Some Famous Frauds

New Zealand Graphic, Volume XXXIX, Issue 8, 24 August 1907, Page 44

Some Famous Frauds

By

CHARLES MICHELSON

THE FRANKLIN SYNDICATE, THE WOMAN'S BANK, THE ARIZONA DIAMOND CONSPIRACY, THE (HUMBERT SWINDLE, AND OTHER HISTORICAL CASES—WHILE HUMAN NATURE IS WHAT IT IS, THE OLD FRAUDS WILL REAPPEAR. (From “The Scrap Book.") Within the last few years public attention has been called to several dishonest financial schemes of great magnitude, and the impression has grown that the business world of America has fallen to a lower ethical plane. The truth is that financial dishonesty is endemic,thoughit becomes epidemic when conditions are favourable. After the exposure of a series of Chadwick cases and Miller syndicates people begin to think that all fraud has been rooted up. Doubtless the collapse of the Carthage Ivory, Slave, and Exploration Company astonished the Phoenicians and convinced them that the world would never again be deceived in such a manner, and probably the Greeks felt the same way about the Atlantis Gold and Land Exploitation Syndicate. There has never been an age without its Chadwicks and Millers. Moreover, one scheme begets another. The fifty-million-dollar South Sea Bubble of nearly two hundred years ago not only swallowed up the savings of rural and. urban England, but suggested the Mississippi Scheme which cost the French people no less than a hundred million ’ dollars. THE FRANKLYN SYNDICATE IN BROOKLYN (1899). The Marvellous Story of William M. Miller’s “Ten Per Cent a Week” Enterprise. Miller's five-hundred-and-twenty-per cent syndicate was at least three hundred years old in idea. In the time of Elizabeth it was operated successfully in England, though the immoderate dividends were supposed to be paid from the plunder of mythical privateers, instead of fictitious investments in stocks. So large were the dividends and so glowing the promises that the shares rose to tremendous values. They were, of course, paid out of the subscriptions of new investors until the flight of the Miller of his day revealed that the only pirate doing business was the promoter himself. The Spanish Main was the Wall Street of that time. The piling up of huge fortunes was just as intoxicating to outsiders in the sixteenth as in the first year of the twentieth century, when the whole world looked open-eyed at the millions created by the great steel merger and the fluctuations of stocks. Newspaper stories of these great fortunes watered the field that Miller and his companions were to till. The direct inspiration of the Franklin Syndicate was a scheme known in Pittsburgh as “Fund W.” This was a successful confidence game; and it is worthy of memory that Colonel Robert A. Amnion, a leading syndic of the Franklin group, was in Pittsburgh at the time when “Fund W.” was in operation. The Franklin Syndicate was started modestly. William F. Miller, a small, pale young man, living in a tenement at 144 Floyd-street, in the Williamsburg district of Brooklyn, and an earnest member of a near-by chureh, confided to the corner groceryman and a few friends in his church that he had inside resources of information as to what certain important operators were doing in Wall-street. Thus, he said, he was in a position to make great gains by speculation. He offered to guarantee a

return of ten per cent every week on all the money he invested, and half a dozen persons to whom he broached his plan under pledge of secrecy gave him ten dollars each. Sure enough, when the week ended, each investor received a dollar as his first dividend. Eaeh of the original investors were now permitted to increase his own investment and to bring a friend into the syndicate. Innocent and sophisticated alike—for a large proportion of Miller’s customers were perfectly aware of the character of the enterprise—they sent in their money. The first week Miller took in less than one hundred dollars; the second week it was five hundred, the third week three thousand, and so the snowball grew. It was a veritable blizzard of tendollar bills. The money arrived so fast that frequently the only record of the day was the total receipts. The money was tucked away anywhere; there were waste-paper baskets full of it; bureau drawers were so stuffed that they could not be closed. Anybody opening the door on a blustering day ■saw a whirlwind of greenbacks disturbed by the breeze, and while the clerks shouted at the intruder to shut the dooir the office-boy regathered the bills that were scattered about like autumn leave, “i. More than a million and a quarter of dollars, mostly in small bills, was received in that house before the end. Little Miller, so obscure a few months before, was now the most conspicuous figure in Williamsburg. He frequently dashed into the drug-store on the corner to telephone. While the admiring and envious neighbours looked on and listened, Miller, with a regal disregard for business privacy, would “call down” J. Pierpont Morgan and Co. for failing to deliver “that hundred thousand shares of Steel Preferred” on time, and would notify John W. Gates that William F. Miller insisted on “a settlement for the million dollars in Pennsylvania bonds” loaned the day before. Similarly, Sully, the cotton king, would be congratulated on the joint prifit he and the Franklin Syndicate had made from the rise, and would be advised that the Syndicate presented him with another two millions of credit.for further purchases. The victims came like swarming bees. But the very prosperity of the swindle was fatal. As long as it was confined to a quiet corner of Brooklyn it could escape observation, but with thirty thousand dollars a day coming thitherward the eyes of the newspapers were drawn to the inflow—and then it was all over. Miller fled by way of Colonel Ammon’s office, carrying with him a satchel containing more than one hundred thousand dollars. The satchel stayed with Lawyer Ammon, but Miller escaped through a rear .entrance and got as far as Montreal. Ha returned from Canada, relying on Ammon’s promise to keep him out of jail, but Ammon failed him and he went to prison, where he remained, until by revealing the lawyer’s part in the swindle he bought a pardon, and Ammon took his place as a convict. THE WOMAN’S BANK IN BOSTON (1879—1882). The Remarkable Career of a Female Napoleon of Fraudulent Finance. Long before Miller's time Americans had been painfully introduced to the sort of finance that later became synonymous with his name. One of his predecessors' in the game Was Mrs. Sarah E. Howe, the Brookline philanthropist, who in 1879 started a Woman’s Bank in Boston. She was elderly, deaf,

