by Vanda Krefft
Often he deferred to Eva’s judgment. He never regretted these choices—although, given the consequences, he might well have.
On January 2, 1930, the day that Eva arrived in Manhattan, another crisis arose. Three weeks earlier, concerned that the mysterious voting trust had put them in the position of sitting ducks, a small flock of Fox Film Class A nonvoting stockholders had formed a protective committee in New York. The group vowed “to get at the bottom of the entire situation.” At first, no one paid any attention to the committee because no one recognized the names of any of the organizers, and it did nothing.
In the New Year, however, with the press portraying Fox as “unmovable, almost defiant,” a loud squawk arose. On January 2, the protective committee’s lawyer, Stanley Lazarus, announced that because Fox company officials hadn’t revealed any financial data, he believed receivership was probably inevitable. If Fox Film’s creditors didn’t apply for a court-appointed receivership, Lazarus said, the shareholders might do so for their own protection. Within half an hour of Lazarus’s statement, Fox Film’s stock price plunged by nearly 30 percent, dropping from 23⅝ to 17. By the close of trading, the price had regained only one-quarter of a point, resulting in a one-day paper loss of $3.8 million.
That evening, a chastened Fox finally released a statement with hard numbers. Fox Film, he said, had assets over and above all liabilities of $73 million; 1929 profits exceeded $13 million, and 1930 profits were projected at $17 million. Mollified, the stockholders’ protective committee backed off from its receivership threat, but did not disband.
At the same time, financial pressures intensified to try to compel Fox to return to the voting trust. Banks continued to call in their loans, and another meeting with bank officers in early January 1930 failed to produce any forbearance. Fox tried again to offer collateral, but the bankers wanted their money, only their money, and they wanted it now. Fox recalled, “[Y]ou might just as well talk with a stone wall. No one would do anything.”
That is, they would do nothing to help save the Fox companies. Five of the eleven banks soon filed suit to recover their money. At those where Fox had deposit accounts, the company’s money was seized at every branch around the world and applied toward the loan balance. With no advance notice, Fox company checks came back marked “N.G.” (“no good”)—the first time that had ever happened. Fox later remarked that a banker “is a man who loans you an umbrella when the sun is shining most beautifully and insists upon the return of the umbrella when it is raining the hardest.”
Seizing money at least was logical. What didn’t make sense, stirring Fox’s suspicions of a conspiracy against him, was that at the Paris branch of the Guaranty Trust, where Fox had never borrowed money but often deposited very large sums, officials told the studio to clear out because “We don’t want any Fox account in this bank.” They gave no reason. Grim confidences fed Fox’s worst fears. “Banking friends who were life-long acquaintances came to me secretly and told me that they wanted to help but they dared not; that to come to my assistance at this time would bring down upon their heads the resentment and enmity of the most powerful forces on ‘The Street.’ They told me that the gods of Wall Street had practically proclaimed my doom and that nothing on earth could prevent this great money-machine from mowing me down.”
Still, he wouldn’t return to the voting trust. Neither would Otterson and Stuart abandon the agreement. By the second week of January 1930, more than two months into the Fox companies’ financial crisis, no constructive action at all had been taken. The rumblings of war began.
Halsey, Stuart fired the first shot. On January 8, 1930, the firm called in the $12 million loan it had made to Fox for the Loew’s stock purchase even though the debt wasn’t supposed to mature until April 1, 1930. The firm claimed that by incurring another $9 million in other short-term loans in July and August 1929, mostly to support the British Gaumont theaters purchase—debts that were now more than thirty days overdue—Fox had violated the terms of their agreement. Their entire $12 million loan was therefore immediately due and payable.
“There has been no default. You know there has been no default,” Fox retorted in an angry three-page reply dated January 10, 1930. Halsey, Stuart had no business complaining about the Gaumont purchase because “you participated in the negotiations, you met the English representatives with whom I dealt, you consulted and advised with them and me, and there was not a single development in the enterprise with which you were not fully familiar before they were made and entered into.”
Far from being his aggrieved victim, Fox charged, Halsey, Stuart was his co-adventurer. As proof, Fox cited the August 30, 1929, letter that the firm had induced him to sign promising a $1 million payment for its efforts “in studying the financial requirements and devising plans for financing” the Fox companies. “What were you studying and what were you devising, except the Loew purchase and the English commitment?”
