by Vanda Krefft
To get its money, the Capital Company would have to subpoena Fox to appear before its lawyers to answer questions about his financial assets. However, a subpoena could be served only within a one-hundred-mile radius of the issuing court, which in this case was in New York City. In July 1935, Fox moved to Atlantic City, just beyond the hundred-mile limit.
He didn’t plan to stay there forever. Instead, to clear himself of the Capital Company debt, he intended to file for personal bankruptcy there.
It was an absurd idea. In addition to a personal fortune now estimated at more than $25 million, he maintained three homes (Fox Hall, his twenty-two-room apartment at the Marguery Hotel and Apartments at 270 Park Avenue, and a house in Miami), employed a retinue of servants, and owned a huge art collection. In Atlantic City, he first settled his family into the deluxe Claridge Hotel on the Boardwalk, where they would remain for the better part of a year. He could easily have afforded to pay the Capital Company judgment.
Bankruptcy was also a shameful idea, representing a final break with his self-image as a morally upstanding leader. When he engineered favorable decisions on his Tri-Ergon lawsuits, Fox had convinced himself he was twisting a corrupt judicial system back into shape to achieve the proper result. Now he sought only his own financial gain and the satisfaction of a private symbolic demand. Bankruptcy would outwardly describe his inner impoverishment.
Fox’s decision led to an irreparable rift with his brother Aaron’s family. In January 1935, Fox had cut off the sixty-dollar-a-week alimony payments he had been making since the fall of 1932 to Aaron’s ex-wife, Alice—the official explanation being that Aaron could no longer afford to pay the sixty dollars a week, even though Aaron had never provided the money. Months later, Alice was destitute, and in a letter to Eva, she pleaded that her young son and daughter were in danger of becoming public charges. Eva wrote back tersely, “Better children than yours have been raised in New York orphanages.” That summer, with no family members of her own able to help, Alice sent nine-year-old William and seven-year-old Anne Carol into care at the Hebrew Sheltering Guardian Society in Pleasantville, New York. They remained there for a year and a half, until Alice found a twenty-five-dollar-a-week job in California. None of them ever forgave Fox or Eva.
As Fox’s mental state declined, so did his physical health. Just before the move to Atlantic City, he had spent several weeks in serious condition in a New Jersey hospital, probably because of his diabetes. In October 1935 he traveled to Canada for treatment at Toronto General Hospital by Dr. Frederick Banting, co-winner of a 1923 Nobel Prize for the discovery of insulin. Banting asked one question, “What are you grieving about, Mr. Fox?”
It was pointless to suggest that he shouldn’t feel what he couldn’t help feeling. He remained hospitalized in Toronto for at least two months, leaving his room only for morning rides downtown to check on his stock market investments. Confronted by a reporter, he became agitated, shook his head sharply, and pleaded to be left alone, saying, “I’m a sick man.”
Fox constructed his bankruptcy story with lies and forged documents. The basic premise was that he was broke because, several years before, he had given a large portion of his wealth to his wife through a holding company called the All Continent Corporation. Since then, he claimed, he had lost all the rest of his millions. Only a slender tent pole of fact supported the fiction. In October 1930, six months after selling out to Harley Clarke, Fox really had formed the All Continent Corporation and had transferred to it $6.9 million in securities.. There the truth ended.
In fact, Fox created All Continent not to safeguard his family’s financial future but to dodge personal income tax. He had treated the transfer of securities like a sale and had written off more than $8 million in losses, reducing his tax liability by nearly $1.5 million. And he hadn’t given All Continent to Eva. To create the appearance of having done so, he now faked an irrevocable trust deed dated January 28, 1931, removing him from authority and naming Eva as All Continent’s new president. FBI investigators would later determine that the document had been created no earlier than mid-1935 and backdated to meet bankruptcy law requirements. The clue was the letter h. Experts who examined documents typed on the same typewriter found that in 1931, the h had been in perfect shape, but by mid-1935, it was worn and out of line, producing letters that looked exactly like those on the alleged trust deed. Another sign of trickery was the condition of All Continent’s books, which had frequent erasures, corrections, and interlineations.
