Richard Whitney: banker, gambler, embezzler. Whitney was the "savior" of the New York Stock Exchange (NYSE) during the Black Thursday sell-off of 1929, after he quickly bought stocks in companies in an attempt to induce others to buy stocks as well. After that heroic effort, he was quickly appointed as the president of the stock exchange. Though he seemed to have a knack for running the stock exchange, he did not do so well with his personal finances. He was unable to stay ahead of his money problems and had to borrow from everyone he knew. He even embezzled money from any business that hired him. His lack of financial judgement became exposed when the stock exchange underwent an unexpected audit, during which each of the board members was required to reveal his earnings. Early on Richard Whitney was born in Beverly, Massachusetts, on August 1, 1888. His father, George Whitney, was at the top of the banking game in Boston. Richard graduated from Groton and Harvard, where he was elected to the prestigious Porcelland Club. In 1910, Whitney moved to New York City. By 1912, at the age of 23, he already was a member of the New York Stock Exchange. Soon afterward, he became the principal broker for J.P. Morgan and Company, of which his brother, George, was later vice president. During World War I, Whitney became an executive for the Food Administration headed by Herbert Hoover, in Washington, D.C. Borrows money Whitney started out dealing mostly in bonds at his own firm, Richard Whitney and Company. By the time 1929 rolled around, he also was the vice president of the New York Stock Exchange. When the president, E.H.H. Simmons, went on an extended honeymoon in Hawaii that fall, Whitney became acting president of the exchange. Whitney's claim to fame during that time was that he was J.P. Morgan and Company's broker, while his brother George was a big partner at Morgan. Richard lived "high on the hog," with a home on the East Side and an estate in Far Hills, New Jersey. He also belonged to all the right clubs and bred race horses. The problem was that even though he was Morgan's broker, they really didn't give him much business. So Whitney gambled — unluckily — on penny stocks as well as more established companies (blue chips), and began to borrow money from his brother, friends, and associates, to cover his investment losses. The "savior" Black Thursday, October 24, 1929, was the beginning of horrible things to come for the stock market. As the market opened on Thursday, all hell broke loose. Within an hour, the brokerage firms were overwhelmed with sell orders and the Dow had tumbled to 272 on record volume (previously at 381 in September). The leading bankers on Wall Street gathered at Morgan's offices to form a "pool," raising $130 million to be spent on selected blue chip stocks in the hope that it would stop the panic and bring some level of confidence back into the market. Richard Whitney was chosen as the "pool's" agent and went to the exchange at around 1:30 p.m. to "walk the floor." Stopping at the post for U.S. Steel, he announced in a loud voice, "I bid 205 for 10,000 steel." A huge cry went up and Whitney made similar purchases of AT&T, Anaconda Copper and General Electric, among others. The strategy had its desired effect and the Dow Jones roared back, closing Black Thursday at 299. Whitney soon became a hero to many investors and was seen as the "savior" of the market. The heroic stature he eagerly accepted was greatly exaggerated, since he was only acting for others, and with their money. Early in 1930 it was decided that Whitney should formally become the president of the New York Stock Exchange. He traveled widely and delivered speeches that stressed the Wall Street brokerage community's personal integrity. Fraud, jail and demise All the while Whitney was being touted as a hero, no one seemed to realize that his firm was going under, thanks to his incredibly poor investing habits. He would lose money, borrow from his brother or friends, then "double down" — which compounded his problems. By 1931, Whitney was at least two million in debt, but he kept up his opulent lifestyle. If he couldn't borrow, he stole. Whitney's actions were eventually discovered in an audit, when the exchange persistently asked Whitney where the money was. His borrowing days were over at that point, but the scandal was kept quiet in order to avoid embarrassing the entire stock market. Finally on March 8th, 1938, five minutes after opening, the gong was sounded, announcing a halt in trading as the following statement was read from the rostrum:
"In the course of an examination of the affairs of Richard Whitney and Company, the Committee on Business Conduct discovered on March 1, 1938, evidence of conduct apparently contrary to just and equitable principles of trade, and on Monday, March 7, 1938, at 1:30 p.m. presented to a special meeting of the Governing Committee charges and specifications. Hearing on the charges was set for March 17. This morning the firm of Richard Whitney and Company advised the Exchange that it was unable to meet its obligations and its suspension for insolvency was announced from the rostrum of the Exchange shortly after 10 a.m."When the final investigations were made public, it was estimated that Whitney had "borrowed" more than $30 million from his friends, his family, and the accounts in his trust. When he declared bankruptcy, he owed approximately $6.5 million. He was indicted on one count of misuse of funds from his father-in-law's estate, and pled guilty as charged. Richard served three years and four months of a five-to-10-year sentence in Sing Sing. His brother, still acting as his crutch, eventually paid all of his debts. When Whitney was released from prison, he moved to a family-owned dairy farm in Barnstable, Massachusetts, and led a secluded life. His wife stood by him during all of his problems, cashing in on all of their assets to help fund their new quiet life together. Whitney died on December 5th, 1974, in Short Hills, New Jersey.