In his closing paragraph, Fox threatened, “Is your letter a challenge? If it is, I am not as unprepared to meet it as you seem to think.”
As he wrote those words, Fox had already begun to mobilize for war. Around late December 1929, to get the money to pay off Otterson and Stuart and thus deprive them of any basis for interfering with his companies, Fox had formulated an idea to sell bonds directly to his exhibitor customers and the public. The plan was modeled after Henry Ford’s successful effort nine years before. In January 1921, mired by the postwar business recession, with his factories closed and stuck with 125,000 unsold cars while he owed $55 million in taxes and $30 million in notes, Ford rejected a $75 million offer of help from Wall Street. A banker visiting Ford’s home in Dearborn, Michigan, had told him he would have to submit to supervision of Ford Motor Company spending. “I handed him his hat,” Ford said, “showed him where the door was and told him to take his things and get out right quick.” Instead, Ford asked his dealers to pay in advance for car deliveries and to get the money by borrowing from local banks. Thus, he got loans from small banks around the country indirectly, without incurring the onerous conditions that large investment banks expected to impose. By April 1921, Ford had received $69 million, and by June 1, with all his debts paid, he had $36 million in cash. Ford was hailed as a genius, even by the Wall Street establishment he had spurned.
“Why couldn’t Fox do the same thing?” Fox wondered. In place of Ford’s dealers, Fox Film had as its merchants some eight thousand theaters in the United States and about an equal number in foreign countries. At least half of those theaters relied heavily on Fox movies. If each exhibitor bought $2,000 in bonds, his problems would be solved.
To design “a perfect bond,” Fox hired John Thomas Madden, dean of the New York University School of Commerce, and instructed him to protect the plan so well that even if an exhibitor didn’t have $2,000 available, he would be able to borrow the money from a local bank and give the bond as collateral. The result was Fox Securities, incorporated on January 15, 1930.
The new company planned to offer $35 million in 7 percent, three-year gold notes backed by $70 million in other securities, assets, or equities. Of course, $35 million was not the $93 million Fox needed to discharge all his short-term debts. However, it was more than the $27 million he needed to pay back his loans to AT&T and Halsey, Stuart—and that was his main goal. Once Otterson and Stuart’s companies had their money, the voting trust would indisputably end, and Fox would indisputably regain control of Fox Film and Fox Theatres.
As president of Fox Securities, Fox appointed David A. Brown, a well-respected Detroit businessman and philanthropist who had recently moved to New York to establish the Broadway National Bank and Trust Company. The Scottish-born son of poor Polish immigrants, Brown had made his fortune in Detroit as a coal and ice distributor. Although he and Fox had known each other for more than a decade through charity fund-raising campaigns, Brown had no financial interest in the Fox situation. He had never owned any stock in any Fox company, and neither he nor his
bank would receive any fee for services to Fox Securities. “I came into this picture as a friend of William Fox—a friend because I know of the fineness of the man as a man,” Brown later explained. “No man who can plead as he does for suffering humanity, no man who has participated in the many activities which aim to make this world a better place to live in . . . no man who gives his money liberally as does William Fox, can be other than fundamentally fine.”
Many of the causes for which they had worked were Jewish causes, and therein lay another significant advantage to the appointment. Brown knew “every rich Jew in America,” Fox said, and they intended to present Fox’s predicament as one of anti-Semitic persecution.
Fox Securities appeared to get off to a blazing start. On January 16, 1930, the day before the bonds were to go on sale, Brown told the press, “Our telephone lines here at the bank have been clogged all day with inquiries, while many potential investors have called in person.” Fox Securities, he said, was “a wonderful issue and we anticipate splendid cooperation.”
The next day, thirteen exhibitors representing 233 theaters with combined seating capacity of 300,000 met with Fox and Brown at the Ambassador Hotel. After a lengthy discussion, they agreed to buy “substantial” amounts of the Fox Securities bonds. In a four-page statement released that evening, the exhibitors said that auditors’ reports of Fox Film and Fox Theatres showed a robust outlook “so different from the stories widely circulated in the press.” The exhibitors concluded that it was “a privilege to participate in this financing.”
