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!
--Primitivo Morales
