Shortfall

by Alice Echols

  For at least a decade his gambling had not tripped him up. In this he was helped by his considerable shrewdness. Walter carried out his financial dubiousness in a more sophisticated fashion than his competitors. He did not forge people’s signatures to big checks or embezzle directly from customers’ accounts. Even his critics admitted that he had made some canny, if sharp, moves. First there was his decision to establish a holding company as a wholly owned subsidiary of the City. A holding company allowed him greater leeway in his financial dealings, and in setting up Fleming and Company he was perhaps following what was being done in Los Angeles’s building and loan business. Over the years he acquired property through foreclosure, typically when an association borrower defaulted on a loan that had been secured with a trust deed on his or her property. That property would then become part of the assets of Fleming and Company. In Walter’s hands, it became a way of siphoning off profitable properties from the City and of keeping bad debts off his associations’ books. He named the company after Jim Fleming, whom he also made an officer of the company. Fleming, the man who had been so crushed by his boss’s failure, was a carpenter and Walter’s handyman, or, as Fleming later put it to the press, his “hired hand.”1

  Through foreclosure, a number of very modest bungalows in the Springs and Pueblo and a few large ranches in El Paso, Kiowa, and Elbert counties, fell into my grandfather’s hands. These foreclosures enabled him to broaden his reach beyond working-class neighborhoods and to invest in some of the most valuable property in downtown Colorado Springs. Fleming and Company owned the prized corner of Tejon and Bijou, which Walter had acquired for $30,000; he spent another $26,000 developing it. He expanded into the North End as well. In December 1928 an established real estate firm approached him on behalf of one its clients, a doctor who was interested in pursuing a possible swap with him. Would Walter consider trading a lot he owned on Wood Avenue—Millionaires’ Row—for the doctor’s residence on North Cascade? By the time of his fall he owned, through his holding company, thirty houses and commercial buildings in the Springs, fifteen houses and an apartment building in Pueblo, and an apartment building and a dozen houses in Denver. It was all made possible by his ruthlessness in capitalizing on other people’s tragedies.2

  In normal times, all that property would have cushioned him against financial downturns of the expectable sort. He could always make good on his association’s dividend payments by selling off a few of the valuable properties he had acquired over the years. In certain respects he was, as Eva later observed, a conservative businessman. He had not tried to make a killing on the stock market; he invested in Liberty Bonds and U.S. Treasury bonds instead. He hadn’t bet the bank on a motor lodge and a development in an unproven part of town, as Willis Sims had. He hadn’t bamboozled people into investing in shady land deals, the way that Ed Sharer had. In contrast to Fred Bentall, he was a fastidious record keeper; money didn’t just slip through his fingers.

  But if Walter’s business practices were less reckless than those of his local competitors, his living-large lifestyle set him apart from them. Then Pueblo’s Railway Savings B&L, the largest association in the state, began advertising in the local press, in an effort to compete with the City on its own home turf. Walter retaliated by hiring a Pueblo representative for his firm.3 In October 1931, in a move to stave off financial disaster, Walter arranged for Fleming and Company to execute two promissory notes—one to himself for $60,000 and another to Lula for $35,000. He subsequently repaid the loans by selling properties belonging to Fleming and Company.

  Maybe some of that $60,000 went to prop up the City, which, like all the other building and loans in the area, was operating in the red. For most of this period he was paying his depositors somewhere between 5 percent and 6 percent on money that some of the time was not even earning him 4 percent. Several years earlier he likely had believed he could make up that difference through his real estate investments. It was later revealed that from 1920 until 1932 my grandfather had paid his depositors almost $450,000 more in interest than their money had actually earned.4 He had not promised customers 50 percent interest within forty-five days, as the famous swindler Charles Ponzi had, but the same principle applied. He was “robbing Peter to pay Paul,” as the Gazette put it.5

  Ponzi schemes are bound to collapse during hard times. With unemployment and underemployment people lacked the money to open savings accounts or to make payments on their loans. And then there was all the foreclosed property that Walter was now stuck with, some of it close to worthless. By 1932 the City owed a whopping $30,000 in back taxes on its properties.6

