Does crime pay?
Wall Street Crime and Punishment is a weekly Benzinga series. Starting with Charles Ponzi of the famed “Ponzi scheme,” Benzinga's Phil Hall will chronologically profile bankers, brokers and financial ne’er-do-wells to see what happens when ambition and greed criminally collide.
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When considering the career of Albert H. Wiggin, the childhood game “what’s wrong with this picture?” comes to mind. For the most part, Wiggin’s life was exemplary and his work in the banking industry brought him a wide degree of admiration — indeed, he even made the cover of Time magazine for being such an excellent representative of his profession.
So, what was wrong with the picture of Wiggin? Well, at the worst possible moment in the nation’s economic history, Wiggin behaved in a manner that was thoroughly unbecoming. And while he didn’t break any then-existing laws with his actions, his behavior inspired a significant change in federal rules that ensured others did not emulate his shenanigans.
A Man of Great Merits: Albert Henry Wiggin was born on February 21, 1868, in the town of Medfield, Massachusetts. His father, James Henry Wiggin, was a Unitarian minister who struggled to support his family.
Wiggin graduated from English High School of Boston in 1885 but did not go to college. Instead, he pursued low-level jobs in Boston’s banking sector, first as a runner — in the days before the proliferation of telephones, young men would race about town hand-delivering messages — and later as a bookkeeper. By the age of 23, he secured a job as an assistant for a national bank examiner, and two years later he became the assistant cashier of the Third National Bank of Boston.
Within the banking world, Wiggin gained a reputation for being a diligent, serious and deeply-focused worker. In June 1899, he was invited to New York City to become vice president of National Park Bank. Wiggin’s talents piqued the interest of Alonzo Barton Hepburn, CEO of Chase National Bank, and in 1904 he invited Wiggin to become a vice president. At 36, Wiggin was the youngest vice president in the bank’s history — and 11 years later, he succeeded Henry W. Cannon as the bank’s president.
Under his leadership, Chase underwent an unprecedented growth epoch — deposits swelled from $91 million in 1910 to more than $2 billion in 1930, a number of smaller competitors were acquired, a lucrative securities division was launched, the wealthy Rockefeller clan were lured into becoming investors, and Chase created a global presence in the major European capitals. Wiggin was elevated to CEO and chairman of the board in 1917.
Riding to Wall Street’s Rescue: On October 24, 1929, the Dow Jones Industrial Average opened at 305.85 and promptly crashed by 11% amid intra-day trading levels that were three times the average amount of activity. Apprehension in the state of the national and global economies had been growing for weeks prior to this happening, and the record-breaking crash signaled a cacophonous finale to the Roaring Twenties.
However, Wiggin was not eager to see the stock market drag the nation into ruin. He quickly coordinated a meeting with two of his most prominent peers, Thomas W. Lamont of Morgan Bank and Charles E. Mitchell of the National City Bank of New York. The three bank executives called on Richard Whitney, vice president of the New York Stock Exchange, to put through a bold move designed to address the panic.
Whitney went to the Exchange floor and enacted a highly dramatic bid to buy 25,000 shares of U.S. Steel at $205 per share. The three bankers were financing Whitney’s action, and traders were astonished that Whitney was making a purchase at a price that was much higher than the current market. Whitney then made a series of similar bids on other blue-chip stocks, which began to pump enthusiasm and energy back into the Exchange. Although Whitney was in the spotlight, word quickly spread that Wiggin was the off-stage driving force for this action, which helped to halt the free-fall taking place. By day’s end, the Dow was only down by 6.38 points.
Unfortunately, a variety of perfect storm circumstances ultimately overwhelmed Wall Street, fueling the Great Depression. But Wiggin’s act of financial heroism was viewed by many as a crowning achievement in a glorious career.
An Unethical Safety Net: However, we need to back-pedal the story a bit to highlight something that was not public knowledge. Wiggin had the prescience to realize the economy was speeding in the wrong direction and no amount of financial bravery could stop its destiny with disaster. To save himself from potential ruin, Wiggin decided to build his own buffer zone at the expense of the bank he helmed.
Starting in September 1929, Wiggin commenced selling short his personal shares in Chase National Bank. He wound up jettisoning 42,000 shares, earning him $4 million, and he avoided paying taxes on this transaction by creating a Canadian shell company to buy the stocks.
No Punishment: Although Wiggin’s short sales were not illegal at the time, he did not call attention to his actions. It wasn’t until a 1932 U.S. Senate investigation into the causes of the 1929 crash that Wiggin’s transactions became public knowledge.
And while it was shown he was not the only banking executive who committed such an action, he received an unwanted form of immortality when the 1934 Securities Exchange Act included the “Wiggin Provision” that prohibited company directors from selling short on their own stocks in order to profit when their company faced wreckage and ruin.
Since the Wiggin Provision could not be applied retroactively, Wiggin never faced prosecution. He retired from banking in 1932 and devoted his remaining years to philanthropy, supporting educational and nonprofit organizations and donating his considerable art collection to the public libraries in New York and Boston and the Baltimore Museum of Art.
Following his death in 1951, the New York Times recalled Wiggin’s finest moments by praising him as “one of the banking leaders who made large sums available to bolster the slipping market. The confidence that he and other leading bankers showed in the country was credited with having done much to prevent the complete collapse of the nation’s financial structure.”
But as for his belatedly discovered act of short selling, financial reporter Andrew Beattie said it best: “This is like a boxer betting on his opponent — a serious conflict of interest.”
Portrait of Albert H. Wiggin by James McBey. Photo courtesy Boston Public Library.
