerner Jr., and he convinced the district court to throw the case out. The court ruled that the plaintiffs had failed to state a claim upon which relief could be granted, agreeing with the government’s defense that, in essence, the allegations of the suing party would not constitute a viable lawsuit even if determined to be true. The court noted that the law giving the SEC its mandate specifically empowered it to make investigations and to “publish information” concerning its findings.19 Since the SEC was merely “publishing information” when it leaked the SEC report to journalists, it was doing exactly what it was supposed to do.
The stockholder appealed, but the court of appeals agreed with the lower court, leaving the stockholders with nothing to pursue. Neither court addressed the notion that the manner in which the confidential report was leaked violated federal law. Presumably, if that was an offense worth pursuing, the government itself would have to bring a case against the agency in criminal court. It was not something for which an individual could bring a legal action.
But it seems particularly disingenuous for the court to claim that the SEC was within its rights to “publish” information about Tucker by leaking information to Drew Pearson. At that point it had not even begun its investigation yet. What was it “publishing” when it told Pearson it was going to investigate Tucker and that the investigation was going to blow his operation sky-high?
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Meanwhile, the federal government continued lending money to Kaiser-Frazer. In December 1950 another $25 million loan was announced. The government attached a few conditions: Kaiser-Frazer had to freeze the prices on its new cars, and it had to cut its production in half.20
By July 1951 some congressmen again began questioning the generous Kaiser-Frazer loans. In all, the company had borrowed $69.4 million and had paid back only enough to reduce the debt to $62 million. When the RFC tried to tell a congressional subcommittee that the loans were necessary to save the car company, they were rebuked: “Notwithstanding this, the sub-committee believes that the RFC should not have made the original loan.”21
In early 1952, President Truman nominated a new administrator of the Reconstruction Finance Corporation: the SEC’s Harry McDonald. Normally, such a nomination would have breezed through the Senate, but a House subcommittee had said it would hold hearings into McDonald’s tenure at the SEC. The hearings were held behind closed doors, and Tucker made the trip to Washington to tell the panel about his dealings with McDonald and the SEC. He didn’t gain any sympathy from them, however. After he told them about how he had been treated by the SEC, McDonald testified that he had simply done his job. He had investigated Tucker and his business and turned the results of the investigation over to prosecutors.
As for the release of the SEC report? He admitted he had done it and said he saw nothing wrong with his actions. “My purpose was to protect the commission against unjustified criticism and to maintain public confidence in the commission,” McDonald testified. “I would unhesitatingly do the same thing today under similar circumstances.”22 He never explained why it was all right for him to violate federal law in the process while pursuing his “purpose.”
The subcommittee was impressed by McDonald. Rather than dig too deeply into the legality of his actions, it announced that there was “no credible evidence reflecting adversely upon the honesty and integrity of” McDonald. The members unanimously agreed to close their investigation, clearing the way for McDonald’s nomination to be approved in the Senate.23
Later in the year, Kaiser-Frazer sought an extension on its repayment of the RFC loan. Harry McDonald didn’t seem too worried, even though Kaiser-Frazer had only reduced the debt to $49.7 million.24
The following March, Kaiser-Frazer would purchase Willys-Overland Motors, the company that manufactured the Jeep. By that point Kaiser-Frazer had only reduced its outstanding RFC debt to $48.4 million, yet the Willys transaction had cost the company $62.3 million, suggesting that it could have paid back the RFC if its directors had wanted to. The loan had actually been due in full two years earlier.25 Kaiser-Frazer simply chose not to pay it off, and no one in Washington did anything about it.
While Kaiser-Frazer’s loans appear to have been a bad investment on the part of the RFC, they were not unique. Lustron, the company that had almost ousted Tucker from the Chicago plant in 1946, obtained $35 million in RFC loans that was not repaid.26
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Though Tucker’s suit against the government had been dismissed, his other lawsuits continued to work their way through the court system. As the discovery process in the Detroit News case went on, Tucker learned how the news organization worked. His attorneys served interrogatories on the defendants, written questions that litigants must answer in writing under oath. Tucker asked the Detroit News how it checked the truthfulness of the story written by Hayden. Just like Collier’s, it hadn’t: “No regular procedure is employed for checking the truth or falsity of facts reported in an article based upon an official report of a branch of the United States Government.”27
Were any of the statements contained in the report true? The Detroit News admitted it had no idea. Tucker’s attorneys laid out each allegation from the Detroit News article and asked if the Detroit News believed they were true. The paper responded to each one the same: “This defendant is without personal knowledge of the matter inquired about in this interrogatory, with the result that it is unable to answer the same.” The verbatim answer was repeated thirty-nine times. The paper admitted that it received $940,000 in advertising revenue from automobile and automotive concerns in 1949, the year it ran the article attacking Tucker.
