At the end of World War I, the U.S. economy went through a major boom era known popularly as the roaring twenties. Rising incomes meeting up with rising technological advances created progressive lifestyles for many middle and upper class Americans. It also nourished the get-rich-quick attitude that has long pervaded American society. Those times and the fever to get rich quick gave birth to a number of scandals and scams. Here is a group of some of the more famous ones of that era.
Ponzi Scheme: Charles Ponzi was an immigrant from Italy who sought to turn his lack of fortune around by buying postal coupons from Italian and Spanish postal systems at very low prices and converting them into U.S. postage. He would then sell the U.S. postage for a substantial return earned basically on the currency exchange. He raised money in the investment community by promising a fifty percent return on the investor’s money in just forty-five days. Although this activity was legal, the massive crush of investors attempting to get rich quick overwhelmed this postal exchange process making it impossible for Ponzi to fulfill his commitment with just the profits from the postage arbitrage. To satisfy his investors, he used money from ensuing investors deposits to pay the previous investors their fifty percent return. For one wild year (1920) this continued to work until financiers, bankers, and analysts, determined that he couldn’t be paying all those fat returns from postage arbitrage, and the gate closed on him.
Bayano River Syndicate: Leopold Koretz was an immigrant from Bohemia who came to Chicago in 1887. He went to Chicago-Kent College of Law graduating in 1901. As early as 1905 he began to falsify and sell mortgages on non-existing property to finance a lavish life style. He elevated this scam to selling mortgages and stock in rice plantations supposedly located in Arkansas, but never existed anywhere. On to greater things, he sold stock in the Bayano River Syndicate that allegedly owned millions of acres of timberland in Panama with oil reserves underground, promising sixty percent annual returns. His game was up when some of his bigger investors journeyed to Panama and discovered that the land (and oil) did not exist. In an ironic twist, Koretz was prosecuted by Robert E. Crowe, Cook County State’s Attorney, who was an associate in Koretz’s first law practice.
Florida Real Estate: In the mid 1920’s the country’s first real estate bubble turned up in Florida. Rich New Yorkers and New Englanders sought out Florida as a good winter habitat, and the notion was augmented by railroad extensions than ran south to the Palm Beaches, Miami, and Key West. South Florida became a fixture as a tropical paradise in the minds of investors. Speculation on land values went wild as investors would flip the Florida properties in New York City that they had never even seen to other investors eager to buy in. The speculation continued into commodities as well, as building supplies and equipment were sent to vacant land that was not being developed. In 1925 Forbes Magazine published an article that Florida land values were established by hype used to lure future customers, and had nothing to do with the actual worth of the land itself. Further, the over purchase of commodities clogged the rail lines forcing the railroads to declare a moratorium on shipments other than necessities. Several investigations into bad practices plus two hurricanes helped end the wild speculation about two years after it began in 1924.
Julian Petroleum Corporation: Founded in 1923 by Courtney Chauncey Julian, the Julian Petroleum Corporation had some success in drilling for oil in Santa Fe Springs, California. Julian sold his interest to two major shareholders, Sheridan Lewis and Jacob Berman, and the company merged with California-Eastern Oil Company in 1925. The new company got financing from prominent businessmen such as Cecil B. DeMille and Louis B. Mayer in the form of short-term loans at high interest rates. In 1927, an audit discovered that 4,200,000 shares of stock had been illegally issued, and that the company was using the loans to continue to operate as the stock was deemed worthless. Lewis and Berman were convicted and sentenced to seven years in prison for their part in the fraud. Julian got into more trouble in Oklahoma defrauding some $3,500,000 from investors. He was formally charged, but skipped bail, and went to Shanghai, China, where he committed suicide in 1934.
Radio Pool: The 1920’s was the last decade before the onset of the Securities and Exchange Commission. As a result, stock manipulation was virtually legal, and was performed by pools of investors who traded large blocks back and forth in consortium with each other to drive the price of certain stocks up substantially. One such group, the Radio Pool, traded Radio Corporation of America (RCA) stock until the price rose from $100 per share in 1928 to over $500 per share just before the big crash. The pool then sold out and left the vast number of smaller shareholders with huge losses just in time for the stock market to crash in October, 1929. With the advent of the depression and ensuing regulations, the investor pool collaboration was among those activities that was outlawed.
Teapot Dome: The Teapot Dome Scandal ranked as the country’s greatest example of official corruption at the time. When Warren Harding was elected President in 1920, he received major support from certain oil magnates in exchange for oil industry friendly cabinet picks. One of those picks in 1921 was Albert Fall, who was appointed to Secretary of the Interior. Fall managed to get a group of oil deposits held in reserve for the U.S. Navy transferred to the control of the Department of the Interior. Without open bidding, Fall arranged the valuable oil rich lands to be leased to two of his oilman friends, Harry Sinclair and Edward Doheny. Among other unnamed benefits, Fall received a bag of cash totaling $100,000 that was proceeds of a loan from Doheny enabling Fall to buy an extension for his New Mexico ranch. Sinclair delivered a large herd of cattle to the ranch, and his company transferred $300,000 in bonds and cash to Fall’s son in law. President Harding and his wife were to receive an all expenses paid around the world cruise after his term in office, thanks to a shady deal believed to have been orchestrated by Sinclair that grossly overpaid Harding for his Marion, Ohio newspaper business. The oil in the reserves was estimated to be worth in the hundreds of millions of dollars. However, the Teapot Dome Wyoming lease was disputed by another oilman, James Darden, and the Senate began an investigation which unwound the whole scandal.
Conclusions: America has long been thought of as the perfect place to get rich quick. And for a select few, this tact has worked, but for the vast majority it’s a fool’s bait. In the 1920’s a number of scams took place to prey upon the get-rich-quick perception. But those who had the best chance to succeed generally got rich slow, with patience, sacrifices, and plenty of hard work.
Sources: history.com, The Shady, Get-Rich Scams of the Roaring Twenties,
by Patrick J. Kiger, April 7, 2022.
history.com, Teapot Dome Scandal, History.com editors, April 7, 2022.
Wikipedia.
graphics.wsj.com, Simple Scam, Long History.