The Man Who Made the Movies

by Vanda Krefft

  It was shockingly unfair, Fox thought. The late Anthony Kuser’s sole cash outlay had been his initial $200,000 investment in 1915. Through various corporate restructurings, dividend payments, and sales of their shares, Fox estimated that the Kusers had reaped at least $5.7 million from Fox Film during fifteen years. As Fox understood it, most of the fortune that Kuser left to his widow had come from his investment in Fox Film. Anthony Kuser had certainly been grateful. He had been one of Fox’s most ardent supporters and one of his best friends. Nonetheless, Fox had left the door open to this action. He had not attended Kuser’s funeral in February 1929 because he’d chosen to stay on the West Coast to await word from Assistant Attorney General Donovan about the Loew’s acquisition, and he had gone to great effort to disguise the fact that, for the three months before the stock market crash, he had been recovering from severe injuries sustained in the July 17 car crash. Susie Kuser had no way to know that her accusations were not correct.

  Fox immediately issued a detailed public statement refuting all Kuser’s accusations. Insisting that he had never mishandled any company money, he said, “Whatever else may happen to me, I propose to maintain my honor.”

  Within days, ten other Kuser family members, representing about 12,000 Class B voting Fox Film shares and 28,000 Class A nonvoting shares, wrote to Untermyer to declare their support for Fox. Sometime later, Susie Kuser’s son, New Jersey state senator John Dryden Kuser, told Fox that his mother believed she had been tricked into filing the receivership lawsuit and that she had no ill feelings toward Fox. Instead, she appreciated all the money Fox had made for her and her family.

  But what was so bad about a receivership? From the lawsuits’ language, it sounded like the one means by which Fox Film could be extricated from trouble and saved as a going concern. In fact, the opposite was true. As one attorney involved in the Fox case commented, “[W]e lawyers know . . . that in a receivership it is mostly the lawyers and the trustees and new bankers or new reorganizing gentlemen that come around that do nearly all the receiving.” Usually, the common stock was wiped out, with investors losing every cent, while the company’s assets were chopped up and sold in pieces to pay debts. In fact, and Fox knew it, receivership was a death knell.

  Even before the receivership petitions were filed, Fox knew that Fox Securities wasn’t going to work. There were too many problems: the opposition of the banking establishment, which was much stronger than it had been in Henry Ford’s day nine years earlier; likely sabotage by the signers of the December 17, 1929, round robin letter, three of whom were the principal contacts of the exhibitors whom Fox expected to buy the bonds; and an annual interest burden of $2.45 million if the entire $35 million issue were sold.

  Anyone who looked closely at the deal got nervous. Eastman Kodak, for instance, initially indicated it would buy about $15 million worth, but soon rescinded the pledge. Henry Ford also declined to buy the bonds, despite an in-person plea by David A. Brown, whose late wife had been the sister of Ford’s chief architect, Albert Kahn. Ford’s only gesture of support was to send a representative to New York to say that Ford would introduce Fox to AT&T president Walter S. Gifford. “I informed him that . . . I needed no introduction, that I had had the pleasure of having met Gifford,” Fox said. “It reminded me of the saying, ‘All roads lead to Rome.’ ”

  Even the thirteen theater chain owners who had pledged to buy Fox Securities bonds didn’t deliver as promised. The day after the meeting at the Ambassador Hotel, Fox Film’s head of sales, Jimmy Grainger, replied that instead of paying, each man had an excuse about having to go home and ask his partner, wife, father, mother, brother, or sister. Fox said, “Confidentially it was reported to me that neither Grainger nor Clayton Sheehan [Fox Film’s foreign sales manager] intended to do anything that would result in this venture [sic] becoming successful. In fact, they were spreading secret propaganda that no one should buy any of these debentures.”*

  The results were dismal. After ten days, only $200,000 in Fox Securities had been sold, and that $200,000, as Fox later admitted, “was gained by my coming in personal contact with a few people, as many as time would allow me to see, and I don’t know whether even those would have taken them in the show-down.” The problem was obvious. “I was trying to sell $35 million worth of gold notes sixty days after America’s greatest panic.” Once the receivership suits started, “every chance of selling these securities had fallen by the wayside.”

