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Published: Sunday, 2/11/2001

`Ugly story' links L-O-F, Joe Kennedy

MICHAEL D. SALLAH
BLADE NATIONAL AFFAIRS WRITER

In an early age of Wall Street, a group of wealthy investors set their sights on a new Toledo corporation that was just emerging as a national powerhouse - Libbey-Owens-Ford.

Their goal: to secretly inflate the value of the company stock, and then sell their shares at a premium before anyone could find out.

The scam worked, allowing the speculators - led by the legendary Joseph P. Kennedy - to reap nearly $400,000, and leaving the public with heavy losses in the depths of the Depression.

The 1933 fraud case remains one of the least known chapters in Toledo's corporate history, an event that was denied by the father of the future president for years to follow.

But a just-released book by a Kennedy family member containing the personal papers of the late millionaire shows he played a major role in the massive stock manipulation of one of Toledo's best known glass manufacturers.

Though the speculators were unknown at the time, the case led to a national public outrage and calls for a crackdown on stock market abuses that were costing investors millions of dollars a year.

Ironically, Mr. Kennedy was later appointed to the agency that would outlaw such practices - the U.S. Securities and Exchange Commission.

The L-O-F stock scandal was investigated by a congressional committee the following year, and no one was prosecuted. But it would shadow Mr. Kennedy for the rest of his days - despite his denials.

To L-O-F officials, the unsavory deal was talked about for years, but forgotten as the glass maker rose to become one of the largest in the world by the 1940s.

Led by President John Biggers, L-O-F survived the stock debacle 58 years ago. Led by President John Biggers, L-O-F survived the stock debacle 58 years ago.
AP Enlarge

“It's a very ugly story,” said Clark Ashley, a former L-O-F executive. “It was not something the company really wanted to publicize.”

The case is one of many events described in the book, Hostage to Fortune, which contains the letters and journal of the strong-willed family patriarch who became U.S. ambassador to England.

Written by his granddaughter, Amanda Smith, a Harvard graduate student, the book delves into the details of the securities case that shook the local corporation at a time it was just growing.

Drawing on congressional records and Mr. Kennedy's own writings, the author confirms that her grandfather set up a “dummy” brokerage account in the name of his personal driver - Edward Moore - to carry out the ruse.

Though one of the letters by Mr. Kennedy weakly admits his involvement, he never apologized for it.

One of the most powerful businessmen of the 20th century, he amassed a fortune in the stock market and real estate and became one of the richest men in America by the time his son, John Kennedy, was sworn into office in 1961.

“Nothing was above old Joe Kennedy, especially when it came to making money. So this shouldn't surprise anyone,” said Mel Barger, a onetime L-O-F public relations executive who retired in 1986.

In the 14 years he spent with L-O-F, now known as Pilkington Plc, Mr. Barger said the securities scandal was never written into company histories.

But many employees and Toledo residents who owned stock at the time were crushed by the losses caused by the wheeling and dealing, according to congressional reports.

It began in June, 1933, just three years after L-O-F was born from a merger of the Libbey Owens Sheet Glass Co., and the Edward Ford Plate Glass Co., to become the nation's top glass maker for automobiles.

At the time, the glass industry was about to boom because of one reason: Prohibition was coming to an end.

Soon, glass bottles would be in big demand, and speculators were buying stock in Owens-Illinois, another Toledo glass company that made bottles.

Though L-O-F made plate glass - not bottles - Mr. Kennedy and secret investors thought they could confuse the public into thinking L-O-F would boom too, according to his granddaughter's book.

Under the name of Edward Moore, they began a series of “trades” of L-O-F stock over the next four months to make the sluggish stock appear to be active. The “syndicate pool,” as it was later called, initially bought 81,500 shares. Other participants included Walter P. Chrysler and the Lehman brothers.

From June to October, 1933, more than a million shares traded - more than half by the secret investors trading among themselves.

All the activity from the “phony” trading sucked in thousands of innocent buyers who thought it was a hot stock, and the price rose from $20 to $37 per share.

In four months, the secret investors made a profit of $395,283, according to 1934 Senate reports. Mr. Kennedy's cut was $60,807.

But when the members pulled out, “the public suffered heavy losses” as the stock plummeted, said Kennedy biographer Ron Kessler.

The activities were later condemned in an investigation of the U.S. Senate Committee on Banking and Currency - known as the Pecora hearings - but never led to any criminal charges.

One reason was because laws against speculator pools had not yet been created.

“It was unethical, but it wasn't illegal,” said Timothy Messer-Kruse, a University of Toledo labor historian. But if someone were to do the same trading today, “they'd go to jail,'' he said.

Mr. Kennedy refused to discuss the case, and was never required to appear before the Senate committee, though he was identified as one of the players, according to his granddaughter's research.

Though he was widely regarded as a Wall Street operator, the L-O-F scam is one of the few documented cases implicating him, his granddaughter stated.

When President Roosevelt suggested that Mr. Kennedy be appointed to the newly formed SEC - which regulates the stock market - it caused an outrage among Roosevelt supporters.

The SEC was created to protect the public and investors against insider trading, pool speculation, and other abuses.

“The appointment is appalling,” said one newspaper editor. “Kennedy is the worst of economic parasites, a Wall Street operator.”

Critics brought up the L-O-F scandal and other stories about his market trickery. But President Roosevelt, who had benefited from Mr. Kennedy's fund-raising abilities, defended his supporter.

Feisty and unwilling to back down, Mr. Kennedy wrote in several memos and letters - published for the first time in his granddaughter's book - that he was livid over the criticism and defended himself.

“The bulk of all of my money had been made by business acumen rather than Wall Street operation,” he wrote in a 1934 memo.

Later, in one of the letters just published, Mr. Kennedy acknowledged his role in the L-O-F stock case, but insisted his actions were not as serious as those committed by banker J.P. Morgan.

He went on to serve as the first chairman of the SEC in July, 1934, resigning 14 months later. One of his acts was to outlaw the very schemes that he once led: stock manipulation pools.

By the time he resigned, the SEC was being hailed as one of the most effective agencies created during the New Deal.

Mr. Kennedy, who was 44 and living in Bronxville, N.Y., at the time with his wife, Rose, and nine children, was appointed by President Roosevelt as ambassador to Great Britain from 1937 to 1940.

Under the leadership of John Biggers, L-O-F was able to survive the stock debacle 58 years ago and helped establish Toledo as a major glass center.

Once known for its inventiveness and creativity, L-O-F created Thermopane and other products that evolved into household words.

But the manipulation of its stock was a problem it didn't need at the time, said Mr. Barger.

“The company was in debt, and it was in the Depression. The automobile industry was still in a slump,” he said.

As a major supplier of windshields, L-O-F was going through tough economic times. Fewer cars were being sold because of the Depression, and L-O-F was heavily in debt from buying General Motor's glassworks.

Like the corporate raiders of the 1980s, the event showed how vulnerable Toledo's signature companies could be to Wall Street practices.



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