FDR: Corporate Promoter
Quite apart from floating speculative enterprises in the field of international finance, FDR was intimately involved in domestic flotations, at least one of which was of some substance. The most important of these ventures was organized by a prominent group including Owen D. Young of General Electric (the ever-present Young of the Young Plan for German reparations described in the last chapter) and S. Bertron of Bertron Griscom, investment bankers in New York. This syndicate created the American Investigation Corporation in 1921. In 1927 followed Photomaton, Inc. and in 1928 the Sanitary Postage Service Corporation. Then Roosevelt became a director of CAMCO, Consolidated Automatic Merchandising Corporation, but only briefly, resigning upon his election as Governor of the State of New York. As we read in the above epigraph, by 1930 FDR has had second thoughts about playing with other peoples' money.
German scientists and engineers made an early and successful start in the use of lighter-than-air vehicles or airships for passenger and freight transportation. As early as 1910 Germany operated scheduled airship passenger services. Patents for airships were seized in World War I by the U.S. Government under the 1917 Trading with the Enemy Act, and after the war Germany was forbidden by the Reparations Commission to construct airships. This left the field open to American enterprise. The opportunities presented by German work and development restrictions in Germany were observed by a group of Wall Street financiers: S.R. Bertron of Bertron, Griscom & Co. (40 Wall Street) and not surprisingly, since he was intimately involved in German reparations, by Owen D. Young of General Electric (120 Broadway). This group was particularly interested in the profitable opportunities for development of airship transportation in the United States. On January 10, 1921, as FDR was unpacking his bags in the offices of the Fidelity & Deposit Company at 120 Broadway, he received a letter from Bertron which read in part:
FDR and Bertron met to discuss air transportation over lunch at the Down Town Association. We can surmise that Bertron filled in Roosevelt on technical developments up to that time. We know from the files that there was also a meeting between Owen D. Young, S.R. Bertron, and engineer-attorney Fred S. Hardesty, representing the German patent holders, who had good connections in Washington where the seized patents were in the custody of the Alien Property Custodian and had yet to be released.
second meeting yielded a preliminary compact dated January 19, 1921
known as the Hardesty-Owen-Bertron agreement that planned the road to
development of commercial airship operations in the U.S. A syndicate
was subsequently formed by Owen-Bertron to "investigate all phases
of aerial navigation, legislation required and methods of fund raising."
Hardesty and his associates turned over to the syndicate all their data
and rights in exchange for a refund of their out-of-pocket expenses
of $20,000 incurred to that date and an interest in the syndicate. FDR's
role was that of fund raiser, using his numerous political contacts
throughout the United States. On May 17, 1921
FDR acknowledged Bertron's request, to the effect that he was sending letters to Stevenson "introducing him to Edward Hurley and to Charles Piez and E.F. Carey. I am afraid I don't know the others." Charles Piez, president of Link-Belt Company in Chicago, excused himself from participation on the ground that "... I am practicing the most rigid economy, bending a deaf ear to the most inviting and alluring prospects," and citing the "deplorable shape" of the industry. (This plea of poverty was supported by Piez's letter to FDR, on old stock stationary, with the new address printed over the old one—hardly becoming a president of a major corporation such as Link-Belt Company). Edward N. Hurley wrote that he was "not very active in business," but when next in New York "I am going to make it a point to call on you and check up the past."
On June 1st, Lewis Stevenson reported to Roosevelt on his fundraising progress in the mid-West. He confirmed the fact that Piez was short of funds and that Hurley wanted to talk later, but that Carey might have some interest:
concluded by requesting a letter of introduction to prominent Chicago
attorney Levy Meyer. It is clear that by the end of June 1921 Stevenson
had induced a number of prominent Chicago citizens,
So far as FDR is concerned, his sales letters on this project would do credit to a professional salesman. Witness his letter to Colonel Robert R. McCormick, of the Chicago newspaper empire:
Similar letters went to Chauncey McCormick, Frank S. Peabody of Peabody Coal, and Julius Rosenwald of Sears, Roebuck. These initiatives were followed up with personal dinners. For example, on April 21, 1921 FDR wrote to Frank Peabody:
FDR added that the group "will promise not to hold you up against your will." To which a reluctant Peabody telegraphed, "Impossible to be there, would not be at all afraid of being held up would have enjoyed visit with you immensely."