On January 18, 1930, Fox mailed a three-page letter to some 15,000 Fox stockholders, urging them to buy Fox Securities to help thwart the “vicious” Wall Street plot against him. “All my life, since the age of six, I have had to fight the battle of life,” he wrote. “I have never been a quitter. I have tried to fight the game clean. And so when I found myself and my organizations sentenced to financial death, I determined to fight this battle as I have fought every battle of my life—in the open, and clean.” Let the banking brotherhood do its worst: he trusted the American public. “I am determined that I shall present my case to the square-shooting people of this country, having an abiding faith that when they know the facts they will stand by me and fight with me.”
Secretly, Fox hoped that his letter—also distributed to the press—would prompt the U.S. Senate to investigate Wall Street’s alleged campaign against him. The federal government, however, had bigger problems to solve than those of one unhappy multimillionaire.
While setting up Fox Securities, Fox decided he wanted yet another lawyer. Already he had hired four to get him out of trouble—Republican Party insider James Francis Burke; the short, rotund Kentuckian Joseph Hartfield; the white-bearded former statesman Charles Evans Hughes; and the sensitive, sympathetic Clarence Shearn. With Burke now in the background and Hughes having gone on vacation to Bermuda, Fox felt the remaining two didn’t have sufficient grit for the upcoming battles. Especially he wanted clear of Hartfield, who was urging him to return to the voting trust. However, having promised Hartfield a $1 million fee if he could save the Fox companies, Fox feared that by firing him, he would invite a lawsuit. Hartfield, then, would have to be made to quit.
It was not Fox’s brightest moment. In early January 1930, over lunch at his 270 Park Avenue apartment, he began fighting with Hartfield about the voting trust and around 5:00 p.m., he pushed the argument to a breaking point. Fox recalled, “I then turned to Hartfield and called him all the vile, filthy names that it was humanly possible to call another man and concluded by saying, ‘Why the hell aren’t you man enough to step out of this case? Why don’t you resign? I ought to blow your brains out.’ ” The tirade lasted half an hour. It worked. Hartfield didn’t formally resign, but after Fox subsequently cut off all communication, the attorney gave up and didn’t bother to sue.
Unfortunately, Shearn, who was also present and whom Fox recalled as “horrified by it all,” quit as well. Fox didn’t blame him. “He must have again and again pictured in his mind this mad Fox who said to Hartfield, ‘I would be justified in killing you’ . . . It was too ugly a fight.”
So, now Fox effectively had no lawyers. There was really only one suitable candidate left: the old “gladiator,” seventy-one-year-old Samuel Untermyer, who had helped represent Fox in his fight against the Motion Picture Patents Company in the early 1910s and who had established a national reputation as the “big bugaboo” of Wall Street. In 1912–1913, as counsel to a House of Representatives subcommittee investigating the nation’s money and credit supply, Untermyer had grilled J. P. Morgan so unsparingly that Morgan’s doctor blamed the experience as the major cause of the financier’s death from “nervous prostration” on March 31, 1913.
Untermyer also had detailed knowledge about AT&T, especially its interest in motion picture sound patents, which Fox believed to be a driving factor in the campaign against him. Since April 1928, Untermyer had represented Warner Bros. in thirty-one arbitration hearings over the phone company’s alleged attempted sabotage of Vitaphone. And in 1925, when Untermyer challenged AT&T’s plan to raise New York City phone service rates by 25 percent, he had called the company the “most oppressive of monopolies,” one that was “having a fine time fleecing the people.” He put on a good show, Untermyer did, often shouting in the courtroom and swinging his arms for emphasis. Nonetheless, he was also renowned for his keen intellect and thorough preparation.
Right after the stock market crash, others had urged Fox to hire Untermyer, and Fox had wanted to hire him to work with Charles Evans Hughes. Hughes, however, had recoiled from the prospect. “He said Untermyer was the lowest type of human that ever lived. He called him a reptile,” Fox recalled. The two lawyers were very different, but Untermyer hadn’t really had the option to develop a more sedate style. Born in Virginia to a wealthy planter who lost his fortune during the Civil War and died shortly afterward, Untermyer had had to make his own way in the world. Additionally, he was Jewish, a condition that effectively barred him from joining any of New York’s prestigious law firms. His first office had been in a store on West Fifty-Fourth Street, and his first clients had been breweries that sold beer to bars throughout the city.
