The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1903-03-18
AFTERMATH OF A PANIC
SUIT IN FEDERAL COURT RECALLS
NORTHERN PACIFIC SQUEEZE.
Chicago brokers Who Were Caught
Short on the stock Seek to Re-
cover from Arthur c. Newly.

suit growing out of the memorable
panic en- the New York Stock Exchange on
MAY 3. 1901. went 10 trial in the United
States Court yesterday before Judge An
derson and jury. The parties to the suit
are Finley Darrell & Co.. Chicago brokers.
and Arthur c. Newly. of this city. The
brokers are suing Newly to recover about
$4,000 which they paid out in the purchase
OF Northern Pacific Railway stock in or
der to make a certain delivery of stock, be-
ing obliged 10 do so in accordance with
contract with other brokers.
May II. 1901. A. c. Newly. through the
Office of Newton Todd. the Indianapolis
agent of Finley Barrell & Co. gave an
order to sell 100 shares of Northern Pacific
stock at s1f5 a share. this deal being
known as a short sale" Such sales are
made in anticipation of a drop in the mar
ket. which enables the person selling to
buy in the stock cheaper than he has sold
IL for. IL the price goes up instead OF
down the person selling the stock loses
money. In order 10 make sale of stock
when short" the banker in New York,
TO make a delivery of the stock, must bor
row il from day to day from some other
banker who has stock TO loan and there
after the obligation Is to the one from
whom the stock was borrowed and he is
entitled to call for Il at any time on a
days notice.
CAUGHT IN THE WHIRLPOOL.
As brought out in the opening state
ments TO the jury yesterday. the person who
loaned the stock in the present instance on
May s. 1901. called for its return on the fol-
lowing day. Having no stock with which
TO make the delivery. the New York cor
respondent Of Finley Darrell & Co. was
compelled to buy 1t in the open market on
the Stock Exchange. paying 500 share for
IL, or $500 more than IL had been sold
for on May z. and this suit is to recover
this amount OF money with interest.
The defense to the suit is along three diff
ferent lines. First. it is contended that
Finley Darrell & Co. did not act in a pru-
dent manner In making the purchase
through the New York correspondent at
the time and under the conditions which
existed on the 9Th of May. 1t is contended
in the second place that Finley Barren &
Co: had no right to purchase at all until
tice to deposit margins to protect the deal.
had failed to do so. third contention is
that Finley Barrel & Co. before suing
Newly, had brought certain suits against
Todd. in Chicago and New York, and had
garnisheed Todds money at these places.
and that by thus suing Todd the plaintiffs
by. II Is pointed out that while they could
sue either OF the two they cannot proceed
against both. The defendants attorneys
a. prudent manner they would not have pur-
chased stock on the 9th of May, but would
have waited until the 10th, as many other
a share.
May .. 1901. as a matter of history. was
one OF the worst days ever known on the
that in less than an hour Northern Pacific
stock went from $50 a share to $1,000 a
share. AS the result of this brokers had to
sacrifice other stock in order TO raise money
TO meet the Northern Pacific obligations
As result all other stocks dropped. For
instance. Manhattan elevated stock at the
close Of the day sold at about $40 share
less than IL did at the opening.
HOW THE SHORTS WERE SAVED.
At noon on May 8 1t was the general talk
In Wall street that If the contracts out
standing for Northern Pacific stock were
enforced all Wall street would be broke"
by night. and every financial institution in
the country would be affected. 1t was the
general understanding that there were So =
900 shares of Northern Pacific stock sold
'short" which were not bought May 8.
and these at s.. 900 share, the higher price
for that day, would have meant sS0.O 900
to purchase the stock. The situation was
so full of danger. IL is recalled, that about
noon. May 9. ]. p. Morgan & Co. and Kuhn,
Loeb & Co.. the two firms representing
the rival interests who were PURCHASING,
Northern Pacific stock for the purpose of
obtaining control OF the road. to to whom
most OF the stock sold short" was due,
announced that they would not require de-
hveries that day under the rules of the
Stock Exchange, and the next morning they
made settlements with all parties who
were short at $50 share. Therefore
the only people who suffered were those
who purchased Northern Pacific stock or
sold other stocks while the panic was on
May 8. and before 1t was known what set
Elements could be made with bankers rep
resenting rival factions.
A number of witnesses will be examined
IN this case. one OF the prominent ones
being Miss Anna Todd, sister OF Newton
Todd. who was in charge OF the Indianap DO
lis Office the day the Northern Pacific or
der was given by Mr.. Newly, and who con-
Quoted the transaction in the absence of
her brother. The plaintiffs are represented
by Attorneys Babcock & Strawn, of Chi
cago, and A. w. Hatch and John B. Elan.
OF indianapolis The defense is In charge
of Smith. Duncan, Hornbrook & Smith.
The opening statement Of Attorney Bah
cock was heard yesterday and Charles
w. Smith partly finished his statement
for the defense.