To Edsel B. Ford FDR wrote, "I am sending this note by Mr. G. Hall Roosevelt, my brother-in-law, who is familiar with the whole matter." G. Hall Roosevelt, who happened to work for General Electric as a division manager, proved himself to be an alert negotiator, but not sufficiently so to win Ford during the early stages.
However, by February 18, 1922 the American Investigation Corporation had compiled a very healthy list of subscribers, as the following partial list confirms:1
initial board of directors included National City Bank vice president
Samuel McRoberts,2 William B. Joyce, president of National
Surety Company—one of FDR's competitors in the bonding and surety
business—and Benedict Crowell, former Assistant Secretary of War
and chairman of the board of the Cleveland construction company Crowell
& Little Construction. Snowden A. Fahnestock of Bertron, Griscom
was the son of New York financier Gibson Fahnestock and a partner in
the stock brokerage firm of Fahnestock & Company. Gibson's brother
William Fahnestock, a partner in the same firm, was director of several
major corporations including Western Union and, with Allen Dulles, of
Gold Dust Corporation. David Goodrich, another subscriber, was chairman
of the board of B.F. Goodrich Company and a director of American Metals
Company of New Mexico.
The president's report for the year 1922, issued on January 8, 1923, summarizes the A.I.C. achievements to that date.
The German Reparations Commission refused to allow construction of large airships in Germany, and there was a delay in the completion and test of the new apparatus designed by the U.S. Bureau of Mines for the economical manufacture of helium gas, but it was considered that A.I.C. was within a few months of the time to appeal to the public for financial support. According to this report, the first stage of the work had been brought to a close by signing a contract on March 11, 1922 between the American Investigation Corporation and the Schuette-Lanz Company whereby the American Investigation Corporation secured the world patent rights on the Schuette designs and methods of construction for rigid airships. The contract provided for installment payments and included an agreement with Schuette-Lanz either to construct an airship or to provide the services of the experts to undertake construction in the U.S.
The company had "definitely determined through the Department of State that the Reparations Commission and Council of Ambassadors would not consent to the construction in Germany of the full sized ship considered by the American Investigation Corporation," and so Dr. Schuette was requested to visit the U.S. to reach a final agreement. The ultimate object, continues the report, is the establishment of the airship industry in the U.S. and "is never lost sight of; nevertheless obtaining the first ship from Germany at less cost and built by the best experts is highly desirable."
The importance of ensuring a supply of helium gas for airships was highlighted by the destruction of the British R. 38 and the Italian Roma airships. After consultation with the Helium Board and the chief chemist of the Bureau of Mines, a decision on the helium question was deferred until completion of the improved apparatus the Bureau was designing for the production of commercial helium. Under the terms of the agreement between the American Investigation Corporation and Washington engineer Hardesty and his associates, in addition to the $20,000 provided to cover their work before the formation of the American Investigation Corporation, certain actual out-of-pocket expenses were to be repaid for assistance in organizing the corporation. The final agreement was, however, conditional upon the signing of a contract regarding the share which Mr. Hardesty and his associates were to receive in the American Investigation Corporation and any of its subsidiary companies in return for their promotion work: above all, it required that the German patents held on behalf of the American public by the Alien Property Custodian be released to the A.I.C.
