Insull's Innings

CRIME

In Chicago early last month, the U. S. Government set out to prove in Federal court that Samuel Insull and 16 co-defendants had used the mails to defraud investors in his Corporation Securities Co. of some $100,000,000 in nine months. To win conviction, the prosecutors had to show that Insull & friends had deliberately traded back & forth the stocks of affiliates and subsidiaries, had declared unwarranted dividends, had recklessly juggled the assets of the Insull utility empire to give them an apparent value far above their real value. For 23 court days the prosecution and its corps of expert accountants wrestled with the problem of demonstrating to judge and jurors the financial intricacies of the Insull collapse. That job proved to be even more difficult than the long task of chasing Mr. Insull up & down the Aegean and practically shanghaiing him back to the U. S. for trial (TIME, May 14).

Documents were brought into court by the truckload. But the most staggering evidence the Government produced was its formula to prove that Corporation Securities' stock was worthless, when in 1931, after announcing a net income of $8,000,000 for the preceding year, it continued to pay dividends because "the defendants were at all times keeping up representations to the public that the company was sound and the stock a good buy." Burden of proof lay in two algebraic equations which the court found chalked on a blackboard one morning. The equations:

Nobody was more puzzled by this spectacle than Federal Judge James H. Wilkerson, who sent Al Capone to prison but who was no fresher in his mathematics than any other jurist nearly 50 years out of school.

As arrived at by a Government accountant, the result showed that when Corporation Securities stock was selling for 12 1/2-c-, it was really worth $18.74. But that sort of evidence, the prosecution well knew, was not the kind on which twelve good men & true send 17 tycoons to jail. Human interest was needed. Hence Mrs. Mary R. Jones, a septuagenarian of Ridott, Ill. was put on the stand. She and her husband had mortgaged their farm to buy Corporation Securities in 1930. "We thought," said she, "the new stock was good stock. . . . Altogether they got $15,000 of our money. If we could get half of it back we'd kiss them. . . . You trust people in corporations to the limit and then they treat you like that!"

Four days later Federal Attorney Dwight H. Green read the jury the minutes of the last meeting of Corporation Securities' board, admitting that the company was insolvent and consenting to the appointment of a receiver. "With this," dramatically said Mr. Green, "the United States rests."

Attorneys for all the defendants except Samuel Insull and Samuel Insull Jr. promptly moved for a directed verdict of acquittal for lack of evidence.

"I have examined the record carefully," decided Judge Wilkerson, "and am constrained to say that at this point in the case I cannot hold that from the circumstances proved by the United States, uncontradicted and unexplained, a reasonable man might not draw the inference of knowledge of the scheme and participation in it by each defendant. As to the scheme itself, it does not seem open to serious debate that at this point in the case the question of fraudulent character is clearly one for the jury." In nonjudicial terms, the Judge meant that Samuel Insull and his co-defendants might well be guilty of mail fraud unless the defense put up a good answer to the charges. Last week the defense buckled down to the task.

Defense tactics were to deny none of the overt acts charged, to let Septuagenarian Insull take full responsibility. BUT the defense was also out to show that the acts were honest, if mistaken; to build up a mass of extenuating circumstances to take the curse off any purely technical violations of the law; to pave Mr. Insull's path to acquittal over a golden road of good intentions. He was to be pictured not as a ruthless robber baron showering the nation with gold-bricks, but as an ambitious man who had overexpanded a huge concern, used bad financial judgment when Depression hit.

First witness to the stand, as the defense began its innings, was Samuel Insull himself. It began as a weeping match. Mr. Insull's associates wept. Mrs. Insull wept. Samuel Jr. wept. Defense attorneys wept. And Mr. Insull himself dribbled at the eyes as he traced his career from London clerk to the toughest and world's most successful man in the tough utility business.

Of "honest errors" Mr. Insull pointed to three: 1) sponsoring "customer ownership" of his utility companies whereby over half a billion dollars worth of Insull securities were sold to the public; 2) restricting his financial relationships to Chicago banks; 3) paying $48,000,000 cash for 160,000 shares of three Insull operating companies stock to Cyrus Eaton to keep that raider out of the Insull empire.

Most tender moment of the testimony came when Witness Insull recalled the first Mrs. Thomas Alva Edison, whose husband's secretary young Insull became when he first reached the U. S. in 1881. Of a big British job in 1926 the witness said: "Mr. Stanley Baldwin offered me the chairmanship of the [Central Electricity Board]; offered me a chance to do in the country of my birth--and I haven't any respect for any man who has not a love for the country of his birth, any more than for a man who ceases to love his mother because he is married--to do what I had borne such a large share in in the accomplishments of the country of my adoption. . . . There were two reasons why I didn't do it, gentlemen. . . . My obligation to my associates . . . and my obligation to the security holders. . . ."

With his own lawyer, Floyd E. Thompson, onetime Chief Justice of Illinois' Supreme Court, letting him do most of the talking, Witness Insull's first day on the stand was a period of tranquil reminiscence. Then Prosecutor Leslie E. Salter, an Assistant U. S. Attorney General sent from Washington to direct the case, began his crossexamination. It soon became apparent that Samuel Insull had not lost all the resource and tenacity which had made him the nation's No. 1 utility man. Red-faced, he twice angrily complained to Judge Wilkerson of Prosecutor Salter's tactics, denounced "double-barreled" questions, shouted that the Government was making "immoral" use of its accountancy figures.

In two days of ducking and dodging, Witness Insull was caught clearly off base just once. Questioned concerning the $86,000,000 listed in an annual report as assets of Corporation Securities, Mr. Insull was asked if a certain block of stock, which cost only $3,500,000, was not written up in the report to $15,000,000. Witness Insull studied some papers in his hand, sat silent for a time. Then he said: "I probably knew it when it was done but I have learned--and I have never thought of it since. But I probably made a mistake when I said that it was the purchasing price. I probably was wrong to the extent of about $10,000,000."

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