Indeed, in early 1931, Fox had no reason to cede financial control to his wife, who knew nothing about investments. He still believed he would make a movie industry comeback. In June 1932, under questioning by Senate banking committee counsel William A. Gray, Fox said that All Continent was his company, wholly owned by himself; in early 1935 he was still handling all its stock transactions and all its capital stock remained in his name. Fox probably also forged the document that allegedly gave Fox Hall to Eva on April 14, 1930. At that time, he’d had no incentive to put the estate in her name. By mid-1935, he did. The Capital Company was publicly threatening to file a lien against the property. If Eva owned the house, it could not be seized.
As Fox immersed himself in his campaign for vengeance, he withdrew from community life. He closed down personal bank accounts, transferred money to a byzantine network of business accounts, and began keeping vast amounts of cash—at one point, $350,000—in locked drawers or hidden compartments of specially made furniture. In late 1935, he and Eva discontinued their membership in Temple Emanu-El, Manhattan’s most prominent synagogue, where they had belonged for about a decade.
Still, Fox hesitated to file his bankruptcy case with the court. It would be a humiliating step. Perhaps he could find another way out.
The New Year opened with a shock that stirred up old emotions and clouded Fox’s vision even further. On January 2, 1936, the day after Fox’s fifty-seventh birthday, Michael Fox died in Hot Springs, Arkansas, the resort town where he had been living with his second wife. As much as Fox had always hated his father, he could not repudiate him. Still needing to prove he was different, he would not do what had been done to him. He had Michael’s body sent to New York and arranged for burial in the family plot at Mount Hebron Cemetery in Flushing, Queens.
On Sunday, January 5, 1936, for the first time since moving to Atlantic City six months earlier, Fox returned to New York. The funeral proceedings were somber and circumspect—until Fox’s sudden outburst, when he spat on his father’s coffin and snarled, “You son of a bitch.”
There were probably many layers to his anger, not only for the past but also for the present. Michael Fox’s abdication as his family’s leader had robbed his son of a childhood, forcing him to go to work full time at age ten, and had instilled in him a heavy sense of responsibility toward others. Fox had borne up, made the most of it, even reveled in his presumed ability to know better than everyone else what ought to be done for their welfare. Yet, since his fall from power, he had faced the hidden costs of a life lived beyond ordinary proportions. He was unfit for a smaller scale and kept thrashing against walls that would not give way. His father, he believed, had set him on this course.
Meanwhile, financial pressures on Fox were escalating. Determined to enforce its judgment, the Capital Company had hired private detectives to trail him. In early October 1935 they’d found him on a train entering the Frankfort Junction station near Philadelphia, just within one hundred miles of New York, and had served him with a subpoena requiring him to appear for questioning the following month. He didn’t. In February 1936, a federal judge ordered Fox arrested and held in custody until he either paid the Capital Company’s judgment or submitted to questioning.
He did neither. In Fox’s grief-deranged mind, justice was what he decided it was. And he decided that he’d already satisfied the judgment. After foreclosing—wrongly, Fox believed—on the San Francisco Fox and capturing his $1.5 million investment, the Capital Company had held a
public auction in August 1935 to sell off all the theater’s furniture and fixtures. The Capital Company never notified Fox and was itself the highest bidder, at $49,000—for items that had cost Fox about $1.1 million. Even allowing for depreciation, Fox believed that the Capital Company owed him money, rather than vice versa.
The Internal Revenue Bureau was also after Fox, alleging $3.6 million in unpaid taxes, interest, and fraud penalties related to his 1929 and 1930 tax returns. Mainly, the government didn’t believe there was any difference between William Fox and the All Continent Corporation. Consequently, by merely passing his stocks from one hand to the other following the stock market crash, he hadn’t been entitled to write off more than $8 million in losses.
In both cases, Fox saw nothing except further attempts to persecute him. He was still struggling to understand what had happened to him. Someone in a clearer frame of mind would probably have stayed away, but in March 1936, he went to Washington, DC, to attend hearings by the Federal Communications Commission about AT&T’s involvement in the movie business. Looking unkempt, “in need of a shave,” he listened carefully as witnesses described his negotiations with the phone company six and seven years before. The findings were eye-opening. Although AT&T had always denied having any ambitions in the movie industry beyond selling sound equipment, a forensic accountant found that from 1932 to mid-1935, the phone company had plowed $3.4 million into movie productions at various studios that mostly flopped. Later, in 1936, AT&T president Walter S. Gifford would acknowledge that such activity had been “unwise and unpractical.”