In his own sworn affidavit to Tucker’s attorneys, Harry McDonald again admitted to disseminating the confidential SEC report. He said that he had “made available” the report to Hayden “shortly before March 13, 1949.” To insulate himself from personal liability, he swore that he had done it “in his capacity” as a commissioner on the SEC. His affidavit was not provided to the litigants until April 1952, after the lawsuit against him had also already been dismissed and he had been sworn in as administrator of the RFC.28
All parties stipulated that at the time McDonald made the report available to Hayden, doing so was a violation of federal law. The parties included the full text of the statute McDonald had violated, “Section 230.122 Nondisclosure of Information obtained in the course of examinations and investigations,” and filed it with the court. The circle was now complete. The Detroit News claimed it was not liable because McDonald was the one who broke the law. The courts had said McDonald could not be sued because he was a government agent. Again, the only apparent remedy lay in the government itself sanctioning McDonald for what he had done.
Preston Tucker Speaks Out
Perhaps frustrated by the fact that his legal actions were making little or no headway, Preston Tucker decided to finally speak publicly about what had happened to him and his car company. In March 1952, he wrote an article for Cars magazine titled “My Car Was Too Good,”1 in which he answered the questions he said everyone was asking: Was the Tucker sedan a good car? And if so, why wasn’t it being put into production? But first he wanted to clear the air:
Sure, we made mistakes. Lots of them.
So has everybody who ever tried to accomplish anything important. But the biggest mistake I ever made was building an automobile that promised so much in appearance and performance that it gained the greatest public acceptance in automotive history. It was for that mistake I paid and paid heavily—almost with my freedom.2
Then came the short answer to the first question: yes, the Tucker sedan was a good car. He noted how the few finished Tuckers had been driven more than one hundred thousand miles and were still going strong. Tucker challenged readers to put his car side by side with any car on the road in 1952. He believed the Tucker would stack up in styling and performance. In fact, many features he’d wanted to include in the Tucker were now becoming accepted by the auto industry, like padded dashboards, safety windshields, and disc brakes. Certainly, time would prove him right on his vision for the car of tomorrow.
He told of how he started the company and of its troubles with the War Assets Administration, then of its conflict with the SEC and the trial. Tucker laid most of the blame on Harry A. McDonald. He suspected that McDonald was being prodded by Michigan’s Senator Homer Ferguson, but it was McDonald who “threw the big punch.”3
Tucker countered many of the SEC report’s allegations and thanked the public for their support. He even apologized—“I regret that a lot of people lost money because they had faith in me and the Tucker car”—but made sure the readers knew that the corporation had not been “broke” financially when the government shut him down. “I feel if we had been left alone we could have pulled out of it. When we closed the plant, the Corporation had assets of $12,800,000.” It was the government and their appointed trustees who were bad managers:
The trustees sold equipment in August of that year at public auction for $156,000—18 per cent of the original cost and 45 per cent of the trustees’ own appraisal of $345,000. Efforts on the part of stockholders were ignored; all they asked was holding it until September 22 when the court had scheduled a hearing on reorganization of the Corporation. But the trustees took no chances. They went ahead and disposed of assets on the basis of 18 cents on the dollar.4
Tucker believed Aircooled Motors alone was worth $5 million. Even the court-appointed trustees said the company’s net worth in 1955 was $1.6 million with assets of $2.48 million against liabilities of only $412,503. And when the trustees gave that report, Aircooled owed its parent, Tucker Corporation, $905,000.5
Tucker ended by stating that if he was to get back into the automobile business it would not be to revive the Tucker ’48—that car was now outdated in his mind. “If there is ever another Tucker car, I can promise that it will be as far from accepted, conventional design as is necessary to give the public the safety and performance I built into the original Tucker and which I believe sincerely the motoring public wants and deserves. I will never again be associated with an assembled automobile.”6 Instead, he would sell a build-it-yourself automobile in kit form.
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Tucker’s legal actions against the various news agencies languished in court for years after he filed them in 1950. The defendants and witnesses were scattered around the country, and they were in no hurry to see the lawsuits heard in court. It wasn’t until July 13, 1954, that Preston Tucker gave his own deposition, allowing the Detroit News attorney to cross-examine him about his allegations.
