New-York tribune., 1908-09-16
TRIED BREAK MARKET
WHY BROWN 8 co. FAILED.
g. L. Whitney FirnrIs Mysterious
Customer 7cith 4ccoamt No. 500.

Tho enormous transactions on the Stock Ex-
change on August p, which lei up to the Iallure
Of A O Brown & Co. and have since been unoer IN
,oe,iga,yo7 y a special commit of the exchange
were explained yesterday by Edward F. Buchanan
one Of the firms partners. at the bankruptcy near
tng before United States Commissioner Alexander
IN the Federal Building.
-rto .,,s-,ina-ion Of Mr. buchanan brought out
-hat George I Whitney Of Pttsburg, head OF the
failed Pittsburg Stock Exchange firm OF NhltneE'
Stephenson Co.. and president OF the Nhluleg
company who is at present under indictment was
the firms mysterious customer who was so hea'llS
sbor+ of the market at the time A O. Brown d Co
was forced TO the wall Mr. WllatDey's account was
carried on the FIRMS books as mo. 800, and was
operated without margin by Mn Buchanan VINO
lad power Of attorney from Ny whitney AT lie
time Of the failure the Whitney account showed
debit of than S3Go,0Oo.
AT the close of business on Friday. August %. the
whitney account was short $4,000 shares AS
stock sold on Saturday did not have 10 be delivered
until Monday. according 10 the rules OF the eN
change Mr. buchanan decided to try to break the
market on Saturday the firms short sales
Mr. Buchanan's own story Of what happened FOL
lows:
II occurred 10 me at the time that the time
rras -ine 10 SUNNI in and make money the mar
ket as the last chance on Mr. Whitney's account
Mr. Whitney having been unable TO meet obiga-
tions which would have given US S0o0O OF SloeOV'o
ION Friday night short on sales SSo,oe'
These shortages had accumulated during the week
On Friday night the Clearing House was closed
Therefore could sell on Friday and have uhtll
Saturday night 10 borrow shares The market was
active and it became necessary for US TO cover
without putting up money.
Now if YOU were short LOO shares OF stock
and wanted to buy LOO without raising the mar
ket price, I figured that you could buy in ll00O
and sell $500 without doing It. Well. on Saturday
1 bought in 10000 shares net. 10000 more than l
sold and at that the market closed lower than 1t
opened. II did not change the status of the ac-
count one-eghth Of Per cent
Mr. Buchanan added that the brokerage charges
for these enormous transactions had been exceed
ingly large.
All the members Of A o. Brown & Co. with the
exception of G. Lee Stout. who is i'll. present
when the hearing opened These included A O.
Brown. Samuel c. Brown. Louis G. Young. W.
Rhea Whitman and Mr.. Buchanan. Charles f. Lit
tlefeld, the federal receiver. was represented by
HAYS & Hirsch7eld. and House, Grossman & Nor-
haus appeared for the pe9itioning creditors. Hoad-
'ly. I-auterbach & Johnson appeared for the firm
Mr.. Whitman. the first witness. verified a num-
Der OF ledger entries in regard TO the payments
made 10 capital account by the various members
of the firm. These showed that A o. Brown put
UP $4,000 at different times and that Mr. Stout
contributed the same amount, while Louis @. Young
put in 100000 The witness said that the entry
on the firms books showing that 100000 cash
capital was paid n during December. 1so4.
rect but he did rot say who contributed this
money
Asked about the happenings the day OF the
failure Mr. Whitman said that the immediate
cause of the suspension was the refusal of the
Hanover National Bank 10 certify the firms checks
for s2oo,coo when its deposit in the bank amounted
10 only SOC
Mr.. Buchanan was then called upon TO explain
the mysterious Account No. son" He said il
was opened to make money for Mr.. Whitney. who
had failed while in debt TO A o. Brown & Co 70
the amount OF 81 Gp eeo individually and $500 600
account of Whitney. Stephenson & Co. Mr.. Buch-
anan was not sure when the Whitney account was
opened.
The disclosure that George J. Whitney the
mysterious customer Of a. o. Brown & Co. who
was so heavily short Of the market at the time
Of the failure is in line with what The Tribune
said DAYS ago when it published a personal
letter from Mr.. Whitney in which he told friend
that he believed he largely responsible for the
firms failure as had loaned hundreds Of thou
sands OF dollars him and TO his firm.
Mr.. Buchanan. when asked whether Mr. Whitney
approved Of the opening Of the account with A. o,
Brown & Co. said yes. He did not make It plain.
however whether the opening OF the account was
the firms idea Mr.. Whitney's
II was also brought out that the last auditing
OF the firms books was in 1eG From the time the
Whitney account was opened, December 9, 1901,
without margin. and including August ?. 1905.
conpa aratfvelr few transactions were made for It
From August , 10 August 2. however. when the
firm failed the selling for this account was ex-
ceedingly heavy.
In explaining a loan TO Account No. 800 o. y.
O'Connor secretary TO MI. Buchanan. said:
IF you have stock in your Office and a customer
sells stock that he doesn't actually have. you've
either got to get the stock elsewhere OF borrow
that which you have in your Office. Mr.. Lauter-
bach may have bought 1000 shares of stock
through US. He's received tip from Mr- Harri-
man that it's good stock 10 hold and We put 1t in
our securities box. Then another customer gets a
tip from Mr. Hill 10 sell 1,00 shares Of this stock
He does II, but he doesn't actually have the
stock Mr. Iauterbach's stock is delivered 10 his
customer That leaves Mr. Lauterbach 1000 shares
long and the other customer 1000 shares short on
books
Yes and they have perfect right TO consum-
mate the transaction said Mr. Lauterbach, ''as
nine times out OF the stock is held on margin.
and the firm has 10 put it Up anyhow.
Nr Buchanan. in answer 10 questions. said that
notices Of all transactions for Account No. 500
were mailed 70 Mr.. Whitney. were monthly
statements He said he supposed the regular com
missions paid all transactions for this ac-
count but he not sure. Asked whether Mr.
Whitney was informed that there was a balance in
his favor on May 81 1895 Of s3l.0S5, Mr.. Buchanan
said he was unable to recollect.
The hearing was then adjourned until to-mor-
how.
nTpErTS TAyMFN SETTING ANKLE