and nnamiablc, but had no trouble in making women believe that she was the ag,mt of rich and benevolent Quakers who, desiring to help widows and spins-

ters of limited means, proposed to pay, them eight per cent quarterly, in advance, on deposits of not less than three hundred, dollars nor more than one thousand. Depositors came in such numbers that she had no difficulty in paying interest out of the incoming stream until she had garnered three hundred and fifty thousand dollars. She operated for three years before the police closed her bank and sent her to prison. Promptly on the expiration of her sentence —three ydars—she opened another bank in Boston and carried on ■her old business until she had fifty thousand dollars; and then disappeared. Not long afterward she appeared in Chicago, where, as ‘‘Mrs. Elmer,” she conducted a bank in the business section and advertised that the “Ladies’ Provident Aid” would pay seven dollars interest a month on deposits of one hundred dollars. She escaped from Chicago with her plunder, added to it in New Brunswick, and returned to Massachusetts in 1888, but the police broke up her establishment almost as soon as it opened its doors. Her transactions were so near to real banking, that, though frequently arrested, she was never convicted after the first experience. In all she must have realised nearly a million dollars by her frauds, but she spent it as fast as she made it, and when she died, about fifteen years ago, she was destitute. TWO ENGLISH CHAPTERS OF “FRENZIED FINANCE.” The Colossal Schemes of Jabez Spencer Balfour and Whitaker Wright. It is a noteworthy fact that in spite of the greater strictness of the English law on such matters, schemes like those of Miller and Mrs. Howe have never gone so far in the United States as on the other side of the ocean. Miller operated for a few months; Jabez Spencer Balfour flourished in England for nearly thirty years, and did more than thirty times the damage. Balfour was really a Miller with imagination. He pyramided company on company and so mingled fraud and legitimate enterprise that when he finally fled England, thirteen years ago, the crash of his schemes cost investors thirty-five million dollars. Balfour’s original capital was his enthusiasm in the cause of the Nonconformist churches, a reputation as a temperance worker, and an appalling stock of assurance. A “get-rieh-qujck’’ company had recently collapsed, and the distress it caused gave him his opportunity. This was in 1866. He organised a company to protect the savings of the Nonconformist ministers, school-teach-ers, and tradesmen, the thriftiest classes fin (England. His Liberator Building Society undertook to build homes for the poor and worthy on terms of such surprising liberality that deposits came with a rush from the beginning. The austere Balfour and his associates paid their lavish dividends out of the new deposits, and the business was kept running until the deposits were far up in the millions. Then the inevitable breakers were sighted. Instead of snatching what ho could and running away, Balfour simply, organised a new company, which took over the pressing liabilities of the old concern. Thus was started a new flow of deposits which ran its course, and then still another company carried the game farther. The scheme grew until the Balfour group had banks and trnst companies arid was building Mocks on the Thames Embankment and financing ventures all over-England. Balfonr Vas elected mayor of Croydon. Then, he was sent to Parliament, where he slanehly supported the Liberal programme. He took part in all the

great philanthropic movements, gave large sums to churches, and preached the cause of teetotalism. He was Andrew Carnegie and J. Pierpont Morgan combined, in the estimation of half England, at the very time when he was gathering his securities and picking out a hiding-place. When the crash came ho escaped to the Argentine Republic. Detectives found him in the person of Samuel Butler, promoter, organising schemes for English emigration to the Argentine, projecting flour-mills and sawmills and breweries. They took him home and sent him to prison for fourteen years.

