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"Conduct Contrary. . . ." It has long been the custom of the New York Stock Exchange to require financial statements from all member-firms doing business with the public. Late in 1937, apparently eager to beat SEC to the gun, the Exchange extended this rule to firms such as Richard Whitney's which do business with brokers and banks. First report was due on Feb. 15. With his company virtually insolvent. Dick Whitney asked for an extension of time. This naturally piqued the Exchange's curiosity. When the Whitney report arrived, the Exchange scrutinized it carefully and immediately sent its own accountant over to the Whitney offices to verify the figures. What made the Exchange so alert it would not reveal last week, but there was good reason to suppose that some of the Governors already suspected Whitney irregularities.* In November Governor Edward Henry Harriman Simmons had had difficulty getting Whitney to return certain securities of the Exchange Gratuity Fund.
What the Exchange accountant found in the Whitney records resulted in a hurried meeting of the Exchange governing committee. In open-mouthed horror, it heard the charges against Dick Whitney and then preferred the Exchange's most serious accusation — "conduct apparently contrary to just and equitable principles of trade." Next morning, well knowing it might mean the end of the Exchange's claim that it requires no added SEC supervision, President Gay grimly mounted the rostrum of the Exchange and suspended Richard Whitney & Co. for insolvency (TIME, March 14). Wall Street's first reaction was outright incredulity that "The Corner" had not bailed out its favorite broker. But it was speedily apparent that The House of Morgan had known nothing of the pending debacle. In fact George Whitney had just gone off for a two-weeks' vacation in Florida. Day after Dick Whitney's failure he rushed back to town, but by then there was nothing anyone could do.
"I Alone." Investigations were begun by the Stock Exchange, the SEC and State Attorney General John James Bennett Jr. Distilled Liquors stock flopped on the Curb to $3.50 a share. The Attorney General's office called in Robert J. Rosenthal, cashier of Richard Whitney & Co. Cashier Rosenthal revealed that Richard Whitney had established "Richard Whitney's stock control account" in January, had transferred big batches of customers' securities to it, then apparently hypothecated them for personal loans. The first such transfer revealed was $125,000 worth of securities belonging to the New York Yacht Club. Other revelations: Dick Whitney had an unsecured loan of $474,000 from J. P. Morgan, his Far Hills estate was mortgaged in September for $300,000 and the total Whitney loss on Distilled Liquors was about $1,600,000. Said Dick Whitney that evening: "I want to say emphatically that the difficulties in which my firm has become involved are the result of actions as to which I alone have responsibility — I fully realize that certain of my actions have been wrong. . . ."