  Only two weeks after its inception, Fox Securities was dead. By February 1, 1930, lawyers had drafted a letter to investors canceling the gold notes. On February 15, Fox Securities president David A. Brown sent back all funds received and also, at Fox’s insistence, 7 percent interest up to and including that date. Fox Securities’ only expenses had been printing costs for the company’s literature.

  While Fox accepted the demise of Fox Securities philosophically, Brown was bitter. Several months later, the otherwise mild-mannered humanitarian wrote to a friend that Fox Securities had been destroyed by “racketeering gangs” of “shyster lawyers and their stool pigeons [who] should be dealt with as you would deal with a vicious rat.” He called Fox’s adversaries “these leeches trying to suck the life’s blood out of an organization for no other purpose than to cash in on it . . . human insects.”

  But Fox already had a backup plan. About a week before announcing the Fox Securities offer on January 15, 1930, he had started discussions with the Bancamerica-Blair securities and underwriting firm to replace Halsey, Stuart as the Fox companies’ bankers. Evidently, some of Wall Street’s potentates might be willing to break ranks with their brethren as long as enough money was involved.

  Fox understood that Bancamerica-Blair president Elisha Walker would require careful handling. Walker seemed constantly ready to bolt, always carrying back to Fox’s office the entire stack of financial documents Fox had given him to study. Fox said, “Every time I saw him with these papers, I felt that he had come to call the deal off.” To keep Walker on the hook, Fox lied about the response to Fox Securities. “I would report to him the number of million of these gold notes that we had subscriptions for. There wasn’t any truth to it. We didn’t have them.”

  It was the same psychology Fox had used to turn his little “mother love” movie Over the Hill into a giant hit in 1920—create demand through the illusion of interest among others. It worked this time, too. Bancamerica-Blair agreed to undertake the job, and soon Lehman Bros. and Dillon, Read had also come on board. Although two months earlier, Dillon, Read had tried to cheat Fox by asking for $1.5 million worth of Warner Bros. notes as collateral for a $500,000 loan, he wanted the firm included. Dillon, Read was the banking firm for Loew’s, Inc., and Fox didn’t want any opposition from that corner. He also wanted to keep a close eye on hostile forces. He later explained, “Never avoid your enemy. Always meet them face to face. I never run away from anyone.”

  Together, Bancamerica-Blair, Lehman Bros., and Dillon, Read would underwrite $65 million in debenture bonds and preferred stock for a $9 million fee. The plan would provide enough money to pay off the AT&T and Halsey, Stuart loans; the remaining debt on the Gaumont purchase; and many other obligations, and would thus cancel the complaints of the receivership lawsuits. Otterson and Stuart would no longer have any basis to interfere—neither owned even a single share of stock in either Fox company—and the voting trust would dissolve. The Fox companies and the Loew’s stock would be saved.

  As much as Fox wanted to like the Bancamerica-Blair plan—he had to like it because he had no alternative—he couldn’t dispel serious doubts. These bankers were very pushy. To familiarize themselves with the Fox companies, they sent a platoon of fifty-eight accountants and twenty-two lawyers to the Fox offices to spend thirty days poring over financial records. Then Bancamerica-Blair president Elisha Walker summoned Fox to his home for an inquisition by various lawyers. One of the lawyers kept asking about the Tri-Ergon sound-on-film patents and insisting that they belonged to Fo
x Film rather than Fox personally. The lawyers also wanted Fox to give the Fox companies his half of the Grandeur company and his quarter interest in Fox Movietone News. It didn’t matter that he had invested as much as $600,000 of his own money in those companies. Fox said, “From their cross examination of me there, there seemed to be a smattering that perhaps the telephone company was being represented at least in a slight way.”

