by John Brooks
He was released early in the afternoon, and when he got to his Amex post, his partner Segal was alarmed to find him completely distraught. “So that’s the way they treat an honest man,” Jackson was muttering. “As if he were a criminal and they needed a confession.”
“But Dave, what happened?” Segal asked. “The S.E.C. is supposed to be our friend!”
“I can’t talk about it now,” Jackson said. He went home, and that evening, after consulting Segal by phone, dashed off in longhand a furious and agonized letter that he planned to address to various public officials, including Senator Jacob Javits of New York. “I was besieged and harassed continously,” he wrote of the hearing. “The questioners were never satisfied until they got the answers they wanted.… I never really understood brain-washing before. We in America believe people innocent until proven guilty. When those of us with immaculate records of ethical and moral responsibility are treated with scorn and contempt, badgered to the point of emotional breakdown, then our representatives must take action.…” That evening, feeling like a prophet without honor not just in his country but everywhere, Jackson almost let despair persuade him to abandon the fight to reform the Amex.
What he did, instead, after finishing his letter, was to read it on the telephone to Ralph Saul of the S.E.C. before mailing it to Javits. Horrified, Saul pleaded with him not to mail it, apologized for the excessive zeal of his colleagues, and promised that some sort of amends would be made. Somewhat mollified, Jackson did not mail the letter. (But neither did he destroy it. He still has it, the almost illegible scrawl testifying eloquently to his emotional state at the time.) A couple of days later a delegation of S.E.C. men—headed by none other than Silver, one of the inquisitors at the hearing—came to the Amex floor and spent the entire trading day watching the Jackson-Segal operation, trade by trade. It turned out to be an unusually lively day for them, because one of the stocks in which they specialized, Mead Johnson, was fluctuating wildly on conflicting rumors about a new contraceptive product, calling for particularly risky and fast-footed specializing. All day, the S.E.C. men watched without comment. After the close that afternoon, they declared themselves convinced that Jackson and Segal were honest, and flatly asked them to become allies of the S.E.C. in the reform of the Amex. With a lack of enthusiasm that in the circumstances must be considered understandable, Jackson and Segal agreed.
“Now, what do you know about what’s going on upstairs?” Silver asked his new allies, when they were all gathered on the Amex floor, late that afternoon after the janitors had swept up and everyone else had gone home.
In fact, one of the things that was going on upstairs just then was the surreptitious retyping, with significant emendations and deletions, of the minutes of certain recent meetings of the Amex Board of Governors. But Jackson and Segal, of course, did not know this. Indeed, they told the S.E.C. men that they knew nothing of what the Amex administration was doing and could only promise to cooperate with the S.E.C. in its investigation in any way they could. The following week, Jackson made good this promise by going to Washington and, in a long session with the S.E.C. at its headquarters, giving his views on what reforms were needed.
So at last, painfully, the federal investigators came to believe in the existence of a minority element within the Amex that, if encouraged, might be able to bring about reform from within. Much later, S.E.C. officials would say that until the day when their delegates came to the Amex floor and reached an understanding with Jackson and Segal, the agency had been on the verge of exercising its legal prerogative to padlock the executive offices of the Amex and take over its operation in toto. Such a seizure, representing socialism rampant in one of the last bastions of free capital, would have been a crushing, perhaps fatal blow not just to the Amex but to all of Wall Street.
6
In October, the rest of the Street finally came to realize that it would be caught in a backlash from the Amex scandal. Wall Street at its highest level took action, forming a securities-industry committee to review the Amex’s rules, policies, and procedures and make recommendations. Its membership was a cross section of top-echelon Wall Streeters, including the president of Merrill Lynch, the managing partner of Paine Webber, the senior partner of Goodbody, the president of Clark Dodge, and, as chairman, the formidable Gustave Levy, senior partner of Goldman, Sachs. The Amex, meanwhile, went on its bumbling way. A meeting of the remnants of the Young Turks, intended for regrouping and for planning a new offensive, was scheduled for the day following the announcement of the Levy committee. Reilly, getting wind of the meeting, arranged to have its location changed from someone’s private office to the Amex governors’ room, invited all Amex members to attend, and, as a final touch of irony, called in the press. Just as he had planned, the well-reported meeting fell flat in a morass of platitudes about unity. Even Jackson, thus mousetrapped, found himself saying, “Let us close ranks, forget personal feelings, and save our Exchange.” Over the subsequent days, though, he resumed his defiant contacts with the press, giving his version of the state of affairs at the Amex in pointed detail; and at last Reilly was goaded to a reprisal that stands unique in the annals of Wall Street.
It was October 18; Reilly had just learned that Jackson had talked frankly again, this time to Robert E. Bedingfield of the Times, and that the result would be printed within a couple of days. During that day’s trading the following notice was distributed on the floor:
TO THE MEMBERS:
The Chairman of the Board will address the membership today, October 18, 1961, at 4:00 o’clock P.M.
In view of the importance of the subject, members are requested to remain on the trading floor for the Chairman’s statement.