  Walter could see how the story was unfolding, which is doubtless why he made sure that his wife and daughter were nowhere near Colorado Springs as the building and loan business unraveled. Within three weeks of Sims’s suicide they were on a train, on their way to New Orleans. For two months they vacationed there, as well as in Havana and Miami, before heading to their usual destination, New York City. Dorothy soon returned to Boulder, where she was studying law at the University of Colorado. Lula remained in New York at the luxurious Waldorf Astoria Hotel. Lula’s telegrams to Walter make it clear that she was taking her travel cues from him. “You know best” was her refrain. As for Eva, she was already out of town, living in Denver. But just two weeks after Sims’s death she rented a safety deposit box in which she put an expensive diamond ring and three $1,000 bills, which were among Walter’s many gifts to her.

  As for his own depositors, Walter tried to allay their fears. He advertised aggressively in the local papers (even in the Pratts’ weekly), although he had lowered his interest rate on savings accounts to 5 percent—two points below his local competitors’ rate. He tried to compensate by emphasizing the safety of his association. And then, during the first week of January, just days after members of Sims’s association learned that all those rosy prognostications about the condition of the Assurance were misplaced, he began to selectively enforce the City’s sixty-day withdrawal policy. We know he did so selectively because court records show that the first depositor to sue him was able to make withdrawals from her savings throughout most of the spring. It wasn’t until late May that the plaintiff in that suit was turned back by employees of the City when she tried to withdraw the $1,314 remaining in her account. A divorced bookkeeper, she had both an eleven-year-old son and a mother to support. Her example suggests that for much of that spring he continued to honor at least some of his customers’ requests in the hope that his flexibility would counter the public’s growing apprehensions about building and loan associations.7

  Dorothy was one of only three women studying law at the University of Colorado in 1932. (Denver Post)

  As conditions deteriorated, Walter continued to plot and scheme to ensure that his association would be the one left standing. Retaliating against Railway Savings Building and Loan for muscling in on his territory, he circulated a flyer attacking its operators’ dubious business practices.8 My grandfather played all the angles, but circumstances that spring were beyond his control. Late one afternoon toward the end of May, he found himself accosted by a depositor, later identified as an Italian American woman. As he was locking the door to his office, she came up behind him and demanded that he give her all the money she had on deposit. When he refused, explaining that he did not have the money to pay her, she didn’t back off. Instead, she tried to hustle him into a nearby automobile. When he saw that her husband was behind the wheel, Walter coughed up some cash. Having gotten at least some of her money, she relented and let him go. These depositors were hardly the only angry customers of the City that winter and spring. My grandfather would later tell his family that during his last weeks in Colorado Springs he often feared for his life, as depositors grew increasingly fierce.9

  Instrumental in provoking depositors’ fury was the Pratts’ Common Sense Weekly. Week after week the paper denounced the town’s B&L men as “money demons” and “human vultures,” men who would “rob a home of
sunshine and sow grief or anguish in their wake.” Worst of all was “Double Dynamite Davis.” Should the Pratts try to expose him, people warned them, he would use his “far-reaching power” to crush them. He was the “henchman” behind all of the local associations, and working to enhance his power was his brother, Roy Davis, the state senator. In the June 3 edition of their paper, the Pratts predicted that despite demands that something be done about these B&L swindlers, depositors would find that justice would prove as elusive as the proverbial “ship that never comes home.”10

  The very day that this edition of Common Sense arrived on subscribers’ doorsteps, the man the Pratts called Double Dynamite Davis was on his way out of town. He traveled by train to Denver and headed for his room at the Brown Palace Hotel. He visited Eva, who was in St. Joseph’s Hospital recovering, the papers later reported, from two successive abdominal surgeries. Walter also met with his lawyer, Bernard Seeman, and separately with Eli Gross, Colorado’s B&L commissioner. (It later emerged that my grandfather, Eli Gross, and the B&L men at Pueblo’s Railway Savings all shared the same lawyer: Bernard Seeman.)11 He told both men that he was traveling to Washington, D.C., where he planned to meet with officials at the newly formed federal agency, the Reconstruction Finance Corporation. The RFC was established to make government credit available to banks and other financial institutions, and he said he hoped people there might help him in sorting out the affairs at his association.12