The attorney asked Tucker who had instigated the attacks against him and his company. Again, he laid the blame with the SEC. The attorney asked him why the SEC would do that, and Tucker stated his belief that the Big Three auto companies—Ford, GM, and Chrysler—were behind it. Tucker believed the Big Three had influenced Homer Ferguson, Harry McDonald, and SEC attorney James Goode into putting undue pressure on his business.7
During the wide-ranging deposition, which lasted several days, Tucker’s attorney stated on the record that he believed the evidence was going to show a direct connection back to Homer Ferguson, through Harry McDonald. When asked to clarify, he said:
I said there were certain persons on the Securities & Exchange Commission who were working on behalf of the Detroit auto interests. And I am thinking in particular of Mr. Harry McDonald, who now, I believe, is chairman of the commission but was not at that particular time. Anybody that says Mr. McDonald was not working against Mr. Tucker and his enterprise is just nuts, as far as I’m concerned: he had a direct financial interest in the Detroit auto enterprises through business interests of his own, he was the political protégé of Senator Ferguson, whose family is up to their necks in the Chrysler Corporation, and I think we will get into that question at some later time.8
As for Ferguson, Tucker testified about a lavish anniversary party Ferguson had thrown at the Mayflower Hotel in Washington, DC. It was unclear how Tucker knew the details he gave, but he listed attendees of the party and explained how the check for the entire event was picked up by Chrysler’s finance officer, B. E. Hutchinson. Rather than asking Tucker what evidence he had to back up the story, the attorney asked him about the Tucker Corporation expense account, and if Tucker had ever misused it.9
Tucker also gave another possible explanation for McDonald’s actions, but the defense attorneys chose not to follow up on it. They asked Tucker why McDonald might have been coming after him unfairly, and Tucker said he had received a phone call in Chicago from McDonald’s former business partner at McDonald, Moore & Hayes. Tucker told the attorney that Moore had called him and asked for the exclusive rights to sell Tucker stock in Michigan when the offering was finally made. Tucker declined to give Moore such a deal. But the attorney skipped over this topic and instead asked him what phone conversations he might have had with McDonald.10 Tucker felt that McDonald’s actions may have been spurred partially by his refusal to strike a deal with McDonald’s former business partner.
Similarly, Tucker told his interrogator that although he could not prove it, he understood that James Goode had sought a job at the Washington, DC, law firm employed by the Tucker Corporation in its early days. Goode was turned down, and Tucker believed it resulted in a “sour grapes” attitude, which contributed to him attacking Tucker’s enterprise. Tucker had been told that it was Goode who had initiated and written the opinion the SEC released after it had approved the stock offering, in which the SEC had warned investors to avoid the stock.11
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Meanwhile, Tucker dealers filed claims against the Tucker Corporation to try to get their money back, arguing they had been defrauded. Boyd Veenkant and Clyde Bates were typical claimants. Hundreds of dealers had joined the suit, and the court asked the attorneys to choose two representatives to bring forward as test cases.12 These two had agreed to pay $4,000 each for dealerships, which committed them to buying two hundred cars apiece—cars that were never delivered. Now they wanted their money back. The court examined their claims and threw out their cases. They appealed.
An appeals court explained the legal standards for fraud, a description which the SEC had never properly applied to Tucker:
Claimants contend that Tucker Corporation made fraudulent or false pretenses respecting its ability to manufacture and produce the Tucker automobile. The specific fraud relied upon is that the Tucker Corporation, through its publicity and advertisement in newspapers and magazines, represented that it was then in a position to bring forth the Tucker automobile, whereas, those in charge of Tucker’s affairs knew, or should have known, that the funds available to Tucker were entirely insufficient to do so. In the alternative, claimants seek recovery on the ground that Tucker’s finance failed, it was no longer in a position to manufacture Tucker automobiles; that claimants were thereby . . . entitled to a return of the price paid.13
The court noted that investors knew Tucker was a “newly organized manufacturing company” and still, they had invested their money less than a year after the company was launched. And allegations of fraud were tied to the dates the men had bought their dealerships—that is, had Tucker Corporation made fraudulent statements to them on or before the dates they had
signed up?14 Actions and statements made later could not have contributed to them being defrauded into signing their contracts. At the time, Tucker had indicated only that he would build automobiles in the future, and everyone knew it would be an expensive undertaking. What’s more, the court wrote, “no automobiles available to the general public had been manufactured during the period of World War II. A terrific demand for new automobiles had been built up. Had Tucker been able to get into production while this demand continued, it is very likely each franchise would have become a valuable property right.”15
Too late to save Tucker, the court concluded that “there is no indication in the claims filed that Tucker Corporation did not honestly intend to use its best efforts to produce automobiles.”16 And, perhaps to underscore its ruling, the court of appeals upheld the lower court’s most contentious ruling. It ordered Bates to pay $500 he still owed under his franchise agreement. He had never fully paid off the note to the Tucker Corporation, and now he would have to pay the money to the trustee in charge of marshaling the corporation’s remaining assets for distribution to creditors.17
Joseph Turnbull Testifies Again
As Preston Tucker gathered evidence and testimony for his day in court, the defendants planned to take the position at trial that Tucker had indeed defrauded his investors, making what they had written about him true. Truth is a defense to most defamation and libel actions, so if Tucker’s operation were a fraud, there would have been nothing wrong with saying so. It was an improbable argument, however, considering that Tucker had been found not guilty of fraud by a federal court.