Charles E. McGowan, Secretary
What subject? The day’s trading ended as usual at 3:30; the members, or most of them, stayed on the floor instead of going to their lockers on the floor below to change their coats and shoes and exchange gossip before going home. Right on time, Reilly appeared on the podium. Whether by intention or coincidence, a brand-new hi-fi public address system had just been installed. Only one newspaper reporter was invited—a man from the old Herald Tribune whom the Amex administration considered to be relatively sympathetic to it. On the stroke of 4:00, Reilly’s rasping, tough-guy voice, duly amplified and faithfully reproduced by the shiny new speakers, began to be heard, and spoke in part as follows:
MEMBERS:
Although I have frequently faced troubled waters since I became Chairman in 1960, nothing has disturbed me more than the painful task I feel it is my duty to perform this afternoon.
My heart is heavy as a result of the news articles in the Wall Street Journal and the subsequent coverage by other newspapers. Since I have accepted your mandate to lead our Exchange I … permit you to judge a man who has made our Exchange a public spectacle.
I know Mr. Jackson, along with others, gave interviews. I also understand Mr. Jackson was asked to correct the latest story before it was printed. He refused! As long as he was so glib with his tongue he should at least have checked his handiwork since those news articles shook the very foundation of our Exchange. I hope Mr. Jackson realizes now that the caption could have read:
“Young Turks led by David Jackson publicly assassinate the American Stock Exchange.”
Whether or not he or Mr. Segal was the leader is not important! Since Mr. Jackson sought the fame I will give him the title.
How he or anyone else can judge any official or the governing Board without knowing the full record and before the facts, goes beyond my comprehension. How he, through thoughtless action, can re-open the wounds caused by the Re case, goes beyond human understanding.…
I have been asked since the articles appeared in the newspapers to recommend that measures be taken against the members involved. I will refuse to do so unless I am commanded by the proper Standing Committee or the Board of Governors, because, in my opinion, any member or members who personally indict their own weak characteris
tics by causing these disturbances must be going through a greater punishment than any that could be levied by the Board of Governors.
I would like it thoroughly understood that it is my belief that members should have the right to protest any weaknesses that develop on our Exchange whether they be of an operational or administrative nature. Common sense also dictates that in order to overcome such weaknesses—if they exist—members must have the right to express their opinions and politic amongst themselves seeking stronger candidates to make the necessary changes. But while I wholeheartedly endorse such action I must remind all that you have signed our Constitution—agreed to abide by it, and all amendments thereto. Therefore, all expressions should be made to the proper Committee provided for that purpose; that is, the Nominating Committee. And, as in the past, if you are not satisfied with the candidates proposed for election, you may express your objections through petitions.
At this time your Chairman wishes to state that he is very tired and, as you know, he has had quite a rough time for the last two years. It has been difficult enough to handle the routine duties of my office and at the same time devote the time necessary to fight brush-fires created by the Re and Re case. I should not have to dissipate my strength to fight for our Exchange over arguments born of dissension by minority groups aired in the newspapers which add so greatly to my burden. …
I am proud to represent the American Stock Exchange. … I am firmly convinced your officials and our members, through self-discipline, have enforced the rules. …
I conclude by saying, “What has been done, let it be done!”
I must insist that no member or group of members in the future turn this Exchange into a public battleground. I am going on record as your Chairman that I will no longer tolerate it.
At the end of this unusual oration—the only public attack in history by one member of a leading United States stock exchange upon another, unless one is to count the minor dust-ups with fists that used to occur from time to time on the outdoor Curb—there was a rousing ovation for Reilly. It is ironical, though not entirely accidental, that neither Jackson nor Segal was there to hear it. Segal was at home for his normal day off; no one had notified him in advance that the chairman was to speak on the floor that day. Jackson had indeed been on the floor during trading hours, and had been notified of Reilly’s plans along with everyone else; but he was booked to sail for a Paris vacation two days later, and he had decided that no matter what Reilly had to say he would go ahead with his plans to get home early and get packed.
So neither of the stated targets of the attack knew its contents, and neither, one way and another, would know them precisely for more than a month to come. That evening, by which time the Reilly speech had naturally become the talk of Wall Street, a reporter called Ted McCormick to ask for a comment. As an example of Wall Street understatement, McCormick’s answer was a classic. He described Reilly’s speech as “a routine report to the membership by the chairman of the board.”
Next day Jackson, at his Sixty-eighth Street apartment, was asked for a comment on the speech, the contents of which he knew only by hearsay. He said only, “Mr. Reilly must live with his conscience and I must live with mine.” Then he sailed for Europe with his wife.