  Rather than traveling to Washington, Walter took the train to New York City. He arrived in Manhattan on June 6 and headed straight for the Waldorf Astoria. Lula was apparently unaware of her husband’s imminent arrival because on June 5, while he was traveling, she sent him a telegram in Colorado Springs thanking him for his most recent gift of roses and candy. On June 9 the couple registered at the more modest Gramercy Park Hotel and paid for a month’s rent on a room there.13

  On Sunday, June 19, just under two weeks after arriving in New York, Walter placed a long-distance telephone call to his Denver lawyer. He was resigning as president of the City, he said, and he told Seeman that the association needed to be put immediately into receivership. He said he would be returning to Colorado Springs shortly. When interviewed by the press several days later, Seeman ventured that the Springs banker had been so “harassed” by one particular local publication that his “nerves were on the ragged edge and could stand it no longer.” The lawyer made it clear that his client was no quitter. “If they let me alone,” Davis told Seeman, “I can pull out!” Seeman explained that the public’s distrust of building and loans and Davis’s inability to meet the City’s July 1 dividend payments to depositors left the banker with no choice but to throw his business into receivership.14

  Even before news of the City’s receivership hit the dailies on June 21, Colorado Springs had grown ugly with fear. By this point word had gotten out that Walter was in New York City with his wife. The City had 3,600 depositors, most of whom lived in the area. Unable to withdraw their money for several weeks, depositors were feeling some combination of anxious and furious. A group of them, described by the police as “working people,” hatched a plan that they were convinced would force Walter to return home, and with no choice but to pony up. Their plan was to kidnap his daughter, Dorothy, whom they knew was a student in nearby Boulder. Somehow my mother got wind of the plot, and she decided to lie low and out of sight in her father’s room at the Brown Palace. Protecting her there were her boyfriend and his fraternity brother. Her parents knew she was staying at the Brown Palace because on June 20 Lula (or perhaps Walter posing as Lula) wired her there. The telegram managed to slip past the authorities.

  COME ANY TIME BEFORE JUNE TWENTY NINTH TAKE BURLINGTON FROM DENVER FOUR IN AFTERNOON CHICAGO NEXT EVENING LEAVE NINE MICHIGAN CENTRAL LAKE SHORE LIMITED CHANGE STATION IN CHICAGO CHECK TRUNKS THRU ALL RIGHT TO GO DOWN THERE AND DO AS I SAID NEED NOT BREAK LOCK ENJOY YOURSELF

  LOVE MOTHER

  The telegram’s emphatic precision about trains, combined with its opacity about Colorado Springs—rendered as “down there”—and its reference to a prior conversation about checking trunks and not breaking a lock indicate that whoever wrote the wire knew something about the unraveling situation back home. And why was it necessary that Dorothy arrive in New York before June 29? Had Lula and Walter cooked up some scheme whereby the family would travel abroad before Walter’s passport expired on July 11? Did they somehow imagine that the family could weather the storm in Europe or Cuba or Mexico?

  On June 25, 1932, Receiver Fertig obtained a court order allowing him to subpoena the records of the Mountain States Telephone & Telegraph Company as they pertained to the Davises. Lula’s lawyer Horace Hawkins presumably requested a copy of the transcript, which he must have given to the Davises once the threat of prosecution had passed. This telegram appears to have escaped the authorities’ attention, perhaps because it was sent from the Waldorf Astoria Hotel to the Brown Plaza Hotel, where my mother had gone to thwart her kidnappers. It’s not known whether the plan was for Dorothy and Lula to spend the summer in the east, as Lula claimed, or if it was for the family to escape to Europe or Cuba while Walter’s passport was still valid. (Author’s archive)

  A day later, on Tuesday, June 21, 1932, a brief mention of the City’s receivership and likely insolvency appeared in the Colorado Springs Evening Telegraph. The next day the Gazette reported that Walter Davis had departed to “undetermined places,” and that the City’s safety deposit box at the Exchange National Bank would be opened that morning. The paper claimed that news of the receivership came as “a complete surprise to the city.” And yet it also noted that while the authorities hoped to find somewhere between $300,000 and $400,000 in Liberty Bonds inside the box, they had not ruled out the possibility that the association’s assets had been looted.

