In order to finance the increasingly complex Insull house of cards, Samuel Insull and his Chicago-based investment bankers - Halsey, Stuart, organized another company, Corporation Securities of Chicago. Historian Robert Sobel explained the incorporation as follows:
"Just as in the past Insull firms bought and sold securities from each other, so Insull Utility Investment and Corporation Securities of Chicago were completely inter-connected. I.U.I. owned 28.8 percent of Corp., while Corp. held 19.7 percent of I.U.I. Together they controlled four great holding companies: Middle West Utilities (111 subsidiaries); People's Gas, Light & Coke (8 subsidiaries); Commonwealth Edison (6 subsidiaries); Public Service Company of Northern Illinois (1 subsidiary). In addition, these four holding companies together controlled Midland United Company (30 subsidiaries). The entire complex had assets of over $2.5 billion, and served more than 4.5 million customers."
But, as you can imagine while strength in one of the holding companies translated into strength in the others, the same happened in reverse in times of weakness. While Samuel Insull may not have been doing anything illegal, you can see why some have called the decade of the 1920s "the greatest era of crooked high finance the world has ever known." [Charles P. Kindleberger]
While I.U.I. stock held up well in the immediate months after the Crash of '29 (as did most of the market), by 1932 the New York Boys (Wall Street’s investment banker crowd) were on the prowl and smelled blood when it came to Insull's operation. They sought revenge in the form of a "bear raid," betting that the stock price would fall. Continental Illinois had given the New Yorkers an in when it allowed them into an I.U.I. debt deal and once the foot was in the door, the rest was a piece of cake. The whole pyramid collapsed, as the Depression caused a dramatic falloff in the power business and Insull couldn't service his huge debt load.
In the investigations of the Crash that followed, Insull was charged with mail fraud and embezzlement, among other things, but instead of facing the music he fled to Greece, which didn't have an extradition treaty with the United States. Eventually, however, political pressure forced him to return back to the States where, ironically, he was exonerated on all charges. The sad part, though, was that his reputation was forever ruined because of his initial move.
A result of this mess was the Public Utility Holding Company Act of 1935, which stipulated that all holding companies owning public utilities register with the SEC. This gave the SEC the authority to break up large empires. But even outgoing SEC chairman Joe Kennedy said at the time that the SEC shouldn't be allowed to do this.
Samuel Insull died penniless in a Paris metro station. The above passage is courtesy of Brian Trumbore of Stockandnews.com.Certificate:
Common Stock, issued in the 1930’sPrinter: Republic Bank Note Company Dimensions:
7 1/4” (h) x 11 1/4” (w) State: IL-Illinois Subject Matter: Finance and Related
| Holding Companies
| Scandals and Collapses Vignette Topic(s): Eagle Featured
| Male Subject
| Power Plant Featured Condition:
Vertical fold lines, punch hole cancels in the signature areas and body and some toning and edge faults from age.