During his absence, Segal held the besieged fort at the Amex. Long afterward he said of the subsequent weeks that every single day had been torture for him. He was systematically ostracized; in place of the Amex floor’s usual joking and backslapping he met with cold silence almost everywhere. For a month no more than six or eight members spoke to him except in the business of making trades. He was pointedly given the maximum fine allowed under the Amex rules for a minor offense against them, and was kept under daily hostile surveillance by a staff man sent by Mann’s committee on floor transactions. Finally this got to be too much for him; when Mann’s representative sauntered up to the Jackson-Segal post one morning, Segal angrily asked him to leave. The representative did not reappear; instead, Mann himself came over, threw an ingratiating arm around Segal in the best Amex style, and said, “You know, Andy, we wouldn’t harass you!”
But still the freeze went on. And meanwhile, Jackson and Segal were in the strange position of finding themselves unable to get a transcript of the speech in which they had been attacked. On Jackson’s return from Europe late in November, he found that Segal had failed in several attempts to obtain a copy through informal requests to the Amex management. Accordingly, he and Segal wrote formally to Reilly and McCormick asking for a copy through official channels. In reply, they were informed that the Amex archives contained no record of any kind of the address that McCormick had described as a “report to the membership by the chairman.” They were finally told that the only such record extant might be found in the files of the Securities and Exchange Commission in Washington.
Thus, early in December, Jackson and Segal applied to the S.E.C. and got their copy. Having read it, they showed it to their lawyer and were advised that they might have a libel and slander case against Reilly, whoever might have helped him prepare the speech, and even the Amex itself. After brooding on the matter, they decided not to sue. And so matters stood at the Amex in the second week of December; there seemed to be a winter of deadlock ahead, when a deus ex machina emerged to bring the little drama of Trinity Place to a swift climax.
7
The deus was no god, and he came not from the machine but from a federal penitentiary, furloughed from a four-year, eleven-month term to testify before the S.E.C. in its Amex investigation around the end of November. He was Alexander Guterma, alias Sandy McSande, and for one reason or another he found it appropriate to reminisce for the S.E.C. about Amex people he had known from time to time, one of whom was President Ted McCormick. Back in late 1955—Guterma said, and McCormick did not subsequently deny when given the opportunity— McCormick had been Guterma’s guest in Florida and subsequently in lush, pre-Castro Havana. At that time Guterma was, so far as anyone knew, a law-abiding businessman if perhaps not quite a respectable one. He was also a businessman to be reckoned with. At only forty-one, Guterma was president and chairman of F. L. Jacobs Company, chairman of Bon Ami Company, and chairman of United Dye and Chemical Corporation. Never before had one man headed three separate New York Stock Exchange firms. That he was already engaged in Byzantine crimes involving manipulation of the stock of all of those companies would not begin to come to light until more than two years later. So on the face of the matter, in associating socially with Guterma, McCormick was not even guilty of an indiscretion.
But the face of the matter was not all. Guterma just then was attempting to attain listing on the Amex of the stock of one of his ventures, Shawano Development Corporation, and it was far from clear that Shawano could normally qualify for such listing. In Havana, McCormick took to the gambling tables, as did almost everyone who visited Havana in those days. He lost in the neighborhood of five thousand dollars, and his host Guterma obligingly offered to underwrite his losses. McCormick was a big spender, but he was not a man to whom five thousand dollars was a small matter. He accepted the offer, and his losses were paid.
It was one of those borderline transactions that quasi-public officials cannot afford to engage in—or at least to be caught engaging in. In the climate of 1961, when Guterma’s name stood simply for sin in Wall Sreet, the mere linking of his name with McCormick’s in a dubious context was the clincher. The Levy committee quickly heard of the new scandal, presumably from the S.E.C. Inevitably, versions of it got onto the extraordinarily active grapevine of Wall Street, where gossip is money. The issue was settled: McCormick had to go. It was only a matter of when and how.
Amex men have since said that in those last days of the old regime there was a kind of tomorrow-we-die atmosphere about the “upstairs” at 86 Trinity Place—the Old Romans knowing that the Young Turks had them beaten now, and finishing out their term refusing to compromise or retreat, with a kind of bleak and bull-headed dignity. Liquor, the Old Romans
’ traditional solace, seems to have flowed more and more freely, and earlier and earlier in the day, to the point where the last ukases coming down to the floor from “upstairs” were all but incoherent. Jackson and Segal stayed in the background; the spark that they had ignited was now a blaze that needed no fanning. Jackson said later that his chief emotion was not triumph but sadness. Meanwhile, the Levy committee spelled out the complaints against McCormick and Reilly. When the Amex Board of Governors met on Monday, December 11, it had no choice. Everyone understood that it was too late for further stalling. McCormick’s resignation was asked for and obtained, and the reorganization of the Amex was under way at last.
It proceeded swiftly. On December 21, the Levy committee issued an interim report calling for the quick selection of a new Amex president and sweeping revisions in the Amex’s administrative machinery; the most substantive changes recommended were the compulsory rotation of directors to end the self-perpetuating leadership, and the elimination of standing committees to prevent domination of operations by a clique. On December 28 Reilly, at the insistent urging of the Levy committee, withdrew as a candidate for reelection as chairman. In announcing his withdrawal to the press, Reilly explained that he was “very tired” and wanted “to devote more of my time to personal considerations.”