Ten years later came Whitaker Wright, whoso suicide after being sentenced to seven years’ imprisonment in 1903 ended a career - even more spectacular than Balfour’s. On the strength of one good mine in Australia he rganised company after company —the West Australia Exploration Company, the British America Corporation, and the London and Globe Finance Company being the most important. In all, his corporations were capitalized at one hundred and ten million dollars. He gathered his boards of directors from the peerage. He built a luxurious country place, with great grounds, wonderful statuary, artificial lakes, and a private theatre.

Wright’s money was made by the promotion of companies and the booming of their stock. He ran the price of West Australia Exploration from a few shillings up to thirty pounds a share. His name was enough to sell stock in any corporation, and for u time he ranked as one of the greatest promoters in the world. He was different from the others whose frauds are described in this article, for he began his operations with a fortune of a million—legitimately earned in the mines of the Western States —and it is claimed that he did nothing for which he could have been prosecuted in tho United States. It w - as on this ground that he vainly sought to prevent extradition after his arrest in New York. But it -was English law that he had to fight—not American. THE ARIZONA DIAMOND SWINDLE (1871—1872). How Two Miners Deceived the Experts by Planting Diamond Dust in the Arizona Desert. . The Arizona diamond swindle is a. classic of fraud. Tn 1871 two men named Arnold and Slack, miners and prospectors, came to a mine broker in San Francisco with a handful of crystals which they said they had found on an ant-hill in the wildest and most remote part of Arizona. They frankly admitted that they did not know whether tho stones were of any value, and asked him to send them to New York to be tested. In due time report came that there were in the collection valueless quartz crystals, garnets of little worth, and seven diamonds, one particularly fine. The prospectors pretended to be destitute, and the man to whom they first applied fitted them out and directed them to bring in a larger quantity of gems to prove the genuineness of their find. Three months later Arnold and Slack were back again—famine-stricken, ragged and exhausted. They said that they had been ambushed by Apaches, caught in mountain freshets, and lost in the desert; but they had scraped up about a pint of stones from around the ant-hill, and these they produced. A test proved that many of the stones were diamonds and rubies. Several capitalists were taken into the secret. A famous firm of jewellers in New York was approached, and, after an examination of the diamonds already gathered, agreed to pay a quarter of a million dollars for a fourth interest in the mine, if an expert of its own selection reported favourably after surveying the field. Up to this time the prospectors had told nobody the exact location of their find. As soon as the jewellers’ proposition was made Slack and Arnold fell into a violent quarrel ns to the advisability of accepting it. The rich men who had become interested tried to reconcile the two, but Slack pointed out that there was no American law by which the diamond mines could be located and held, and that to reveal the location before such a law was secured ■would enable the New York men to grab the field and then refuse to pay. Slack even professed doubt ns to the existence of any considerable dinniond’benring tract, and finally declared he Was tired of the whole business and Wanted to get out of it. The outcome

of the quarrel was (he payment of one hundred thousand dolars to Slack for his share in the mines.

Once rid of Slack, the promoters got down to business—even to considering the advisability of limiting their output for fear of overstocking the diamond market. The point made by Slack impressed them, and they went to Congress and secured the passage of a bill by which their diamond claims could be located. They were diplomatic about it; in fact, the whole proceedings were kept beautifully secret. The very Congressmen who voted for an apparently innocent amendment to the mining laws did not know that they were providing for a diamond monopoly. This all made delay. Before the bill was passed Slack had ample time to go to London, invest the hundred thousand, dollars in rough diamonds and diamond dust, and plant a section of Arizona with his purchases. The jewellers’ expert re-ached the field, lie was a careful man; the mere presence of diamonds did not satisfy him. He gathered up a quantity of the soil and placed it under the microscope for the final scientific test. There he saw the glittering points. With microscopic diamonds under his eye, he no longer doubted.

The remaining steps were easy. The Diamond Company was promptly incorporated. It had behind it some of the

richest men in California and NewYork. The shrewd capitalists bought out Arnold, the second of the original locators, for five hundred thousand dollars. On receipt of the money Arnold faded from sight, and neither he nor his partner has since been seen by any of the men they defrauded. I have heard this diamond scheme critisiz.ed by expert practitioners in the art of criminal deceit because it only paid its inventors half a million or so. The Humbert case and the Chadwick operations, not nearly so easy from the confidence man's view-point as the "authenticated” diamond fields, are instanced as examples of more thorough workmanship. THE HUMBERT CASE IN PARIS. How Mme. Therese Humbert Made the Most of an Imaginary Legacy and an Empty Safe. Unlike the Arizona diamond swindle, the Humbert fraud commands the unstinted 'admiration of the erooked fraternity. There was no failure there—except the failure to get away at the last; and that detracts as little from the glamour of the game as Waterloo does from the fame of Napoleon.