Fox had been right about AT&T’s expansionist motives. Still, nothing could change the past.
Shortly after attending the FCC hearings, Fox prepared in earnest to file his bankruptcy petition. To make sure the case would be handled the way he wanted, he turned to the team from whom he had purchased his 1934 Tri-Ergon lawsuit victory in Pennsylvania—federal judge J. Warren Davis and his bribe collector, Scranton, Pennsylvania, lawyer Morgan S. Kaufman. Here was another reason for choosing Atlantic City: it was within the jurisdiction of Davis’s Third Circuit Court of Appeals, which at that time handled all federal appeals cases in Pennsylvania, New Jersey, and Delaware.
Davis referred Fox to an Atlantic City law firm, Bourgeois and Coulomb, that wouldn’t balk at the questionable aspects of the case. Then, during the first weekend in May 1936, a planning meeting was held at the Traymore Hotel on the Boardwalk. There was no need yet for Davis to attend, but Kaufman went, towing along his older brother, David E. Kaufman, a well-connected Philadelphia lawyer, and eighty-year-old judge Joseph Buffington, Davis’s senior colleague on the Third Circuit Court of Appeals.
Forgoing the ocean breezes and saltwater taffy, Morgan Kaufman set out to recruit federal bankruptcy referee Robert E. Steedle. A quasi-judicial official appointed by the court, the bankruptcy referee oversaw day-to-day proceedings in bankruptcy cases. Steedle was certain to be assigned to the Fox case because he was the only federal bankruptcy referee in Atlantic City. Although Kaufman had met Steedle only twice before, it was reasonable to assume that Steedle would snap at attractive bait. Atlantic City was then ruled by local Republican boss Enoch “Nucky” Johnson (the model for Enoch Thompson in HBO’s Boardwalk Empire), who flagrantly ran gambling and prostitution rackets.*
Kaufman called at Steedle’s office on Saturday morning, May 2, 1936, on the pretext of borrowing a legal book. Steedle received him cordially, but had to be arm-twisted into a meeting the following day at the Traymore. There, at the end of an hour-long conversation in the hotel lobby, Buffington invited Steedle to come to Philadelphia to meet the other federal judges. Implicit was the hint that Steedle might be in line for a judicial appointment. Steedle accepted, but would cancel the next day.
Shortly after Steedle left the Traymore, Fox (as noted by the watchful Capital Company detectives) showed up. For about an hour and ten minutes, he talked to the Kaufmans and Buffington in the lobby. Money may have changed hands. The day before, Fox’s younger daughter, Belle, had withdrawn $15,000 in cash from the All Continent Corporation’s account at the Guaranty Trust Bank in Atlantic City.
Still, Fox delayed filing his bankruptcy petition. Then, on May 28, 1936, the Capital Company began a second lawsuit against him for $218,081 in further unpaid rent (since the judgment the previous summer), on the San Francisco Fox. Around the same time, Fox learned that the Chicago Title and Trust was about to get a $1.25 million judgment against him for the final three payments on the Roxy Theatre, which the bankrupt Fox Theatres had never paid and which he had personally guaranteed.*
On May 29, 1936, listing liabilities of $9.5 million and cash assets of $100, Fox declared bankruptcy. Fool that he was, he later explained to the court, he had squandered $14 million on sour investments such as closed banks; failed movie and radio companies; the San Remo Hotel in New York, whose bonds he had bought through a golf club friend; and “some chemical company that had some process for shining shoes.” He now depended entirely on his wife and daughters’ generosity. They paid for shelter, bought the food, and put the clothes on his back. Outlandish as the story was, the press believed it. Variety commented, “This is probably the most amazing individual come-down of one of the most colorful figures in the trade.”
