The Failed Erie Corner (March 1868)
Erie Railroad was under the control of Daniel Drew and Jay Gould. Cornelius Vanderbilt decided that he wanted it. Cornelius was very confident he could acquire control because he had beaten the tar out of Drew and Gould in the Harlem City Railroad stock market battles. He now had allies in a group of Boston capitalists who owned a large block of Erie Railroad shares of stock. Vanderbilt poured millions into the purchase of the stock and thought that he had completely cornered the equity issue, because he had bought more shares than were in existence.
Daniel Drew was ready this time after dealing with Cornelius Vanderbilt in the Harlem City Railroad corner. As a director of the board of the company, he surprised Vanderbilt by converting a large issue of convertible bonds into common stocks and flooded the market with these new shares. Vanderbilt’s corner was broken by the sudden increase in float that dropped the price. He lost $7 million. Cornelius Vanderbilt was infuriated with Daniel Drew, and was already scheming to get even. The lesson here is that sometimes manipulators are not successful at driving up the stock price.
– Doc Brown
BIO: Doc Brown is a national expert on the stock market. His courses “How to Make a Million Dollar Portfolio from Scratch” at the Oxford Club is a national bestseller. Dr. Brown’s research appears in some of the most prestigious academic journals in the field of finance. See Journal of Financial Research and Financial Management. Scott is an associate professor of finance in the Graduate School of Business at the University of Puerto Rico.
SURVIVAL RULE: Learn how to tell when a manipulation fails, or it will be you left holding the bag!
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