The Humbert case had all the elements of success. First, there was the grave and reputable father-in-law, M. Humbert, former minister of justice, a

solemn and solid figure in Frame; then, his son, heir to his father’s estates, the dilett;uite in politics, who had represented Seine-el-Marne in the Chamber of Deputies, writer on artistic themes, artist enough to have his pictures hung in the Salon. There was the hint of a scandal to indicate why Robert Henry Crawford, the American Multimillionaire, should h’ave left his fortune of one. hundred million francs to Mlle. Therese d’Aurignae, who had become Mme. Frederick 11 umbert. The Humbert family entered Paris. Imagine the arrival of the heiress to twenty million dollars, with a successful painter for her husband and a former cabinet minister for father-in-law! Mme. Humbert was soon dividing newspaper notoriety with Boni de Castellane, who was at that time scattering many millions. Under the impact of the Humbert fortune, the doors of society swung open until they jarred the walls. The Humbert house on the Avenue de la Grande Armee became Famous for splendid appointments and magnificent entertainments; thither Hocked literary Paris, artistic Paris, political Paris, financial Paris. The doors of the banks swung as wide as the doors of society. When the money-lenders pressed Mme. Humbert so hard th-at it became necessary to provide an excuse for not paying some of their loans, a letter ar-

rived from Henry and Robert Crawford, nephews of the man who had left his fortune to Mme. Humbert. They had found another will, which gave Mme. Humbert only an annuity of thirty-six thousand francs, and divided the estate among the two nephews and Marie d’Aurignac, madame’s little sister. The two Crawfords, being each as rich at least as their uncle had been, did not wish to be unpleasant, though for principle’s stake they had to leave the settlements to the courts. At once a lawsuit! By agreement the twenty million dollars was sealed up in a great safe in the Humbert palace to -await a final determination of the ease. Once a year the Crawfords and Mme. Humbert were to inspect the securities. The bankers were a little doubtful about the lawsuit when the time came for fresh loans. How could they be sure that the case would not be decided in favour of the Crawfords, and then—what? The Crawfords earner nobly to the rescue: the suit must go on as a matter of legality, but the younger of them would marry Mlle. Marie when she came of age. so that, however the suit was decided, the money would remain in the family. Doubt disappeared, and the golden stream, temporarily dammed, flowed afresh and in greater volume than ever. Poor dear Mme. Humbert! So unsophisticated, so innocent of business knowledge! It was almost more than the bankers could do to take advantage of her innocence, but they did it—lent her francs by the million at fifty per cent. She always let them settle the rate of interest—they were men of finance; she was just a simple woman. All went so well that they were still paying for all the splendour of the house on fire Avenue of the Grand Army when Mlle. d’Aurignac reached the age of eighteen. Then—astonishing girl! —she announced that she would not marry the Crawford. The creditors were shocked; the Crawford was furious—so it was told in the Humbert circle. Now that they had been insulted, the Crawfords would contest the suit in earnest. The greatest lawyers in France faced one another in the trials, appeals, rehearings; and still Mme. Humbert borrowed money at still more usurious rates, and the creditors did riot worry because there were the twenty millions safe in the strong box. to say nothing of accumulating interest. At last her heaviest creditor, Girard & Co., would wait no longer, and sued her for six million two hundred thousand francs. She contested the suit and told of the usury, and M. Girard blew out his brains in despair. The receiver of fhe banking firm prosecuted the suit, and finally got judgment for two million five hundred thousand francs, the actual amount loaned. After some difficulty it was borrowed, and the establishment of Humbert went on for a space. But during the Girard suit certain statements had created suspicion. More suits were brought against the Humberts, and finally the courts opened the safe and found—a rusty buckle and soma dusty envelopes. Fortune. Crawfords, romance —all were fiction! THE STRANGE CAREER OF MRS. CASSIE CHADWICK. A Clever Woman's Ingenious Fabric of Forgery and Fiction. During the progress of the Humbert ease there was living in Cleveland. Ohio, a middle-aged woman, who had been in jail for forgery, and had led a precarious existence as a fortune-teller. She had contrived to bury her past, and at the time of the Humbert disclosures was living sedately as the wife of a physician in fairly good circumstances. She made friends—among them a banker or two—to whom she whispered that there was a cloud over her birth and that she was burdened with a large fortune, the possession of which shamed and mortified her Cassie 1.. Chadwick was merely an imitator. For the Humbert fortune of twenty million dollars locked in a safe she substituted fifteen million dollars in osten-ihle Carnegie notes and stock certificates. Instead of the piquant romance that accounted for the Humbert bequest she offered the fiction that she was the unrecognised daughter of a famous industrialist, who, though ha could not acknowledge her. had created for her a trust fund of millions. Her friends were very sympathetic; chided her for feeling so keenly what she could not help, and advised her to make use of her fortune. At length she was conwinced. and decided to life the larger lifa they co u nee lied.