POLITICS, PATENTS, AND LANDING RIGHTS
Consequently, the A.I.C. syndicate had a major hurdle to overcome before work could begin on commercial development of airships in the U.S. This political hurdle—to acquire the rights to the Schuette-Lanz airship construction patents—required the astute political assistance of FDR. These rights were German, but under the control of the U.S. Government. By U.S. law, seized alien property can be disposed of only by auction sale and competitive bidding. However, we find in the report of the president of A.I.C. dated May 26, 1922 that A.I.C. was then "the owner of the present Schuette-Lanz patents" and listed 24 patents and 6 patent applications originating in Germany, 6 applications originating in England, and 13 patents and 6 applications originating in the United States. The report continued: "In the U.S. 7 patents are subject to return by the Alien Property Custodian. Through filing assignments all new U.S. patents are being issued directly in care of A.I.C." How, then, did the A.I.C. syndicate obtain the German patents held in trust by the U.S.? This is particularly important because no record exists of auctions or competitive bidding. The A.I.C. report notes only:
This certainly raises the question of the propriety of a U.S. Navy Department solicitor acting on behalf of a private syndicate. The German patents were sprung loose from the U.S. Government for A.I.C. by the personal intervention of Franklin D. Roosevelt. Let's see how he went about the job.
Franklin D. Roosevelt was former Assistant Secretary of the Navy, one of a series of Roosevelts to hold the job, and consequently had good political contacts in the Navy Department. In mid-1921 FDR began to probe among his old Navy friends on two questions: (1) the position of the Schuette patents and (2) the possibility of acquiring private use for the A.I.C. syndicate of the Lakehurst naval base for A.I.C. airships. On May 4, 1921 Admiral R.R. Byrd in the Office of Naval Operations acknowledged an invitation to visit FDR's estate at Campobello. Nine months later, on May 23, 1922, Commander E.S. Land, of the Navy Bureau of Aeronautics, also acknowledged an invitation to visit FDR when next in New York. Land added that there "appears to be little likelihood of my going to New York during the next three or four weeks. If you could advise me relative to the nature of your inquiries, I might be able to give you some information along the lines desired."
FDR replied to Commander Land in a letter marked Personal, but sent to the Navy Department, to the effect that his inquiry could not be made by telephone or letter. FDR then briefly reviewed the position of A.I.C. and stated that the company "is about to go ahead with the actual construction and operation of dirigibles," but needed to know more about the U.S. government's program for such craft: "I am not looking for any confidential information but merely such facts as I feel sure I could obtain without much difficulty were I able to go to Washington myself."
This information is, wrote FDR to Land, "for the good of the cause generally," and he then offered to defray Commander Land's expenses if he would visit New York. This apparently had little success because on June 1 FDR again requested the information and pushed even further: "Incidentally would there be any objection to our getting a copy of the Zeppelin contract? Theoretically they are all public documents."
In the final analysis, it was Pickens Neagle of the Judge Advocate Generals Office in the Navy who was the prime mover in obtaining the required German patents for A.I.C.; Neagle was obviously making himself useful to FDR in other areas, as well. On May 15, 1922 FDR wrote Neagle about Hardesty, the engineer-attorney handling the patent negotiations in Washington:
Navy Solicitor Neagle replied to this on June 16 to give FDR information about possible bonding business:
Again, on August 9, 1922 Neagle wrote to Louis Howe and referred to FDR's Navy papers, which were apparently undergoing the customary examination within the department before release to FDR. FDR's problem was to stop the papers "going through the hands of file clerks or inquisitive people with little sense of responsibility or meddlesome novices." The Navy Department would not release the papers without proper examination, even after Neagles' personal intervention. Writes Neagle to FDR:
The file to this point suggests that Pickens Neagle, Solicitor in the office of the Judge Advocate General of the Navy was working more on behalf of FDR than the taxpayer and the Navy Department. The contents of this file then shift to the attempt to acquire use of the German patents for A.I.C.; these letters are no longer on navy stationery, but on plain paper, without a printed address but signed by Neagle. On February 16, 1922 a letter to Howe from Neagle relates that
Neagle added that, although navy officers could not direct and supervise A.I.C. employees, they could be detailed into private industry to learn the business of building airships. This private information is followed by a formal letter to Fahnestock of A.I.C. from Neagle (now wearing his official hat as Solicitor in the U.S. Navy) to confirm the fact that the navy was willing to lease the station and plant at Cape May, a permission revocable without notice. Another dated January 6, 1923 reports that Hardesty has signed a contract that "ought to be acceptable to the Corporation."