According to standard procedure, Fox was immediately adjudicated bankrupt. He was not, however, immediately absolved of his debts. Instead, court officials would now begin to examine his finances in search of hidden assets. Fox was prepared for them to find some money. Among his liabilities, he had listed debts to Eva, Mona, and Belle of more than $50,000. Of course, his wife and daughters weren’t really dunning him for repayment. The purpose of their claims was to stand between him and his legitimate creditors and to absorb any funds that might be found.
Around the time of the bankruptcy filing, Morgan Kaufman brought Judge Davis to see Fox, who had recently moved his family from the Claridge Hotel to a leased house on Delancey Place facing the ocean. For more than an hour, the three men sat on the front lawn and discussed Fox’s troubles. According to Fox, Davis listened sympathetically and promised to get Steedle to cooperate.
No money was mentioned that day. However, in mid-July, Kaufman returned alone to see Fox and confided that Davis needed $15,000 to pay for his daughter Mary’s wedding to Roger Firestone, an heir to the Firestone Tire fortune. Could Fox lend Davis the money? It wasn’t really a question. Neither was it really a loan. There was no mention of a due date or interest or collateral or any other aspect of repayment. Indeed, Davis would never return the money, and Fox would never ask him for it.
Within days, Fox brought the money in fifty- and hundred-dollar bills to Philadelphia and gave it to Kaufman in Kaufman’s apartment at the Bellevue Stratford Hotel.
Davis and Kaufman tried everything to lure Steedle into the fold. They called on him, uninvited, at his home and advised that the Fox case was going to have “real money in it.” Steedle changed the subject. Davis invited Steedle on several fishing trips. Out on the water, away from prying eyes and ears, Davis offered to help Steedle get appointed as a federal district court judge and to have Morgan Kaufman, whom he described as a financial “wizard,” buy some stock for him. Steedle ignored both suggestions. Davis invited Steedle and his wife to Mary Davis’s wedding on August 22, 1936—a modest affair that took place on the lawn of Davis’s home in Lawrenceville, New Jersey, and probably cost only a fraction of Fox’s $15,000 “loan”—and took the Steedle family out to dinner. When the subject of Fox came up, as it invariably did, Steedle remained noncommittal.
Secretly, Steedle was horrified by these blatant attempts at bribery. After Kaufman’s first visit to his office on May 2, 1936, he began taking notes on yellow foolscap paper. Then, too frightened of their content to give them to his secretary, he typed his notes himself, destroyed the handwritten originals, and put the typed pages in an envelope in a locked safe at his home. The U.S. Justice Department would later describe Steedle’s diary as “one
of the most astounding revelations of intrigue and attempt[s] to obstruct justice as the eyes of man have ever seen.”
Right away, Steedle made it clear that he intended to conduct the matter properly. On Monday, June 1, the day the case was referred to him, two Fox lawyers showed up at Steedle’s office with a petition asking him to appoint a receiver who would have absolute authority in managing Fox’s assets. They had names ready for the receiver and attorney for the receiver. The latter was the key position. To fill it, they wanted Davis’s brother, J. Mercer Davis, the former prosecutor of Ocean County, New Jersey, who had been tried twice on corruption charges in connection with Prohibition-era bootlegging and who had won suspicious acquittals. Steedle refused. Instead he appointed a trustee and a trustee’s attorney to act on behalf of the creditors and he named honest men to both jobs.
Steedle also ignored a pestering visit from Morgan Kaufman, who tried to tell him how to handle the case. Kaufman wanted Steedle to set aside the claims of the Capital Company and the Chicago Title and Trust and to allow Fox’s claims against others—principally those against Fox Film and the Capital Company—to be heard first. If that were done, Kaufman explained, then Fox would have enough money to pay all his legitimate creditors. Otherwise, nobody would get anything, because Fox had no money.
Steedle let the claims of the Capital Company and the Chicago Title and Trust stand and squarely addressed the main issue of the case: ownership of the All Continent Corporation, the holding company where Fox had stashed his multimillion-dollar fortune. Fox’s creditors didn’t believe the trumped-up trust deed that had allegedly given the company to his wife and daughters in 1931. They insisted that All Continent belonged entirely to Fox and that its assets should be seized to pay his debts. To resolve the dispute, Steedle authorized the creditors’ lawyers to examine Fox’s books and records and to question Fox and members of his family.