This week, we had back to November 1907, when the Trail News published a scandalous, yet apropos, report detailing the circumstances leading to the financial demise of F. Augustus Heinze, builder of Trail’s first smelter.
The month before, the Panic of 1907 triggered the first major financial crisis of the twentieth century, at the hands of Heinze and his brothers, Otto and Arthur.
Born in New York in 1869, his parents sent him to their native Germany for early education, then to Columbia University’s School of Mines to become a mining engineer.
He was a smart man and the risk-taking of his youth led to a remarkable, albeit chaotic, career.
Heinze, one of Montana’s copper kings, built the BC Smelting & Refining Company at Trail in 1895/6 following his lucrative purchase of the Rarus Mine in Butte.
By 1898, Heinze’s railway rights attracted the likes of the Canadian Pacific Railway, who were vying for control of the rails in the burgeoning West Kootenay.
Heinze sold his rail rights and the smelter to focus on the “copper wars” he was fighting in Butte, against rivals Marcus Daily, of the Anaconda Copper Mining Co., and William Rockefeller, of Standard Oil.
His Montana Ore Purchasing Co. was expertly run to take advantage of legal loopholes that kept them all the court system for years.
By 1902, he created the United Copper Company to challenge the Anaconda’s parent company, Amalgamated Copper Mining Co., whose stock was more significantly more valuable.
Many a trip to New York saw Heinze trading on the streets outside of the New York Stock Exchange and painting the town red with vice-filled shenanigans.
He eventually moved the company there in 1907, next to his brothers’ brokerage firm in Manhattan, and become involved in the world of banking.
That year, Otto Heinze, looking to prosper as his brother had, developed a scheme to “corner the stock” on United Copper.
The idea would see the Heinze brothers purchase stock in their own company in quick succession, hoping to increase share values and gain majority control.
Those who invested in the company with the view that the value would drop, or short sellers, could then be called upon to sell share only to them.
The scheme was designed for the Heinze brothers to set their own price.
They pitched the idea to the Knickerbocker Trust Co. to help finance their stock purchases.
They were declined, as the trust believed the amount of short sellers was too great. The Heinzes’ believed they were already majority shareholders, so went ahead.
Stock did climb, the share value increasing from $39 to $52 overnight. F. Augustus Heinze had finally bested his rivals.
But, the number of short sellers was too big, as Knickerbocker advised; the Heinzes’ calls to sell triggered a massive fall in value and in only two days, stock value reduced to $10.
Financial institutions Heinze represented, at least 12, saw rapid withdrawals by people.
The Knickerbocker Trust Company, although not involved, was guilty by association with the Heinze brothers. Its president, Charles Barney, sought support from peer J.P. Morgan amid fleeing investors.
The support was not forthcoming and Barney took his own life.
The market was greatly impacted, as well, as the Dow Jones Industrial Average fell dramatically. F. Augustus Heinze was removed from his banking and trust positions and the company went into receivership.
But, how did these details of the scheme come to light?
The Trail News reported that, “the crash of the Heinze interests, which led to the recent financial upheaval, was traceable in the first instance to a young woman, a friend of F. Augustus Heinze, who knew about the pool that the Heinzes were forming and who could not keep the secret.
“Through her revelations to two of her women friends, information of the arrangement reached the ears of the amalgamated Copper people and a way was found to block his projects.
“The young woman, who is said to have had the confidence of F. Augustus Heinze to the extent of knowing something about his business dealings, lives at the Waldorf Astoria, and has been seen in Heinze’s company often.”
It continues, “these friends were not discreet in the matter of keeping a secret. A detective attached to a Wall Street firm learned the news in a roundabout way. It is said that this detective went to a certain quarter where he knew his information would be valuable, and engaged to learn more.
“The detective is reported to have gained an acquaintance with the friends of the woman who originally became possessed of Heinze’s secret, and to have pumped them regularly about the progress of the pool.
“Men known by the Amalgamated people to be allied with Heinze in his pooling interests were sounded, and finally one was found who would dump his holdings on the market. Thus, the break was brought.”
Alas, Heinze’s penchant for the fast lift betrayed him, and his brothers.
The key outcome of the Panic of 1907 was the creation of the Federal Reserve System in 1913, which regulates banking and interest rates in the US.
Heinze left New York in 1913 and died due to complications of cirrhosis in November 1914.
Sarah Benson-Lord, Trail Museum and Archives and Visitor Centre, manager for the City of Trail.
The Trail Museum and Archives is located in the Riverfront Centre, featuring world class viewing galleries.