  It turned out that even getting into the association’s box that Wednesday proved to be a drama. First of all, the bank’s lawyer, P.M. Kistler, objected to the wording of the court order. After that was resolved there was still the matter of physically getting into the box because Walter had left town with its key. It took another thirty-five minutes for an expert to drill open the City’s box. It was one of the bank’s larger boxes, and the authorities assumed that a box that big would likely be crammed full of bonds. Instead what they discovered were seven lapsed life insurance policies, a letter from a life insurance company, a 1921 notice on the sale of a hundred shares in Portland Gold Mining, three empty security envelopes, one empty expanding mailing envelope, and $3,700 worth of Liberty Bonds. Bank authorities also revealed that Davis, who had rented the box for ten years, had rarely visited it, at least in the recent past. Charles Fertig, an insurance broker whom the courts had just appointed receiver of the City, must have looked stricken, for at that precise moment he had to have realized how much tougher his job had just become.

  “Walter Davis and $1,000,000 Are Missing” was the Gazette’s extra-large headline on Thursday, June 23. It was a figure that only got bigger with time. Meanwhile, with the help of an auditor, Charles Fertig was trying to sort out the association’s books. He explained to the press that the City had more than seven thousand accounts, whose total deposits amounted to just over $2 million. Offsetting liabilities were the $3,700 of Liberty Bonds that had been found the day before, $3,000 in the association’s vaults, $8,000 in cash in various banks of the city, real estate loans that were once worth approximately $692,000, and the real estate assets of his holding company, Fleming & Co, which were once valued at $500,000. Denver lawyer Seeman would subsequently provide the receiver with an additional $24,320 that employees of the City had been directed by Walter to hand over to him. The figures suggest that the association had a deficit, which would have amounted to nearly $770,000 if the real estate market had been solid. But with a cratered real estate market, the shortfall was much larger, closer to $1.25 million, which became the agreed-upon figure. A day later Colorado authorities issued a warrant for my grandfather’s a
rrest. He was charged with filing false claims about the condition of his business to the state’s B&L commissioner. Other charges would follow.15

  Within days the papers put the shortfall at $1.25 million. (Gazette)

  From that moment on, my grandfather—his apparent swindle, his whereabouts, his intimates, and his character—became the leading story in the Springs. The latest news of his scandal was always presented as authoritative, that is, until a day or two or a week or two later when a new account based on yet another impeccable source would emerge. These were some of the stories circulating in the press: in early June Davis had been spotted in Denver with valuable securities bulging out of his pockets; before leaving town he taken out a promissory note on one of his holding company’s priciest properties for $100,000 and he had deposited $70,000 of that money into his wife’s New York City bank account; a million dollars of depositors’ money was sitting in one of Davis’s bank accounts or safety deposit boxes back east or possibly in Europe. And then the press reported that there was no money because the banker had spent it all in his many years of “riotous living.” At some point, all of these claims were treated as the truth until suddenly and inexplicably they weren’t. Still, some facts of the case were undisputed: Walter Davis was undeniably missing and so were almost all of his association’s liquid assets.16

  From the point of view of many Coloradans, the one bit of good news to emerge during that first week concerned Walter’s insurance policies.17 Bernard Seeman revealed that his client had given him power of attorney and further instructed him to alter the beneficiary status for most of his policies, which totaled, it was said, $541,0000. Lula had always been the beneficiary of all of his life insurance. However, he now ordered Seeman to designate her the beneficiary of only $100,000 and to assign the remaining $441,000 to his holding company, Fleming & Company. “If anything happens to me,” Walter reportedly said, “the insurance can be applied to association assets.”18 It was an unusual move—what one lawyer characterized to me as “preemptive restitution.”19