It is clear that the Schuette patents were transferred without public auction and competitive bidding, but by private agreement between the U.S. government and attorneys acting on behalf of a private company. This was a violation of the Trading with the Enemy Act.
The files also record another Navy Department employee rushing to the aid of FDR. A letter dated March 31, 1923 from M.N. McIntyre, head of the Navy News Bureau, to Louis Howe suggested that A.I.C. get hold of the "German airship being built for the Navy," as well as access to the naval base at Lakehurst. McIntyre is refreshingly open about his proposed political assistance: "If you will let me know where you stand on the Lakehurst proposition there may be something I can do to help 'grease' the ways. The same applies to the other suggestion."
We can establish from the files that FDR and his syndicate were able to call on sources of information and assistance within the Navy Department. Precisely how then did A.I.C. get control of the Schuette-Lanz patents? These were supposedly public property to be disposed of by competitive bidding. The Hardesty report of February 1921 explains the legal status of the patents and throws more light on their transfer.
patents had been seized by the Alien Property Custodian and up to that
time licensed only to the War and Navy Departments. An application was
submitted January 10, 1921 by Fred Hardesty, submitting
to this letter in the FDR files is a "Memorandum for Mr. Hardesty"
on the Johann Schuette patents that appears to have originated in the
Alien Property Custodian's Office. The memorandum confirms the fact
that the patents were held under the Trading with the Enemy Act of 1917,
that the only right remaining to the German holder was the right to
claim release, and that such claims must be settled as directed by Congress.
It is unlikely, states the memorandum, that the patents would be sold
by the Alien Property Custodian but, if the patents were offered for
sale, "there would be little or no competition, as there are probably
very few companies in existence or proposed that contemplate using them,
and that therefore the prices offered would not be very high."
This leaves open the possibility that the Secretary of War or the Secretary of the Navy might recommend immediate sale to the President "as a matter of sound business policy in the public interest."
The syndicate then attempted to go the Presidential route, apparently with success. On February 4, 1921 FDR in New York wrote Hardesty in Washington, D.C., "I agree with you that we should do something immediately in regard to the Schuette patents, and at least make the try before the present administration goes out."
Then a memorandum of services rendered in the files records that on both February 9 and 17, 1921 FDR went to Washington and at least met with the Alien Property Custodian. Subsequently, Schuette granted power of attorney to Hardesty, and the patents were released by the Alien Property Custodian, although not immediately. The FDR files do not contain original signed documents on the release, only drafts of documents, but as the patents were ultimately released to A.I.C. it can be assumed that these working drafts are reasonably close to the final signed document. One document signed by both the Alien Property Custodian and German patentee Johann Schuette reads as follows:
It is clear from this document (1) that the Alien Property Custodian sold the patents to A.I.C., (2) that it charged A.I.C. only a "nominal price," (3) that there was no competitive bidding for the patents, and (4) that the former German holder Schuette was granted an interest either directly or indirectly. All four actions appear to be contrary to the requirements of the Trading with the Enemy Act of 1917 (see p. 000), even if there was Presidential authority for procedures (1) and (2).
