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Tales From Wall Street's Crypt
All old abodes have their ghosts, and Wall Street has been well-lived-in since the Dutch erected a wooden stockade to guard against attack in the 17th century. With hundreds
of years during which fortunes have been won, lost, lamented and despaired over, there is no shortage of restless spirits
from the past. Let's take look at three gory tales let loose from Wall Street's crypt.
[an error occurred while processing this directive]Wall Street's Unholy Trio
During the second
half of the 19th century, Jay Gould, Jim Fisk and Daniel Drew provided the archetypes for Wall Street greed and corruption.
The men came from different backgrounds, but shared the goal of making their fortunes on Wall Street. By pooling their capital
and talents for ruthlessness, the three became hostile-takeover specialists, attacking everything from tanneries to railroads. (Read about the importance of early railroads in The Rise Of The Modern-Day Bean Counter and The History Of Information Machines.)Between the three of them, they committed every imaginable financial atrocity upon the markets
and, far from being brotherly, even turned against each other. Their most famous battles were with "Commodore" Cornelius Vanderbilt
over the Erie Railroad, one of the few railroads competing against Vanderbilt's growing transport empire. During the struggle
for control, Vanderbilt bought up vast numbers of shares, unaware that the trio was watering stock - literally printing additional (and illegal) stock certificates with a press in the basement. (Read about other ways the printing press was used in the early days of Wall Street in From The Printing Press To The Internet.)This glut of shares devastated the company's shareholders, but buying up the endless supply proved
too costly for even Vanderbilt, and he threw in his hat. While the outcome was still in doubt, Drew held secret talks with
Vanderbilt in hopes of striking a private deal that would've been to Fisk and Gould's misfortune. Alas, in retaliation, the Fisk
and Gould negatively manipulated the stocks in Drew's fortune and ultimately ruined him. Gould and Fisk's victory earned them a considerable reputation, as
they were the only people to tangle with Vanderbilt and come out on top. (Learn how you can spot financial misdeeds in Common Clues Of Financial Statement Manipulation.)Gould and Fisk did not stop there. With Gould now at the helm, the two gathered a group of speculators and tried to corner the gold market, resulting in the Black Friday of 1869. Duping both the short sellers and the U.S. Treasury, Gould and Fisk pushed up prices rapidly. Discovering the ruse, the government opened its vault and the price of gold dropped
$25 in 15 minutes, ruining everyone but Gould, who had been tipped off and failed to tell his partners. (Learn if you
should consider similar investments in Does It Still Pay To Invest In Gold?)Fisk, his fortune diminished from the drubbing of Black Friday, was eventually gunned down in a
quarrel over a woman (not his wife) in 1872. Jay Gould got away with it all, and his fortune was still intact when he eventually
died of natural causes. Gould's defeat of Vanderbilt and the financial havoc he wreaked during his life earned him the title
of the "Mephistopheles of Wall Street". Boesky and Siegel
As if channeling
the long-dead spirits of Gould and Fisk, Martin Siegel and Ivan Boesky teamed up to become the center of one of the largest
insider trading scandals to rock Wall Street. The 1980s were already a time of black knights, vulture funds and dawn raids, as the leveraged buyout (LBO) revolutionized Wall Street. To take advantage of the LBO madness, arbitrageur Ivan Boesky needed an edge. He found it in Martin Siegel, an investment banker in the mergers-and-acquisitions side of Kidder, Peabody & Co. Boesky wanted tip-offs about upcoming mergers and takeovers. To that end, he sent Siegel
a briefcase with $150,000 in $100 bills and the two began a "professional" relationship. (Read Defining Illegal Insider Trading to learn more about this type of scam.)The tips were well worth the money, because Boesky made
millions by buying up pre-takeover shares and unloading them after the market learned about the deals. The takeover of Carnation
by Nestle (OTC:NSRGY) alone netted Boesky $28 million and, for that reason, alerted the Securities and Exchange Commission (SEC) to his activities. Siegel's firm also came under scrutiny, and Boesky and Siegel parted ways, with Siegel receiving
a final pay-off from Boesky of $400,000 dropped at a phone booth. The net was already cast, however, and the SEC reeled in
Siegel and Boesky along with other big criminal names, such as Michael Milken. (Milken was also known as a "junk bond king." Read Junk Bonds: Everything You Need To Know to learn more.)Siegel became a witness for the government and was let off easy with a two-month
sentence and a fine, while Boesky was given three years and fined $100 million for his involvement in the scheme. Bram
Stoker's Broker
Less high profile, but all the more chilling for it, is a tale of a dishonest broker
and a wealthy client. L.R. Castelein was a Belgian investor with $12.5 million that he wanted to invest in U.S. Treasury bonds. In 1997, he met with a Corporate Securities Group (CSG) broker named Douglas Reid, who promised Castelein that he would
set up an account at Bear Stearns and that would return 7% interest. The account was set up at Corporate Securities Group, not Bear Stearns, in the first of many abuses that Castelein
would suffer. (Bear Stearns later suffered its own financial misfortune. Read Dissecting The Bear Stearns Hedge Fund Collapse to learn more.)After receiving the money from Castelein, Reid had forged Castelein's signature
to route all the account information through Reid's own office and began actively trading in the account. By churning the account for commissions and paying out large management fees to himself and a fellow banker, Reid quickly bled the account dry. (Learn how brokerage
fees are now being managed in Fee-Based Brokerage: The Latest Target For Regulators.)For three months, Castelein tried to obtain clear information about the profits on his money and
made several fruitless visits to Reid's offices, during which Castelein was given fabricated account statements. Forcing disclosure, Castelein discovered that his $12.5 million had been churned to a zero balance in the mere three months since opening his
account. Castelein immediately began legal proceedings and sued the corporations involved (CSG had been purchased by Wachovia
(NYSE:WB)). He won $17.8 million in damages, but no doubt lost his faith in brokers. (Read Is Your Broker Acting In Your Best Interest? to learn how to spot a bad money manager before being bled dry.)Crowded Closets
It's
impossible to air out all the skeletons in Wall Street's well-stocked closet. Familiar names like Boesky and Siegel still
strike a raw nerve with investors, and vaguely remembered figures like Fisk and Gould the book that modern fraudsters
still study. It is unlikely that Wall Street will ever be free of people in positions of power getting involved in all manner
of devilry. Money is at the root of many terrible crimes, and Wall Street is the junction through which much of the world's
wealth passes. As a result, it will continue to attract fresh hordes of ghoulish people committing the same old
crimes. For related reading, see The Ghouls And Monsters On Wall Street and Haunting Wall Street: The Halloween Terminology Of Investing.
by Andrew Beattie, (Contact Author | Biography)
Andrew Beattie is a freelance writer and self-educated investor. He worked
for Investopedia as an editor and staff writer before moving to Japan in 2003. Andrew still lives in Japan with his wife,
Rie. Since leaving Investopedia, he has continued to study and write about the financial world's tics and charms. Although
his interests have been necessarily broad while learning and writing at the same time, perennial favorites include economic
history, index funds, Warren Buffett and personal finance. He may also be the only financial writer who can claim to have
read "The Encyclopedia of Business and Finance" cover to cover.
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