Financial History Issue 125 (Spring 2018) - Page 21

Meanwhile, from another room, Gould instructed Heath agents to sell as much of his hoarded gold as possible, knowing that it was only a matter of hours before the price dropped precipitously. It did so later that day, plummeting from a high of $160 to $138, when Treasury Secretary George S. Boutwell sent a telegram to the “Gold Room” at Exchange Street and Broadway: “Sell four millions gold to-morrow, and buy four millions bonds.” The Black Friday gold crash caused a ripple effect of financial devastation and ruin for both eastern traders and mid- western farmers. Subsequent lawsuits and a Congressional investigation yielded few consequences for Fisk and Gould, owing to their ability to hire the best legal defense teams. Heath found himself the subject of innumerable congressional and local judicial inquiries, examining just exactly what amount of gold he bought and sold, what his margins were at any given time and why he did or did not accept payment for gold stocks when purchasers said they tried to sell it back before the crash. Heath’s profits on this wild speculation are not known for sure, but his commis- sions were in the hundreds of thousands of dollars, according to court records. In spite of the fact that he came out of legal scrutiny relatively unscathed, his wife, Elizabeth, moved to Europe with their two children around 1870 — some of Heath’s obituaries hint that she had family money of her own, and that it was best to keep it away from any future legal proceedings. Mrs. Heath may have known some- thing about her husband’s high tolerance for risk, or perhaps she knew something about his methods. In any event, Heath dissolved his partnership with Ellis, added a partner named Charles E. Quincey, and immediately re-formed a brokerage firm, also called “William Heath & Co.” He began working almost exclusively for Gould and Gould’s close associates. For the next few years, as Gould built up a system of railroads in the Midwest and West, Heath helped him buy up stocks in a market pushed down by the Panic of 1873, and he found it convenient to “go abroad” almost every time the pair determined a suit over Black Friday margins was about to commence. Along with Gould and a few other high- risk, high-stakes clients, Heath added to his inner circle of customers Henry N. Smith, formerly of Smith, Gould & Mar- tin. Smith despised Gould, owing to the latter’s trickery by urging Smith to sell Northwestern Railway stock short while Gould built up a big long position buying as much as he could. Smith got suspicious and had Gould arrested on charges of looting the Erie Railroad treasury. Neither Gould nor Smith had any problem with Heath working with the other; Heath was, according to a Gould biographer, “a master at keeping secrets. None of his customers could ever learn what his other customers were doing.” It was probably because of Heath’s abil- ity to keep everything so close to the vest that his c lient G.P. Morosini, Gould’s bookkeeper and attorney, was allegedly shocked when he came to collect about 100,000 stocks he had on deposit with Heath. The problem was, Heath did not have them. He had been using Morosini’s stocks as collateral with the bank in order to cover the debts of Smith, who was one of his biggest clients. Even decades later, The Wall Street Journal and other financial papers recounted the horrifying chain of events: Suddenly, a great light broke upon Henry N. Smith, who still was heavily short of stocks, and whose contracts showed enormous paper profits; con- ditions had been improving, but stocks had not been going up. But when he started in to cover his shorts he found the market bare of stocks. It was a con- dition that would not reveal itself until someone, like himself, should begin to buy on a large scale. When his brokers found that the stocks were not forth- coming readily they were instructed to bid up for them…their buying limits were raised. The higher they bid for them the more pronounced became the scarcity of stocks. Generally speaking, Heath and Smith and their close circle of stock men had been in the bear market for so long that they misjudged the continued, upward trend of rail, municipal and commodities stocks. The second half of 1885 was one of the greatest bull markets Wall Street had seen thus far. It appeared that Heath used Morosini’s stocks as collateral to borrow money from the banks — probably to cover Smith’s margins — and therefore could not deliver the stocks.  On November 19, 1885, sheriff deputies arrested Heath at his Pine Street office and brought him to the Ludlow Street Jail. He sent telegrams and letters to everyone he knew with any means in an effort to raise the $500,000 bail set for him. Eventually, the judge reduced his bail amount, and his friends were able to raise $10,000 to have him released. But his six weeks in the dank Ludlow Street Jail inflamed the tuberculosis Heath had been battling for years. His wife, Eliz- abeth, returned from Paris to nurse him back to health, which she tried valiantly to do even as creditors interrogated her night and day to try to ascertain whether she had hidden any of the couple’s financial assets in Europe. Heath quickly declined, even in the comfort of his Livingston, New Jersey manor. The quiet, presupposing “American Deer,” known at the end of his life as “the Bear Operator,” passed away on March 3, 1886. Months later, the remaining assets of William Heath & Co. were quietly swept up by Gould.  Julia Bricklin is a frequent contributor to history magazines, and the author of America’s Best Female Sharpshooter: The Rise and Fall of Lillian Frances Smith (University of Oklahoma Press, 2017). Sources Archives of the Boston Evening Transcript, The New York Times, the New-York Tribune and The Wall Street Journal. Klein, Maury. The Life and Legend of E. H. Harriman. University of North Carolina Press. 2000. Klein, Maury. The Life and Legend of Jay Gould. Baltimore: JHU Press. 1997. Northrup, Henry Davenport. Life and Achieve- ments of Jay Gould, the Wizard of Wall Street, Being A Complete and Graphic Account of the Greatest Financier of Modern Times. National Publishing Co. 1892. Sobel, Robert. The Big Board: A History of the New York Stock Market. Philadelphia: Beard Books. 2000. Sobel, Robert. Inside Wall Street. Philadelphia: Beard Books. 1977.  |  Spring 2018  |  FINANCIAL HISTORY  19