If Untermyer were involved, Hughes told Fox, he would not take the case. So, Fox had chosen Hughes, the insider whose approval he wanted instead of the outsider, Untermyer, whose approval he already had. Then the insider had dropped him, substituting his colleague Richard Dwight, who had immediately sided with Otterson and Stuart against Fox in the voting trust. Yet Fox had clung to Hughes’s low opinion of Untermyer. It took Fox Securities president David A. Brown a long time to persuade him that Untermyer was the only lawyer with the courage and skill to beat the banking establishment.
During a meeting on the roof of Atlantic City’s President Hotel, where Untermyer kept the penthouse suite, Fox hired Untermyer, who then resigned from the Warner Bros. case. Fox made him the same promise he had given Hartfield: $1 million if he could save the Fox companies. Soon, Fox realized that Hughes had been entirely wrong. Untermyer “was a gentleman to his fingertips.”
Fox Securities was rather like Fox’s scheme to sell souvenir miniature frying pans at the 1901 Pan American Exposition in Buffalo, New York: foolproof in theory, but seriously flawed in execution. The main problem was that as collateral for the $35 million in Fox Securities bonds, Fox had pledged $70 million worth of property, much of it belonging to Fox Film. Yet it was Fox Theatres that had bought the Loew’s and the Gaumont shares. Why should Fox Film be jeopardized to bail out the sister company?
Within a week after the Fox Securities bonds went on sale, three receivership lawsuits were filed in federal court by Fox Film stockholders. All three charged Fox with illegally trying to transfer corporate assets from Fox Film to Fox Securities. Only one of the three appears to have been legitimate—the first one, filed (as forewarned) on January 18, 1930, by Stanley Lazarus, the lawyer for the Class A stockholders’ protective committee
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Fox suspected that the other two receivership lawsuits were instigated by Stuart and Otterson to prevent him from getting, via Fox Securities, the money to pay them off and push them out of the picture. The second receivership lawsuit, filed on January 20, was prepared by lawyer Isidor Kresel,* who did not explain it correctly to major stockholder Susie Kuser and who had her sign the complaint without reading it. The third lawsuit was filed on January 23 by lawyers Lawrence and Arthur Berenson, brothers representing two Massachusetts clients who had allegedly bought 440 Fox Film shares at $107 per share, for a total of $47,080. About ten years earlier, Fox learned, Arthur Berenson had filed a specious receivership suit against the New York, New Haven and Hartford Railroad and was paid “a million or two” to drop the matter. Fox believed that Stuart and Otterson had given Berenson the Fox Film stock to begin this lawsuit.
Of these three receivership petitions—they would not be the last ones—Kuser’s wounded Fox the most both publicly and personally. After Fox, Kuser was the single most important Fox Film stockholder. The widow of original investor Col. Anthony R. Kuser, she controlled, through her own holdings and as executrix of her late husband’s estate, 19,150 shares of Fox Film Class B voting stock (nearly 20 percent) and 400 shares of Fox Film Class A stock. Her unusual status as a “woman stockholder” ensured ample press coverage, as did the strength and emotionalism of her charges. In a scathing ad hominem attack, claiming a loss of more than $1 million on her Fox Film stock, Kuser accused Fox of having caused “wasteful strife and controversy,” of plunging Fox Film into “grave peril,” and of bringing the company to the brink of “slaughter.” According to Kuser, in the months before the stock market crash, Fox had selfishly devoted “virtually all of his time” to playing the stock market “to the utter neglect and disregard” of studio business. For added insult, Kuser tossed in charges that Fox had given sweetheart deals to family members—the theater candy concession to brother Aaron and decorating jobs to wife Eva, with “exorbitant profits.”* Altogether, a portrait emerged of an imperious tycoon toying with Fox Film as if it were a personal plaything rather than the dearly held investment of its trusting shareholders. If substantiated, Kuser’s allegations would provide a basis for federal criminal prosecution of Fox.