The Michigan Southern Corner (1866)
Daniel Drew was caught in another bear squeeze when the Michigan Southern Railroad was cornered by inside executive directors of the railroad. According to The New York Times of April 6, 1866, ‘‘the Street was enlivened today (referring to April 5) by one of those extraordinary special movements in the railway market which will periodically occur on the bull side of the speculation, as it more frequently occurs on the bear side of the speculation…the cash stock was at no time made scarce for delivery up to yesterday afternoon (April 4).
The case appeared to be different this morning, judging from the eagerness and excitement at the early Board.’’ This source also points out that one of the manipulators has reportedly been a director of Michigan Southern Railroad: ‘
two of the three prominent managers (in the cornering clique) are said to have been notorious bankrupts (short sellers), whose paper is in every man’s pocketbook, and the third a prominent official of the road, whose speculations have been so flagrant that a bill has been introduced into the legislature to check them.’
Scott, Capron, & Co.
Apparently the cornering pool was well organized, because Daniel Drew filed with the Supreme Court seeking an injunction against the firm of Scott, Capron, & Co. (lenders of the Michigan Southern stock to Daniel Drew). The New York Times noted that ‘‘the plaintiff (Drew) is informed and believes that the defendants (Scott, Capron & Co.) are a party to the said fraud and conspiracy, and desire and intend thereby to defraud and injure the plaintiff.’’
I teach my students of Bulletproof Stock Investing how to track insider holdings in the company they manage as well as other companies. My university finance students are always amazed at how an inside corporate executive of a company owns interests in so many other companies —- this is because inside corporate executives work as a team in driving up stock prices for monster paydays on their employee stock options.
– 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: Inside manipulators are frequently involved in multiple stocks at the same time.
FURTHER READING: Chancellor, E., 2000, Devil Take the Hindmost: A History o f Financial Speculation, New York: Plume Books., Chapter 6.
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