Sharpstown scandal

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(L to R) House Speaker Gus F. Mutscher, Governor Preston Smith, former president Lyndon B. Johnson, and Lieutenant Governor Ben Barnes, at "Gus Mutscher Day" in Brenham, August 17, 1970. Within two years, the political careers of Mutscher, Smith, Barnes and numerous other state officials would be ended by the Sharpstown scandal. President Johnson was not involved.

The Sharpstown Scandal was a stock fraud scandal in the state of Texas in 1971 and 1972 involving the highest levels of the state government. The name came from the involvement of the Sharpstown area of Houston.

1 Background
2 Outcome
3 See also
4 References
5 External links

[edit] Background

The scandal revolved around Houston banker and insurance company manager Frank Sharp and his companies, the Sharpstown State Bank and the National Bankers Life Insurance Corporation. Sharp granted US $600,000 in loans from his bank to state officials who would, in turn, purchase stock in National Bankers Life, to be resold later at a huge profit, after Sharp artificially inflated the company's value. One of the victims of the scandal, Strake Jesuit College Preparatory, lost $6,000,000 following the advice of Sharp. The school bought the resold stock at $20-26 a share.^[1] Using the stock as encouragement, Sharp pushed for legislation that would benefit National Bankers Life, increasing the value of the company to its investors; the very people who would push the legislation through.

The scheme succeeded in generating profits for the investors on the order of a quarter of a million dollars, but the U.S. Securities and Exchange Commission (SEC) stepped in early in 1971, filing criminal and civil charges against former state attorney general Waggoner Carr, former state insurance commissioner John Osorio, Frank Sharp, and a number of others. By the middle of 1971, anyone in the state government who might be connected to Sharp was heavily pressured politically. Allegations of bribery to push the favorable bills through the government spread to House Speaker Gus Mutscher, Jr., State Representative Tommy Shannon, state Democratic chairman, state banking board member Elmer Baum, Lieutenant Governor Ben Barnes and even Governor Preston Smith.

[edit] Outcome

Mutscher, Shannon and Rush McGinty (one of Mutscher's aides) were indicted by the SEC in late 1971 and tried in Abilene in 1972. The three were found guilty of conspiracy to accept a bribe from Sharp, and sentenced to five years' probation. Sharp was also found guilty of violating federal banking and securities laws and was sentenced to three years' probation and a $5,000 fine.

Although none of the other elected officials were found guilty, the damage had already been done to the Democratic politicians. 1972 was an election year and everyone who was remotely connected to the scandal were defeated by more moderate Democrats, Republicans or other reform candidates. Governor Smith failed to be elected to a third term and was defeated in the primaries by businessman Dolph Briscoe of Uvalde.

In 1973, Texas lawmakers, led by a group of liberal reformers known as the "Dirty Thirty" for the parliamentary tactics they used against the conservative Legislature leadership, passed a series of reforms that required state officials to disclose their sources of income and campaign finance contributions and passed a number of other reforms designed to require full disclosure by state politicians.