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Chapter 14 Off to Philadelphia Book: The Indomitable Tin Goose Subtitle: The True Story of Preston Tucker and His Car Author: Charles T. Pearson Publisher: Abelard-Schuman Year: 1960 |
14 OFF TO PHILADELPHIA
IF THERE HAD BEEN any question of what SEC intended to do, it was soon answered. After an eight-day private investiga-tion, the commission issued a Stop Order and set June 11 for a public hearing. Tucker was in the headlines again, but not the kind of headlines he needed. Tucker saw another delay coming up, and it could be fatal.
This action was neither entirely unexpected nor particularly unusual. Stop orders are an occupational hazard, what Tucker called “standard equipment.” Cerf's contract included a clause in which the company agreed to use its best efforts to prevent a stop order from being issued and, if issued, to “secure the lifting of such order at the earliest possible moment.”
The stop order automatically moved opening of the stock sale ahead another twenty days, which put Tucker right back in the soup with War Assets, because he didn't have a chance in the world of meeting the July 1 deadline.
One of the chief reasons for the stop order was SEC's objection to what seemed a devious way of paying $8,750 to Abraham Karatz, who had worked with Tucker on original promotion of the deal and had been squeezed out some months earlier by some of Tucker's associates. Payment to Karatz didn't show in the company's prospectus, which violated the provision calling for “full disclosure.”
The fact that Karatz had done time didn't bother Tucker who, as a former cop, reasoned that he had served his time and the slate was clean. But when the time came for selling the stock, some on the board of directors felt that Karatz record might pop up at an embarrassing moment, and insisted that he had to go.
SEC said Cerf had put the finger on Karatz. Cerf said he had nothing to do with it. Whoever was responsible, Karatz reluctantly changed his name to Harold H. Karsten and was banished to Los Angeles, where Tucker promised to keep him eating until cars were in production and he could take over a distributorship. From exile Karatz occasionally wired encouragement and congratulations to the company signed “Harold,” which he thought was a huge joke. Tucker told SEC:
“He wants a dealership out West someplace and I'll see that he gets it.”
Tucker was in the middle. He had made certain commitments to Karatz that he wanted to keep, and at the same time he had to get along with his board. So Karatz had been paid off indirectly by one of Tucker's press agents and his “B” stock was held by a dummy. While use of dummies was neither new nor uncommon, coupled with Karatz' record it proved to be a mistake.
Not that it was a mistake to work with Karatz in the first place, because he was competent, tireless in his enthusiasm and entirely cooperative, with endless patience. During early days of the deal he was on call twenty-four hours a day answering phones, running errands, taking care of detail and picking up and delivering big wheels at the airport. No job was too big or too small for him, from finding a public stenographer on a Sunday morning to entertaining visiting VIP's when Tucker was tied up. Most of the people who worked with Karatz at the time liked him, except for a few professional Aryans who would automatically have hated anybody named Karatz or Goldberg.
My only complaints with Abe were that he was a lousy driver and he snored. Most of us after one trip would grab the wheel first, which was fine by him because he didn't particularly like to drive anyway. Tucker recruited some of the top snoring virtuosos of all time and Abe was high on the list. One night in Washington we were billeted together at the Mayflower at a time even the flop joints were booked weeks in advance. Abe was in exceptionally good voice, and about two in the morning I gave up and moved my mattress and pillow into the closet. I almost smothered but finally got to sleep.
Karatz unquestionably had earned a place on the payroll for helping get the deal started, and likewise had earned a slice of the “B” stock that went to others who were in on the initial stages. Tucker had told Karatz he would take care of him but Karatz wanted a firm agreement in writing. He knew he couldn't trust the board when it came time to collect on the promises. So he got himself a lawyer and threatened to sue.
Easing Karatz out of the deal without taking care of him was a mistake, because this controversy was one of the more messy details in the Philadelphia hearing and didn't reflect any great credit on the goyim.
