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According to the SEC complaint filed in federal court, the scheme became operative in July 1969. Houston's Sharpstown State Bank, like many others, was pinched for funds because of the ailing economy. Legislation desired by Sharp was introduced at a special session of the state legislature that could have given state-chartered banks and perhaps insurance companies tremendous advantages. The measures, actively supported by Governor Smith, would have allowed a state-chartered organization to assume the functions of the FDIC in Texas. The ceiling on insured deposits, then $15,000 under FDIC, would have been raised to $100,000. The change, presumably, would have attracted new funds to banks, and would have removed close federal scrutiny of banking operations.
Too Trusting. Within a few days after the bills were introduced, large purchases of shares in National Bankers Life Insurance Co. stock were made by Governor Smith; Gus Mutscher, speaker of the state house of representatives; Elmer Baum, head of the Democratic state executive committee; State Representative Tommy Shannon, who introduced the legislation; and W.S. Heatly, chairman of the state house appropriations committee. They and other influential Democrats bought the stock at between 11⅛ and 13¾ a share. Much of the buying was done with loans from the Sharp-controlled bank, with the stock itself as collateral.
The legislation was approved on Sept. 8 and 9. Just two days after that, most of the politicians who had bought heavily began selling their shares in National Bankers Life. The stock was then trading over the counter at between 15 and 16. Yet the Strake school, which had previously been involved in business dealings with the insurance company and the bank, bought large blocks of the politicians' stock at between 20 and 26. Why?' The SEC documents offer no clue. The Rev. Michael Kennelly, then Strake's president, said that he had not understood the manipulations, but was in the habit of following Sharp's advice. The Rev. Michael Alchediak, Kennelly's successor, said: "We, by our background and whole formation, have tended to be trusting."
Among the beneficiaries of that trust were Governor Smith and Baum, who, buying shares and selling them at the inflated price, netted $125,000 between them. Speaker Mutscher said that he eventually lost money because he bought back in, but on his original purchase he is said to have made between $50,000 and $100,000. Shannon cleared $30,000, and Heatly $34,000. The SEC documents did not list a specific profit for Sharp. But he benefited by having the use of some of the Jesuits' funds during the frequent dealings between them. Also, his enterprises would have been in line for a windfall had the banking legislation gone on the books.