Subsequently, on May 9, 1922 a contract was drawn between American Investigation Corporation and Johann Schuette. This paid Schuette $30,000 in cash, with a further $220,000 payable in monthly installments, with the last payment due not later than July 1, 1923. In the event of failure to pay by A.I.C., all rights in the patents would be turned over to Schuette. A stock allowance was granted Schuette, who in turn was to provide cooperation and technical assistance to A.I.C. There is also in the FDR files an internal memorandum that appears to be written on the typewriter normally used for FDR's letters; therefore, it is possibly a memo drawn up either by FDR or more probably by Louis Howe. This memorandum summarized the A.I.C. strategy. It lists "What we have to sell" and answers this question as follows:
We can summarize the FDR's American Investigation Corporation deal as follows:
First, the A.I.C. was able through the personal intervention of Franklin D. Roosevelt to obtain seized patents as a gift or at a nominal price. The law required that such seized patents be offered for public bidding and not for the advantage of the former German owner. In practice, they were released behind closed doors as a result of private understanding between FDR and the Alien Property Custodian, possibly with Presidential intervention, although no trace of such assistance can be found. These patents, previously described as of no value, then became the subject of a contract involving payment of $250,000 to German citizen Schuette and the main asset of a company to promote airship construction in the U.S. On the face of the documents in the files, there is a prima facie violation of the law both by FDR and the Alien Property Custodian.
Second, these patents appear to have been released for the indirect benefit of a foreign party, a procedure subject to severe penalties under the law.
Third, the A.I.C. was able to obtain use of navy facilities valued at $1 million and official information from within the Navy Department.
Fourth, the only risk taken by the Wall Street operators was to put the enterprise together. The patents were obtained nominally, the funds came from outside New York City, and the expertise was German or that of the Ford Motor Company. Franklin Delano Roosevelt provided the political leverage to put together a deal that was on the face of it illegal and certainly a long way from the "public trust" FDR and his associates were fond of promoting in their writings and speeches.
FDR IN THE VENDING MACHINE BUSINESS
Automatic postage stamp machine sales started in 1911, but were not really efficient outlets until development of the Shermack machine in the 1920s. In 1927 the Sanitary Postage Stamp Corporation was formed to market Shermack machines for the automatic dispensing of postage stamps, previously sold in stores in loose form that exposed the user, according to the firm's sales literature, to transmission of disease. The firm's board of directors consisted of the inventor Joseph J. Shermack, Edward S. Steinam, J.A. de Camp (120 Broadway), banker George W. Naumburg, A.J. Sach, Nathan S. Smyth, and Franklin D. Roosevelt.
By April 1927 the company was selling about 450 machine installations a week. According to a letter written by FDR to A.J. Sach, vice president of the company, there were major problems with collections; in fact, ten stamp locations had not been heard from in over six months, and cash was short. FDR made the eminently sensible suggestion that salesmen should stop selling for a week and spend the released time on cash collections. Apart from such occasional suggestions, FDR's role in Sanitary Postage Stamp was nominal. Henry Morgenthau, Jr. got him into it originally and even paid the original subscription of $812.50 for FDR's initial 100 shares: "You can send me a check for the same at your leisure." FDR mailed his check the same day. The sponsors issued FDR 3000 shares of common stock "in consideration of the services you have rendered," obviously for use of his name as a bait for investors.
FDR resigned in late 1928 upon his election as Governor of New York.
FDR also was director of CAMCO (Consolidated Automatic Merchandising Corporation), but never took an active part in its flotation. CAMCO was a holding company designed to take over 70 per cent of the outstanding capital stock of a number of companies, including Sanitary Postage Stamp Corporation, and is notable because the board of directors included, not only FDR, but Saunders Norwell, who from 1926 to 1933 was president of the Remington Arms Company. In 1933 Remington Arms was sold to the Du Pont Company. In Chapter 10 we will probe the Butler Affair, an abortive attempt to install a dictatorship in the White House. Both Remington Arms and Du Pont are named in the suppressed testimony of the Congressional investigation committee. Yet in 1928 we find FDR and Saunders Norvell as co directors in CAMCO.