  It was all very wearying. Fox was sleeping fitfully, losing weight, graying quickly, and arguing with more and more people whom he needed as allies. With the December 17, 1929, round-robin letter, he had lost the loyalty of six top executives of Fox Film and Fox Theatres. One of them, Courtland Smith, vice president of Fox Film and head of Fox Movietone News, quit or was fired on January 17, 1930, and took with him executive Jack Connolly, who had arranged most of the European celebrity interviews, including those with Mussolini, George Bernard Shaw, and England’s King George V. Harrison’s Reports commented, “[T]he Fox Movietone News is not, in my opinion, worth even half as much as it was before.” Only Sol Wurtzel in Los Angeles and Fox’s brothers-in-law Jack and Joe Leo in the New York office remained as Fox’s upper-level allies.

  At home, Eva’s physical condition worsened, and her doctor recommended immediate surgery—probably the mastectomy she had for breast cancer. Psychologically, she was also unwell. One day in mid-January 1930, Fox invited real estate scout Alfred Blumenthal, recently returned from Europe, to their home. Blumenthal had never split his commissions with Fox Theatres as he was supposed to. On the Metropolitan Theatres deal in the New York City area, for instance, he had received $1.25 million even though, according to Fox, he “knew nothing more about that transaction than a little dog that would be outside this door.” Now, Fox decided, would be a good time for Blumenthal to make good. After he asked Blumenthal to give, or at least loan, Fox Theatres its money, he heard a noise from the hallway.

  He went out and found Eva, highly agitated, hiding behind the door eavesdropping. “She said, ‘He won’t loan this company any money and won’t give it what is due it . . . I am going to blind him.’ She had a bottle of vitriol [sulfuric acid] in her hand. ‘This dog who has called me mother, if he is going to destroy you, I am going to destroy him.’ ” Forcefully, Fox said, “I pushed her in a room and locked her in.”

  Other relationships in the family were also affected. Everyone had depended on Fox for so long for income and status. Marriages based largely on the attraction of inclusion in the Fox empire faltered: daughter Belle’s to lawyer Milton Schwartz, homely brother Aaron’s to pretty Alice Miller, sister Malvina’s to former Fox personal secretary Henry Dunn. One fragile mind collapsed altogether. In December 1929, Grace Leo, the wife of Fox’s brother-in-law Joe Leo, suffered a mental breakdown and was hospitalized at the Neurological Institute of the Columbia University Medical Center. On the evening of January 22, 1930, while the other patients were having dinner, forty-five-year-old Grace changed into street clothes, put on her fur coat, and slipped out of the hospital on West 168th Street unnoticed. Several hours later, police found her lying in a snowbank in Fort Washington Park near the railroad tracks, moaning in pain, with cuts and abrasions on her scalp and legs.* After overnight hospitalization for her injuries, she was returned to the mental institution.

  In Los Angeles, although still outwardly profitable, the studio was falling into disarray as the chain of command became impenetrably murky. Morale, Variety reported, had reached a “critical point, due to the procrastination and the vague future as it stands at present.” Before, Fox had held ultimate authority, with Sheehan presumed to be his interpreter and mouthpiece. Now Fox might topple from power, and Sheehan hadn’t been seen since October 1929, when he left for Europe to seek treatment for liver disease. When he returned to the United States in early December, he landed in New York and stayed there. That left Wurtzel holding the West Coast fort, but his tense relationships with Fox and Sheehan made him an unreliable factor.

  In New York, stock market traders continued to bounce Fox Film shares all over the board in a hysterical frenzy. Prices sank, soared, and sank again. Between mid-December 1929 and mid-January 1930, some 2.8 million shares changed hands, nearly three times the total of 820,660 shares outstanding. That pattern of activity strongly suggested an organized short-selling operation that pounded prices downward and then rushed to cover upon any sign of hope that the company might recover. Given the appearance of a ruthless insiders’ game, several New York newspapers warned ordinary investors to stay away. An Investment News columnist commented, “I prefer stocks that are much more orderly than Fox Film. Let somebody else have the wild ones.”

  And then there was the Justice Department’s antitrust lawsuit filed in November 1929 opposing the Loew’s acquisition. That hadn’t gone away. On January 17, 1930, as Fox was giving his Fox Securities sales pitch to theater owners at the Ambassador Hotel, his lawyers filed documents denying the charges and asking the court to dismiss the case. It didn’t. The matter was expected to be heard within a year.

