“I’m sorry, sir, I mean are you speaking to America?”
“Oh yes, sure. Thank you. Jesus, Henry, they speak a different language over here.”
Henry Osborne laughed.
“Now listen. Did you hear about that Interstate Vickers Viscount that crashed at Mexico City?”
“Yes, I did,” said Henry, “but there’s nothing for you to worry about. The plane was properly insured and the company is completely covered, so they incurred no loss and the stock has remained steady.”
“The insurance is the last thing I’m interested in,” said Abel. “This could be our best chance yet for a little trial run to discover just how strong Mr. Kane’s constitution is.”
“I don’t think I understand, Abel. What do you mean?”
“Listen carefully and I’ll explain exactly what I want you to do when the Stock Exchange opens on Monday morning. I’ll be back in New York by Tuesday to orchestrate the final crescendo myself.”
Henry Osborne listened attentively to Abel Rosnovski’s instructions. Twenty minutes later, Abel replaced the phone on its hook.
He was through.
CHAPTER THIRTY-ONE
William realized he could expect more trouble from Abel Rosnovski the morning that Curtis Fenton phoned to let him know that the Chicago Baron was closing all the group’s bank accounts with Continental Trust and was accusing Fenton himself of disloyalty and unethical conduct.
“I thought I did the correct thing in writing to you about Mr. Rosnovski’s acquisitions in Lester’s,” said the banker unhappily, “and it has ended with my losing one of my biggest customers. I don’t know what my board of directors will say.”
William calmed Fenton down a little by promising him he would speak to his superiors. He was, however, more preoccupied with wondering what Abel Rosnovski’s next move would be.
Nearly a month later, he found out. He was going through the bank’s Monday morning mail when a call came through from his broker, telling him that someone had placed a million dollars’ worth of Interstate Airway’s stock on the market. William had to make the instant decision that his personal trust should pick up the shares and he issued an immediate buy order for them. At two o‘clock that afternoon, another million dollars’ worth was put on the market. Before William had a chance to pick them up, the price had started falling. By the time the New York Stock Exchange closed at three o’clock, the price of Interstate Airways had fallen by a third.
At ten minutes past ten the next morning, William received a call from his now agitated broker. Another million dollars’ worth of Interstate stock had been placed on the market at the opening bell. The broker reported that the latest dumping had had an avalanche effect: Interstate sell orders were coming onto the floor from every quarter, the bottom had fallen out, and the stock was now trading at a few cents a share. Only twenty-four hours previously, Interstate had been quoted at four and a half.
William instructed Alfred Rodgers, the company secretary, to call a board meeting for the following Monday. He needed the time to confirm who was responsible for the dumping, not that he was in much doubt. By Wednesday he had to abandon any attempt at shoring up Interstate by buying all the shares that came on the market himself. At the close of business that day, the Securities and Exchange Commission announced that it would be conducting an inquiry into all Interstate transactions. William knew that Lester’s board would now have to decide whether to support the airline for the three to six months it would take the S.E.C. to complete its investigation or whether to let the company go under. The alternatives looked extremely damaging, both to William’s pocket and to the bank’s reputation.
It came as no surprise to William to discover from Thaddeus Cohen the next day that the company that had dumped the three million dollars’ worth of Interstate shares was one of those fronting for Abel Rosnovski, Guaranty Investment Corporation by name. A corporation spokesman had issued a plausible little press release explaining their reasons for selling: they had been very concerned for the company’s future after the Mexican government’s “responsible” statement about inadequate servicing facilities and procedures on the part of Interstate Airways.
“‘Responsible statement,’” said William, outraged. “The Mexican government hasn’t made a responsible statement since they claimed Speedy Gonzales would win the one hundred meters at the Helsinki Olympics.”
The media made the most of Guaranty Investment’s press release and on Friday the Federal Aviation Administration grounded the airline until the agency could conduct an indepth investigation of its servicing facilities and procedures.
William was confident Interstate had nothing to fear from such an inspection, but grounding the airline proved disastrous to short-term passenger bookings. No aviation company can afford to leave aircraft on the ground; it can make money only when its planes are in the air.
To compound William’s problems, other major companies represented by Lester’s were reconsidering future commitments. The press had been quick to point out that Lester’s was Interstate Airways’ underwriters. Surprisingly, Interstate’s shares began to pick up again late Friday afternoon, and it did not take William long to guess why—a guess that was later confirmed by Thaddeus Cohen: the buyer was Abel Rosnovski. He had sold his Interstate shares at the top and was now buying them back in small amounts while they were still at the bottom. William shook his head in grudging admiration. Rosnovski was making a small fortune for himself while bankrupting William both in reputation and in financial terms.
William worked out that although the Baron Group must have risked over $3 million, it might well end up making a huge profit. Moreover, it was evident that Rosnovski was unconcerned about a temporary loss, which he could in any case use as a tax write-off; his only interest was in the total destruction of Lester’s reputation.
When the Lester board met on Monday, William explained the entire history behind his clash with Rosnovski and offered his resignation. It was not accepted, nor was a vote taken, but there were murmurings, and William knew that if Rosnovski attacked again, his colleagues might not take the same tolerant attitude a second time.
