Springtime for Henry

After 3^ years and more than 3,200 pages of court testimony, Henry J. Kaiser finally laid an old enemy low. He won his breach of contract suit against Otis & Co., Financier Cyrus Eaton's Cleveland underwriting firm. In 1948, Otis & Co. signed up to help float 675,000 shares of Kaiser-Frazer stock at $11.50 a share; under the contract, the underwriters could bail out if anyone should try to block the stock issue in court. At the last minute Eaton bailed out, using as an excuse a suit against K-F to prevent the stock issue on grounds that Kaiser had mishandled K-F funds. It was filed by Philadelphia Lawyer James Masterson, a K-F stockholder who had at one time represented Otis & Co. in court. Kaiser charged that Masterson had filed the suit with a nudge from Cy Eaton himself, who wanted a way out of the underwriting deal when the price of K-F stock began to fall.

In Manhattan last week, Federal Judge John W. Clancy agreed. In a~ blistering 37-page decision he held that Eaton, in collaboration with Otis & Co.'s President William R. Daley and Ohio's former Democratic Senator Robert J. Bulkley, had used Masterson as a "dummy plaintiff" in a "plot to establish an excuse to breach the contract." Masterson operated "on defendant's behalf and in performance of a common scheme participated in by all." Judge Clancy ordered Otis & Co. to pay K-F $2.6 million in damages, the difference between the contract price and the market value of the stock when the deal fell through. (Present price: $5.13.)

Otis & Co. announced that it would appeal the decision. Cy Eaton was in a tight spot and he knew it; his welshing on the deal was the first such case since the Securities Act of 1933. But he had squeezed out of many a tight spot before. In the '20s, Eaton and associates wielded great power through big holdings in Republic Steel, United Light & Power, and Continental Shares. In the depression, Eaton lost millions of dollars. He made his comeback with such ventures as Canada's Steep Rock Iron Mines Ltd. (TIME, Sept. 29, 1947), organizing the Portsmouth Steel Co. and by building his underwriting business into one of the nation's biggest.

When Kaiser sued, SEC tried to revoke Otis & Co.'s underwriting license, but Eaton won the case in court. The National Association of Securities Dealers then stepped in and suspended him for two years. Eaton has managed to hold that up pending an appeal to SEC. With the K-F decision against him, Eaton may well lose the N.A.S.D. fight. He also faces another battle with SEC to keep from being banned from underwriting for good.

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