Richard Whitney (financier)
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Richard Whitney (August 1, 1888 - December 5, 1974), was an American financier, president of the New York Stock Exchange 1930-1935, and a convicted embezzler.
Richard Whitney was born into a wealthy Boston, Massachusetts family, growing up friends of the Boston Brahmin elite. He was a descendant of John Whitney (1592-1673), an English immigrant who arrived with the Winthrop Fleet in 1630 and who settled in Watertown, Massachusetts. Although a very distant cousin many times removed, the prominent Whitney family of New York also descend from this same John Whitney. Richard Whitney's father was president of North National Union Bank and educated Richard at Groton School and Harvard University.
In 1910, Richard Whitney followed his older brother, George Whitney, Jr., and moved to New York City where he established his own bond brokerage firm. Two years later, using money borrowed from his family, Richard Whitney & Co. purchased a seat on the New York Stock Exchange (NYSE). His uncle had been a partner in J.P. Morgan & Co. and brother George proved invaluable because of his position at the Morgan Bank which allowed him to direct substantial business to Richard's brokerage.
Richard Whitney married Gertrude Sheldon Sands in 1916 with whom he had three children. His father-in-law had served as president of the powerful Union League Club and Whitney became a member of a number of the city's elite social clubs and was appointed treasurer of the New York Yacht Club. In 1919 he was elected to the board of governors of the New York Stock Exchange and before long would be named its vice-president.
[edit] Presidency of the New York Stock Exchange
Whitney came to prominence in a decade marked by a sustained bull market which created massive fortunes for many. However, the heady years of the 1920s ended with the Wall Street Crash of 1929. On October 24, the market was in virtual freefall and the floor of the New York Stock Exchange operated in a state of panic. By noon, on what became known as Black Thursday, there had been eleven suicides of fairly prominent investors. At 1:00pm, several leading Wall Street bankers met to find a solution. The group included Thomas W. Lamont, acting head of Morgan Bank, Albert H. Wiggin, head of the Chase National Bank, and Charles E. Mitchell, president of National City Bank. These bankers chose Richard Whitney to act on their behalf in a move to stop the market slide. With the bankers' financial resources behind him, Whitney entered the floor of the stock exchange and amidst the turmoil placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other blue chip stocks. Although the action halted the slide that day and returned stability to the market, it nevertheless proved to be temporary. The market crashed the following Tuesday, and Wall street brokers were overwhelmed with sell orders again on Wednesday. As acting head of the NYSE, on Thursday, Richard Whitney decided to open the Exchange late and at the end of the day he closed it down until Monday, believing that a short "cooling off" period might calm jittery investors. For his actions, Richard Whitney became an instant celebrity, his every pronouncement given prime media coverage. In the following spring of 1930, the board of governors elected Richard Whitney president of the New York Stock Exchange. At the forefront of the American financial community, he would soon be visiting the White House to advise U.S. President Hoover.
In 1931, the Pecora Commission was established to study the causes of the stock market crash. Based in part on the Commission's findings, the United States Congress, Richard Whitney was the first to be called to testify and he and his powerful colleagues in the Wall Street financial community resisted any suggestion for new regulatory changes. In his testimony before the Commission, Whitney declared that "The Exchange's refusal to pay heed to popular demand for reform was simply a manifestation of courage to do those things which are right, regardless of how unpopular they may be for the time being." However, the Pecora Commission uncovered a wide range of abusive practices on the part of banks and bank affiliates and initiated a major process for reform of the American financial system that saw the U.S. Congress pass the Securities Act of 1933 and the Securities Exchange Act of 1934 as well as the 1935 formation of the U.S. Securities and Exchange Commission as a mechanism to enforce the provisions of the new Acts. While the new legislation made stock manipulation illegal, Whitney and others were successful in keeping short selling, a market tool that U.S. President Herbert Hoover had wanted banned.
[edit] Downfall
At the same time that Richard Whitney was achieving great success, his brother George had also prospered at Morgan bank and by 1930 had been anointed as the likely successor to bank president, Thomas W. Lamont. While Richard Whitney was assumed to be a brilliant financier, he in fact had personally been involved with speculative investments in a variety of businesses and had sustained considerable losses. To stay afloat, he began borrowing heavily from his brother George as well as other wealthy friends. After obtaining loans from as many people as he could, Richard Whitney turned to embezzlement to cover his mounting business losses and to maintain his extravagant lifestyle. He stole funds from the New York Stock Exchange Gratuity Fund as well as from the New York Yacht Club where he served as the Treasurer. In addition, he stole $800,000 worth of bonds from his father-in-law's estate.
Having retired as President of the NYSE in 1935, Whitney remained on the board of governors but in early March of 1938 his past began to catch up to him when the comptroller for the NYSE reported to his superiors that he had established absolute proof that Richard Whitney was an embezzler and that his company was insolvent. Within days, events snowballed and Whitney and his company would both declare bankruptcy. An astonished public learned of his misdeeds when on March 10 he was officially charged with embezzlement by New York County District Attorney Thomas E. Dewey. Following his indictment by a Grand Jury, Richard Whitney was arrested, and eventually plead guilty. He was sentenced to a term of five to ten years in Sing Sing prison. On April 12, 1938, six thousand people turned up at Grand Central Station to watch as a scion of the Wall Street Establishment was escorted in handcuffs by armed guards onto a train that delivered him to prison. Despite everything, Richard Whitney's wife and family stood by him and friend May Kinnicutt and her husband G. Hermann Kinnicutt, a partner in a stockbrokerage firm, provided Mrs. Whitney with a farmhouse to live in at Far Hills, New Jersey. George Whitney eventually made restitution for all the money his brother owed.
A model prisoner, Richard Whitney was released on parole in August of 1941 after serving three years and four months in Sing Sing. Permanently banned from dealing in securities, he was living a quiet life in Far Hills, New Jersey at the time of his death in 1974.
The story of Richard Whitney on Wall Street was recounted in detail by author John Brooks as part of his 1969 book "Once in Golconda : A True Drama of Wall Street 1920-1938" (ISBN 0-471-35753-7).
