The Great Julian Pete Scandal
There's something about Los Angeles ... something about the hot house of warm weather and avarice in which the most amazing endeavors flourish. Although there are many tales about the city of Lost Angels, one that still has repercussions half a century later is the subject of a new book. "The Great Los Angeles Swindle" (Jules Tygiel, 1994 Oxford University Press, New York, ISBN 0-19-505489-X) dissects an enterprise called the Julian Petroleum Company.
The story starts with a Canadian, C.C. Julian (Courtney Chauncey; you can see why he always went by "C.C."), who formed a company to drill for oil in the Santa Fe Springs field in Los Angeles in 1922. Recent discoveries of oil in or near the city had fueled enormous speculation. While most oil fields had been in remote areas and had about one well per four acres, these finds were in areas already subdivided for housing. Rapid buying and selling of these lots spiraled the apparent values skyward and invited many con men and swindlers to take advantage of the fevered atmosphere. Julian, who had speculated in land in Canada's expanding western provinces and later worked as a "roughneck" (an oil field worker), saw great potential.
So C.C. borrowed money and started his wells. He also offered part of his company to the public. Julian proved to be an expert at understanding (and answering) the fears of small investors. He used an unorthodox scheme, selling “units” in a "common law trust," promoting this as preferable to the alledgedly unscrupulous world of stocks. He pioneered new marketing methods by taking out newspaper advertisements which he himself wrote in a "home-spun" style, full of folksy sayings, and pitched towards people suspicious of big monopolies and corporations. They emphasized the "scarcity" of the offer ("Only Four More Days!"), adding to its appeal, while promising great returns on investments. As assurance that he wasn’t one of the "Big Boys" or a crook, he touted the offer as a risky venture: "Widows and Orphans, This Is No Investment for You!" proclaimed one ad. He succeeded in extracting hundreds of thousands of dollars from many people, both rich and poor. Julian immediately started new ventures on much the same basis, even before his first wells had revealed their worth.
His Julian #1 well started a copious flow of oil in March, 1923. Julian, not unlike other small oil outfits, immediately made plans to unseat Standard Oil, still a monolithic monopoly controlled by the Rockefellers. In May Julian incorporated the Julian Petroleum Company in Delaware with 200,000 shares of preferred stock worth fifty dollars each, plus 200,000 shares of common stock that had no formal value. In June he announced that half of the stock would be sold with an initial price of $50.
He soon ran afoul of Edward Daugherty, the California Corporation Commissioner. This was a newly established office (1913) which was created to control fraudulent promoters. In October of 1922 Daugherty started regulating companies selling "units" (which the promoters claimed exempted them from his jurisdiction); a flurry of court actions and new legislation supporting Daugherty followed, and Julian Pete was crippled financially. An apparent loophole led to a quick train trip to Las Vegas and a sale of stock from the company to C.C. himself. On June 28th he sold some $200,000 worth of stock. On the 29th Daugherty shut down trading, suspended C.C.'s brokerage license, seized the company's books, and had C.C. arrested. After paying the $3,000 bail in cash, C.C. continued business by borrowing money (solicited by ads in papers) and finally in late July obtained permission to sell 100,000 shares of stock if he himself resigned from the corporation. He did so, but retained the common stock that gave him a controlling vote (neither fact was revealed publicly). By going on with plans for a refinery, C.C. was able to present himself at a champion of the under-dogs against both an implacable bureaucracy and the oil monopoly.
The birth of the company was indeed an omen of its future trajectory. After linking up with a Texan shyster named S.C. Lewis, Julian incorporated to create an oil refining company, The Julian Petroleum Company (or "Julian Pete" as it was known popularly). Lewis soon took control of Julian Pete. Among other strategies he applied was the hiring of the FBI accountant investigating the company. (Special Accountant Miller found no problems with the company.)
While C.C. Julian tried his hand at a mining venture in Death Valley (which ultimately failed), Lewis was busy selling stock. So busy, in fact, that the limit on shares was overlooked. Within a few months (Feb. 1925) there were some 159,000 in circulation (more than 50% over the legal limit). Money was borrowed to keep their burgeoning empire (or was it just a ponzi scheme?) afloat. Director Cecil B. DeMille was one of the more prominent investors seeking the 20% return. Another device became known as "The Banker's Pools," after the participants in the first of these, which collected a million dollars from such luminaries as film mogul Louis B. Mayer, Motley Flint of the Pacific Southwest bank, businessman and arch-conservative Better America Foundation president Harry M. Haldeman (grandfather of Watergate's H.R. Haldeman), and a number of notables from financial circles in Los Angeles. This and successive pools paid about 19% interest, much of which came from selling illicit shares of stock. (It also violated state usury laws, which was soon to be an issue.) By April 1927 they had sold or distributed some 3,614% of the company. (Shades of "The Producers"!)
Julian Pete acquired new enemies along the way, including radio-evangelist and anti-Semite Robert Shuler (whose son continues the family tradition on TV), and some newspapers. Eventually the financial pressure from untainted banks, combined with inquiries from state and federal authorities cracked the "bubble factory" and its ever-inflating stock. When Julian Pete collapsed amidst lurid headlines, the reverberations brought down quite a few politicians, tarnished some of the most illustrious businessmen in the city, financially maimed (and, in at least one case, literally!) many small investors, and ruined several banks and brokerage houses. The city District Attorney, Asa Keyes, was sent to jail. Reverend Shuler went to jail on a contempt charge, and a few small-fry investors were also dispatched to the clink. The principal defendants (Julian and Lewis) checked themselves into federal prison to avoid civil trials. In 1930 Frank Keaton, who had lost money on Julian Pete, expressed his hatred for the "banking crowd" by shooting Motley Flint (one of the arrangers of the "$1 Million Pool") in a Los Angeles courtroom. When police searched Keaton they found ten cents; in the pockets of the corpse they found $63,000 in cash. There was yet more scandal to come, including a double murder to which a former deputy DA and politician confessed ("Handsome Dave" Clark lost his race for judge during the trial, but still garnered 60,000 votes).
The scandal changed the state's banking industry for ever, influenced state law and helped alter the political face of Los Angeles and southern California by reinforcing the powers of the regulators and more liberal reformers. San Francisco’s Bank of America was also a real winner, for the scandal broke several banks in the southland (some of which were ultimately acquired by BofA) and changed the laws that had kept the northern bank to a very limited business in the LA region.
This is a meticulously researched history of a fascinating period in LA's growth. It illustrates a flourishing ecology of oil, money, showmanship, anti-Semitism, boosterism and politics. Get this book!