GEORGIA WARM SPRINGS FOUNDATION
FDR's personal and highly commendable struggle to regain use of his legs after a 1921 polio attack led him to the mineral waters of Georgia Warm Springs. Regaining some strength, FDR decided to convert the springs, derelict and almost unused, into a business proposition to aid other polio victims.
Unfortunately, the precise source of the major funds used to develop Georgia Warm Springs cannot be determined from the FDR files as they exist today. The FDR folder on Georgia Warm Springs is relatively skimpy, and it is exceedingly unlikely that it contains all the papers relating to development of the project. The folder gives the appearance of having been screened before release to the Hyde Park archives. There is no public record of the funding for Georgia Warm Springs. Given FDR's tight personal finances during the 1920s, it is unlikely that the funds came from his personal resources. We do have some evidence for three sources of funds. First, it is more than likely that his mother, Mrs. James Roosevelt, was one. In fact, Eleanor Roosevelt wrote FDR, "Don't let yourself in for too much money and don't make Mama put in much, for if she lost she'd never get over it!"3 Second, Edsel B. Ford is reported to have contributed funds to build the enclosure of the swimming pool, but was not a trustee of the foundation. Third, and most important, the original property was owned by corporate socialist, George Foster Peabody. According to FDR's son, Elliott Roosevelt, there was a sizeable personal note on the property itself, and this note was probably held by Peabody:
is significant that Elliott Roosevelt reports the existence of a $200,000
demand note that was not paid off until FDR's death. It is a reasonable
supposition, moreover, that the funds were put up by some or all of
the trustees. This places FDR in the same position as Woodrow Wilson,
beholden to his Wall Street creditors. As these trustees were among
the most powerful men in Wall Street, the charge that FDR was "in
the grip of the bankers" is at least plausible.
Georgia Warm Springs Foundation: Trustees in 19345
trustees of Georgia Warm Springs obviously tie FDR to Wall Street. The
most prominent of these were Eugene Smith Wilson (1879-1973), a vice
president of American Telephone and Telegraph of 195 Broadway, New York
City. Wilson also held directorships in numerous other telephone companies,
including Northwestern and Southwestern Bell and the Wisconsin Telephone
Company. In 1919 he was attorney for Western Electric, then became counsel
for A. T. & T. before appointment as vice president in 1920. Wilson
had a long association with the campaign against polio, became associated
with Franklin D. Roosevelt, and in the mid-1930s was a member of the
investment committee of the Georgia Warm Springs Foundation. His fellow
directors on A. T. & T. included John W. Davis, who turns up in
the Butler Affair (see Chapter 10).
Another of the Georgia Warm Springs trustees was James A. Moffett, a vice president of Standard Oil of New Jersey. Walter Teagle of the same company was one of the key administrators of NRA.
Trustee Jeremiah Milbank was director of the Rockfeller-controlled Chase National Bank and the Equitable Trust Company.
Trustee William H. Woodin was a director of the Federal Reserve Bank of New York from 1926 to 1931 and was appointed Secretary of the Treasury by Franklin D. Roosevelt after strongly supporting FDR's 1932 election bid. Woodin resigned within six months, but because of ill health, not for any lack of interest in holding the Treasury position.
Trustee George Peabody has been identified in the previous volume7 and was prominently associated with the 1917 Bolshevik Revolution in Russia and the Federal Reserve Bank of New York.
7. Sutton, Bolshevik Revolution, op. cit.
1. List dated Feb. 18, 1922 in FDR files.
2. Samuel McRoberts figures prominently in Sutton, Bolshevik Revolution, op. cit.
3. Elliott Roosevelt, The Untold Story, op. cit., p. 232.
Taken from letter dated March 5, 1932 from Fred Botts, Business Manager
at Warm Springs, to FDR at The White House.
6. Trustees also included Frank C. Root, of Greenwich, Conn., Keith Morgan of New York City, and resident trustee Arthur Carpenter.
7. Sutton, Bolshevik Revolution, op. cit.