The day before the hearing a mob of Tucker people came down like locusts on the staid Warwick Hotel in Philadelphia. Haughty matrons glared at the noisy intruders from the dining room, where they were gathering strength for a new assault on Wanamakers. Tucker arrived at the last minute in the twin-engine Beechcraft, bought from the Walgreen Drug Company a short time before.
Karatz was there with his attorneys, and throughout the night messengers ran back and forth between the two camps trying to arrange a compromise. Tucker wanted to go along but his attorneys would have no part of it. They could have been merely protecting their own future position, because they screamed as only lawyers can scream when it looks as if their tail will be caught in the door instead of the client's.
When it finally was straightened out to SECs satisfaction, the prospectus detailed payments made to Karatz and gave him another billing under “Litigation.” The prospectus stated Karatz claim that Tucker personally had promised him a southern California distributorship and 100,000 shares of “B” stock. Other threatened lawsuits included Granik's.
The argument with SEC lasted two days and closed when the commission acceded to Tucker's request that they dispense with the customary report from the trial examiner, and waive the briefs and oral arguments which usually follow. How long they might deliberate was anybody's guess.
By this time Senator Ferguson was back in the act with his Senate Surplus Property committee, demanding that WAA throw Tucker out of the plant on his head the exact minute the July 1 deadline expired if he didn't have the $15,000,000. One WAA official told Ferguson that Tucker “would have to put up or get out by July 1,” so Ferguson backed off. Another official on Tucker's side revealed that he had already paid WAA $600,000, of which $200,000 was back rent and the balance a “good faith” deposit.
SEC could have knocked Tucker out then by delaying its ruling until after July 1, when Ferguson probably would be able to put enough pressure on WAA to get Tucker thrown out of the plant. Tucker knew even better than Ferguson that if he lost the plant he could forget about the stock issue. So he took off for Washington in the Beech and started shooting angles again. He found one in a Senate subcommittee headed by Republican Senator George W. Malone of Nevada, who had been feuding with SEC for years over restrictions which he said were strangling new mining ventures in Nevada and other Western states. Malone saw a chance to take another swing at one of his favorite targets.
Within a few days Malone's committee called in SEC top officials to renew his complaint that SEC policies were “operating to discourage venture capital from flowing into new enterprise.”
“There is considerable evidence that SEC is going beyond its legal authority in examining the financing of new ventures, Malone said, adding that his committee was interested in the Tucker case “as an example of how SEC operates.”
A week after Malone's blast, on June 26, SEC cleared Tucker's stock, with another twenty-day waiting period which delayed opening of the sale to July 15. On the same day WAA moved the deadline ahead another four months to November 1.
The prospectus, as finally amended and cleared by SEC, painted a gloomy picture that would have scared the hell out of a wary investor. But for the average investor it might as well have been printed in Sanskrit, because most people read a prospectus less carefully than they do the fine print in an insurance policy. One SEC pronouncement said:
“The contrast between information contained in previous publicity and that in the prospectus, as it now has been amended, is so pronounced that we deem it necessary to warn the investing public of the danger of relying on any past judgment ... in determining whether to purchase the securities of the registrant.”
SEC makes a big issue of not “approving” a stock, and just mentioning the word can start even a minor employee on a routine that sounds like a tape recording. He will explain that SEC does not approve, or pass on the merits or any security offered, that it only permits a stock to be sold after it is satisfied that full disclosure has been made. But the distinction is largely academic, because to the average Joe the stock is approved when it is cleared, and there isn't a thing SEC can do about it.
In Tucker's case SEC not only did not approve the issue, it disapproved publicly and vociferously and at considerable length. It was now up to Tucker to convince the public that Tucker stock was a pretty darn good buy, no matter what
SEC said about it. That was not easy to do.
In publicity, however, the company was in pretty good shape again. The World Premiere had gone off successfully as scheduled on June 19, while SEC was still deliberating, when it was too late to call it off even if they had wanted to.
Even though the Premiere had been over almost a month when the stock sale began, it helped get the sale off to a good start, because months later people who saw the show were still talking about it.