The board went on to consider whether the bank should continue to support Interstate Airways. Tony Simmons convinced them that the F.A.A.’s findings would be in Interstate’s favor and that the bank and William would in time recover all their money. Tony had to admit to William after the meeting that their decision could only help Rosnovski in the long run, but the bank had no choice if it wished to protect its reputation.
He proved right on both counts. When the S.E.C. finally published its findings, it declared Lester’s “reproach-proof” although it had some stern words for Guaranty Investment Corporation. When the market started trading in Interstate shares that morning, William was surprised to find the stock rising steadily. It was soon back up to its original four and a half.
Thaddeus Cohen informed William that the principal purchaser was once again Abel Rosnovski.
“That’s all I need at the moment,” said William. “Not only does he make a large profit on the whole transaction, but now he can repeat the same exercise whenever it suits him.”
“In fact,” said Thaddeus Cohen, “that is exactly what you do need.”
“Whatever do you mean, Thaddeus?” said William. “I’ve never known you speak in riddles.”
“Mr. Abel Rosnovski has made his first error in judgment, because he’s breaking the law, and now it’s your turn to go after him. He probably doesn’t even realize that what he’s involved in is illegal, because he’s doing it for all the wrong reasons.”
“What are you talking about?” asked William.
“Simple,” said Thaddeus Cohen. “Because of your obsession with Rosnovski—and his with you—it seems that both of you have overlooked the obvious: if you sell shares with the sole intention of causing the market to drop in order to pick up those same shares at the bottom and therefore be certain of a profit, you’re breaking
Rule 10b-5 of the Securities and Exchange Commission and you are committing the crime of fraud. There’s no doubt in my mind that making a quick profit was not Mr. Rosnovski’s original intention; in fact, we know very well he only wanted to embarrass you personally. But who’s going to believe him if his explanation is that he dumped the stock because he thought the company was unreliable, when he has bought it back when they reached rock bottom. Answer: Nobody—and certainly not the S.E.C. I’ll have a full written report sent around to you by tomorrow, William, explaining the legal implications.”
“Thank you,” said William, jubilant over the news.
Thaddeus Cohen’s report was on William’s desk at nine the next morning and after William had read over the contents very carefully, he called another meeting. The directors agreed with the course of action William wanted to take. Thaddeus Cohen was instructed to draft a carefully written press release to be issued that evening. The Wall Street Journal ran a front-page article the following morning.
William Kane, the Chairman of Lester’s Bank, has reason to believe that the sell orders placed by Guaranty Investment Corporation in November 1952 on Interstate Airways shares, a company underwritten by Lester’s, were issued for the sole purpose of making an illegal profit.
It has been established that Guaranty Investment Corporation was responsible for placing a million dollars’ worth of Interstate stock on the market when the exchange opened on Monday, May 12, 1952. A further million dollars’ worth was on the market five hours later. A third million dollars’ worth was placed on a sell order by Guaranty Investment Corporation when the exchange reopened on Tuesday, May 13, 1952. This caused the stock to fall to a record low. After an S.E.C. inquiry showed there had been no illegal dealing within either Lester’s Bank or Interstate Airways, the market picked up again with the stock trading at the depressed price. Guaranty Investment was quickly back in the market to purchase the shares at as low a price as possible. They continued to buy until they had replaced the three million dollars’ worth of stock they had originally released onto the market.
The Chairman and Directors of Lester’s Bank have sent a copy of all the relevant documents to the Fraud Division of the Securities and Exchange Commission, and have asked them to proceed with a full inquiry.
The story below the statement gave S.E.C. Rule 10b-5 in full and commented that this was exactly the sort of test case that President Truman had been looking for. A cartoon below the article showed Harry S. Truman catching a businessman with his hand in the cookie jar.
William smiled as he read through the item, confident that he had heard the last from Abel Rosnovski.
Abel Rosnovski frowned and said nothing as Henry Osborne read the statement again for him. Abel looked up, his fingers tapping in irritation on his desk.
“The boys in Washington,” said Osborne, “are determined to get to the bottom of this one.”
“But Henry, you know very well I didn’t sell Interstate to make a quick killing on the market,” said Abel. “The profit I made was of no interest to me at all.”
“I know that,” said Henry, “but you try and convince the Senate Finance Committee that the Chicago Baron had no interest in financial gain, that all he really wanted to do was settle a personal grudge against one William Kane, and they’ll laugh you right out of court—or out of the Senate, to be more exact.”
“Damn,” said Abel. “Now what the hell do I do?”
“Well, first you’ll have to lie very low until this has had time to blow over. Start praying that some bigger scandal comes along for Truman to get himself worked up about, or that the politicians become so involved in the election that they haven’t time to press for an inquiry. With luck, a new administration may even drop the whole thing. Whatever you do, Abel, don’t buy any more stocks in any way connected with Lester’s bank, or the least you’re going to end up with is a very large fine. Let me swing what I can with the Democrats in Washington.”
