Shorts Shorted

The first market corner in several decades occurred on Wall Street and caught short sellers in a classic trap--without stock to deliver unless they paid fantastic prices. The corner was nothing like those when Morgan and Harriman battled for the Northern Pacific, gobbling up so much stock that shorts had to bid Northern Pacific from $170 to $1,000 in one day. But it was bad enough. In a single day, the stock of E. L .Bruce Co., a small Memphis hardwood flooring manufacturer, jumped $100 a share after the American Stock Exchange ruled that short sellers had to cover their positions on demand.

What the shorts got caught in was a war for control, which saw almost all the company's stock taken out of circulation. Originally, the shorts had sold at a price of about $42, expecting the stock to decline because book value and earnings indicated a price closer to $30 a share. They guessed wrong. Trying to oust the Bruce family management, which owns 31% of the 314,600 shares outstanding, New York Manufacturer Edward Gilbert and his associates began buying, sent the price to $77 by June. More than 280,000 shares were traded, including at least 16,000 short sales. So badly squeezed were the shorts that the exchange declared a moratorium on June 12. Fortnight ago the exchange lifted its ban on closing contracts, and the trading price jumped to $200 a share in one day. The suffering shorts asked the exchange to declare an official "corner," which would mean determining a "fair" price. The exchange declined, though it reimposed its moratorium last week--leaving the shorts still holding the bag, but hoping that the exchange keeps it tied shut until the fight is over and, hopefully, the stock declines.

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