  “I have never been a quitter,” Fox wrote in his January 18, 1930, letter to stockholders, but five days later he nearly did quit. He was tired of all the fighting, and his only hope for a clear victory, the Bancamerica-Blair plan, was still being devised and already had a great many drawbacks. At fifty-one, feeling like “a pathetic old man,” Fox wondered whether it was worth it to press on. More and more, he simply wanted peace.

  His closest advisers, Untermyer and Greenfield, urged him to give in and return to the voting trust. It could be modified with adequate safeguards, they counseled. Fox knew both were on his side. Greenfield was spending nearly all his time, day and night, in New York alongside Fox, trying to help him out of his troubles. Similarly, Untermyer and his son Alvin, Fox would recall, “could not have worked more faithfully and harder and more diligently and with greater consideration morning, noon, and night than they did in behalf of the Fox companies.”

  Signaling his willingness to accept a modified trusteeship, Fox agreed to attend a conference on January 23, 1930, presided over by Federal District Court judge Frank J. Coleman, who was handling all the Fox receivership cases. That morning, with Fox absent but represented by Samuel Untermyer, twenty-five lawyers gathered in Judge Coleman’s chambers in the Woolworth Building in Lower Manhattan. By midday, they had agreed to replace the existing voting trust of Fox, Otterson, and Stuart, with one composed of Charles Evans Hughes, who had just returned from his Bermuda vacation; John W. Davis, former U.S. solicitor general and unsuccessful 1924 Democratic presidential candidate; and either Harry Stuart or a Lehman Brothers representative. On buoyant hopes of a resolution, by 1:00 p.m., Fox Film’s stock price had zoomed from $22 to $34.

  Then, at 1:45 p.m., forty-five minutes late, Fox arrived. Instantly the mood changed. Wearing a dark suit, dark top coat, gray felt hat, white shirt, and blue-and-maroon tie, he strode with deliberate confidence down the corridors lined with mumbling, chattering men. On the drive downtown, Greenfield’s lawyer, Harry Sundheim, had warned Fox to keep his voice down and not irritate the judge.

  He ignored the advice. Aware that Judge Coleman was annoyed by his delayed appearance, Fox offered no explanation. Nervously puffing on a long cigar, scattering ashes over the carpet, with tense, heavy lines showing at the corners of his mouth, Fox answered questions brusquely. Then he declared his position. He would not accept the proposed new trustees. He had to be a trustee, and he had to have full power to appoint the other two.

  Of course, that was no kind of a compromise. Flushed with anger, gray-haired, bespectacled Judge Coleman threatened that unless Fox accepted the modified voting trust arrangement, he would walk into his courtroom and appoint a receiver for the Fox companies.

  Fox would recall, “I looked him square in the eyes and said, ‘Look here, your Honor. I have a very high regard for you and for your court, and no threats that you make to me have any effect on me at all. You are not going into that room and sign an applicat
ion for receivership.” For half an hour they argued, with Coleman insisting that he was entirely serious about approving a receivership and Fox countering that Coleman had too much integrity to make up his mind before hearing the full story. “No, you won’t,” Fox kept saying. With a final “Yes, I will,” Coleman left the room.

  Commenting on Fox’s performance that day, Washington Post columnist Nelson B. Bell wrote, “Like him or not, the man has nerve.”

  Fox was right. Coleman didn’t sign the receivership papers, but he did issue a “show cause” order allowing the proceedings to go forward, with Fox required to explain why a receiver should not be appointed. As word leaked out that the proposed voting trust compromise had failed, Fox Film’s share price plummeted from its high of 34 to close at 27½. Wall Street had been watching closely. During the five-hour session on January 23, the most active stock among the 1,200 listed on the New York Stock Exchange was Fox Film: 494,800 shares (more than half the total outstanding) changed hands. That activity represented one-sixth of the day’s trading.

  Fox never said what made him change his mind about accepting a compromise arrangement. The likely explanation is that Eva intervened. Probably it was on that same day, January 23, that she had arranged to have the surgery ordered by her doctor. Before going to the hospital the night before, she had made Fox promise he would not return to the voting trust.