“Remind Harry Truman’s office that I gave fifty thousand dollars to his campaign fund during the last election and I intend to do the same for Adlai.”
“I’ve already done that,” said Henry. “In fact I would advise you to give fifty thousand to the Republicans as well.”
“They’re making a mountain out of a molehill,” said Abel. “A molehill that Kane will turn into a mountain if we give him the chance.” His fingers continued to tap on his desk.
CHAPTER THIRTY-TWO
Thaddeus Cohen’s next quarterly report revealed that Abel Rosnovski had stopped buying or selling stock of any of Lester’s companies. It seemed he was now concentrating all his energies on building more hotels in Europe. Cohen’s opinion was that Rosnovski was lying low until a decision had been made by the S.E.C. on the Interstate affair.
Representatives of the S.E.C. had visited William at the bank on several occasions. He had spoken to them with complete frankness, but they had never revealed how their inquiries were progressing as to who had caused the share collapse.
The S.E.C. finally finished its investigation and thanked William for his cooperation. He heard nothing more from the Commission.
As the Presidential election grew nearer and Truman seemed to be concentrating his own efforts on the dissolution of the Du Pont industrial combine, William began to fear that Abel Rosnovski might have been let off the hook. He couldn’t help feeling that Henry Osborne must have been able to pull a few strings in Congress. He remembered that Cohen had once underlined a note about a $50,000 donation from the Baron Group to Harry Truman’s campaign fund and was surprised to read in Cohen’s latest report that Rosnovski had repeated the donation for Adlai Stevenson, the Democrats’ choice for President, along with another $50,000 for the Eisenhower campaign fund. Again Cohen had underlined the item.
William, who had never considered supporting anyone for public office who wasn’t a Republican, wanted General Eisenhower, the surprise candidate who had emerged on the first ballot at the convention in Chicago, to defeat Adlai Stevenson, although he was aware that a Republican administration was less likely than a Democratic one to press for a share-manipulation inquiry.
When General Dwight D. Eisenhower (it appeared that the nation did “like Ike”) was elected the thirty-fourth President of the United States on November 4, 1952, William assumed that Abel Rosnovski had escaped any charge and could only hope that the experience would persuade him to leave Lester’s affairs alone in the future. The one small compensation to come out of the election for William was that Congressman Henry Osborne lost his congressional seat to a Republican candidate. The Eisenhower jacket had turned out to have coattails, and Osborne’s rival had clung to them. Thaddeus Cohen was inclined to think that Henry Osborne no longer exerted quite the same influence over Abel Rosnovski that he had in the past. The rumor in Chicago was that, since divorcing his wealthy wife, Osborne owed large sums of money to Rosnovski and was gambling heavily again.
William was happier and more relaxed than he had been for some time and looked forward to joining the prosperous and peaceful era that Eisenhower had promised in his Inauguration speech.
As the first years of the new President’s Administration went by, William began to put Rosnovski’s threats at the back of his mind and to think of them as a thing of the past. He informed Thaddeus Cohen that he believed they had heard the last of Abel Rosnovski. The lawyer made no comment. He wasn’t asked to.
William put all his efforts into building Lester’s, both in size and reputation, increasingly aware that he was now doing it as much for his son as for himself. Some of his staff at the bank had already started referring to him as the “old man.”
“It had to happen,” said Kate.
“Then why hasn’t it happened to you?” William asked tenderly.
Kate looked up at William and smiled. “Now I know the secret of how you have closed so many deals with vain men.”
William laughed. “And one beautiful woman,” he added.
With Rich
ard’s twenty-first birthday only a year away, William revised the provisions of his will. He set aside $5 million for Kate and $2 million for each of the girls and left the rest of the family fortune to Richard, noting ruefully the bite that would come out for inheritance taxes. He also left $1 million to Harvard.
Richard had been making good use of his four years at Harvard. By the start of his senior year, he not only appeared set for a summa cum laude, but he was also playing the cello in the university orchestra and was a pitcher with the varsity baseball team, which even William had to admire. As Kate liked to ask rhetorically, How many students spent Saturday afternoon playing baseball for Harvard against Yale and Sunday evening playing the cello in the Lowell concert hall for the university string quartet?
The final year passed quickly, and when Richard left Harvard, armed with a Bachelor of Arts degree in mathematics, a cello and a baseball bat, all he required before reporting to the Business School on the other side of the Charles River was a good holiday. He flew to Barbados with a girl named Mary Bigelow, of whose existence Richard’s parents were blissfully unaware. Miss Bigelow had studied music, among other things, at Vassar, and when they returned two months later almost the same color as the natives, Richard took her home to meet his parents. William approved of Miss Bigelow; after all, she was Alan Lloyd’s great-niece.
Richard reported to the Harvard Business School on October 1, 1955, to start his graduate work, taking residence in the Red House. He threw out all William’s cane furniture and removed the paisley wallpaper that Matthew Lester had once found so modern and installed wall-to-wall carpet in the living room, an oak table in the dining room, a dishwasher in the kitchen and, more than occasionally, Miss Bigelow in the bedroom.
PART SIX
1952-1963
Kane and Abel/Sons of Fortune Page 46