Mrs Chadwick now applied to C. T. Beckwith. President of the Citizens' National Bank of Oberlin, Ohio. He was one of those to whom she had confided the secret of her birth, and he made no objection to letting, her have ‘one hundred and two thousand dollars of his own and Cashier Spear’s and enough of the bank’s money to increase the amount to more than three hundred and fifty thousand dollars, on the security of two notes aggregating s-ven hundred and fifty thousand dollars and signed “Andrew Carnegie.” In gratitude she told President Beckwith that he would be made trustee af the five-million dollar fund which Ira Reynolds, secretary and treasurer of the Wade Park Bank, held for her. Mr. Beckwith was too good a business man to let such a chance slip; he was too much of a gentieman to betray a woman’s secret; so he said nothing to the directors of the Bank about the loan, though it was four times as much as the bank’s capital. Ira Reynolds, another of those whom she took into her confidence, received from her a sealed bundle of securities giving her in return an attest stating that he held five million dollars in stocks and bonds, which were enumerated, for Mrs C. L. Chadwiek. He made another attest of the same list for her husband. Mr Reynolds, who was the eminently respectable conservative business man of his town, says that when Mrs Chadwick finally decided to place h r securities in his hands he hesitated about giving her the attest she requested. “Perhaps,” said she. with sad dignity, “you wish to examine them to verify my words. Mr Reynolds.” And Reynolds, knowing how keenly she suffered from the disgrace of her secret, felt his doubts evaporate before that pathetic rebuke, declaring he had no idea of doubting, and gave the attests—and thereby the power of getting all the money she wanted; for what usurer would hesitate to lend with the security of a well known banker's assurance that he held millions and millions of the best stocks and bonds in the country? Then began Mrs Chadwick’s splendid days. She filled her house on Euclid Avenue with an extraordinary collection of junk. Without taste, she bought alike the newest products of the local furniture factory and the more or less, genuine Louis Quinze articles she encountered abroad. She travelled to Europe in the grandest style, taking with her a dozen young girls from Cleveland, just to give them an outing; indeed, she played Lady Bountiful to all Cleveland. She shone in charities; she sent grand pianos broadcast to her friends, and when “Parsifal” was produced in New York she brought on a car load of guests to attend it. All she had to do was to show that attest of Reynolds and whisper her sad story, and money came to her. Mrs Chadwick might have been borrowing yet if she had confined her operations to the Middle West. But, after loading up a score of Ohio banks with her paper, and working as far East as Pittsburgh, she tackled a Yankee. She got her hundred and ninety-two thousand eight hundred dollars from Banker Newton, of Brookline, Massachusetts, on the strength of an introduction by her Cleveland pastor, backed up with Mr Reynolds’ receipts for five million dollars and a note for half a million signed “Andrew Carnegie.” When she did not meet her notes, Mr Newton declined to take the Carnegie relationship story in lieu of his money. He brought suit and the bubble broke. Questioned for the first time about these matters, Air Carnegie revealed that he not only had not signed any notes, but had never even heard of Airs Chadwick until the newspapers revealed her to the world. She was arrested, taken back to Cleveland, and thrown into jail to await her trial for conspiring with Beckwith and Spear to violate the United States Banking laws, while indictments for forgery rained about her. Has the publicity of the Chadwiek case put bankers and money-lenders and investors on their guard sufficiently to withstand the next confidence game that may be offered to them? Not a bit of it. There are Afiller syndicates by scores running to-day in Wall Street; there are Keely motors and mines of moonshine being sold, and no doubt there are Humbert fortunes in strong boxes and Chadwick romances in bank vaults all over the country. And the promoters of these frauds will flourish as long as thete remains a money-lender who, for

the greedy reasons of usury, will take pains not to inquire too closely into the affairs of his clients.