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What a money-gusher

The dubious Julian Petroleum Corp. crashed, spectacularly, in the 1920s. That event presaged the Depression but eventually helped to spur stock market reforms.

December 03, 2006|Jules Tygiel | Special to The Times

THE Julian Petroleum scandal stirs little recognition in Los Angeles today, but in the early years of the Great Depression, it was a matter of common knowledge, symbolizing not merely what President Franklin D. Roosevelt would later deplore as "a decade of debauchery and group selfishness," but also the failed hopes and dreams of the great boom of the 1920s. The scandal exposed the speculative mania that gripped the United States and offered a telling prelude for the stock market crash of 1929 and its devastating aftermath.

In the early 1920s, lucrative investment opportunities enticed Southern Californians. "Speculation is in the air," stated one banker, "because people think of [this] as the land of easy money, and because for so many it has proved these things." The real estate subdivision symbolized the speculative soul of Los Angeles, but oil discoveries in Huntington Beach, Long Beach and Santa Fe Springs in 1920 and 1921 drove local residents, in the words of an observer, "stark, staring, oil mad."

C.C. Julian arrived on the scene at the peak of the oil boom in 1922. A native Canadian with experience in real estate and oil promotions, he secured a lease to drill on five acres at Santa Fe Springs and began fishing for investors in a series of colorful advertisements in the Los Angeles Times and other newspapers. "Widows and Orphans, This Is No Investment for You!" boasted his most famous ad. Julian employed an appealing folksiness. If he should betray the "royal confidence" of his supporters, he warbled, let the "buzzards pick my bones and the wind whistle Star Spangled Banner through my ribs."

Julian portrayed himself as the champion of the independent oilman and the small investor, battling against big oil and the corporate moguls. Money came pouring in, especially after he hit gushers on each of his first five wells. In June 1923, he launched the Julian Petroleum Corp., a venture that he promised would supplant Standard Oil. In 56 days, he sold $5 million worth of stock in "Julian Pete."

During these years, Julian emerged as one of the most celebrated figures in Los Angeles. His life seemed an unending series of spectacles and escapades: his lavish mansion and fleet of luxury cars; his flamboyant wardrobe; his attractive female companions; and his well-publicized nightclub row with Charlie Chaplin. Suspecting fraudulent sales promotions, the California corporations commissioner launched several investigations into his activities. The mystery of C.C. Julian -- was he an unscrupulous con man milking a gullible public or the champion of the average man battling against an unseen and unfeeling power elite? -- lay at the core of his mystique.

In April 1925, Julian, by now under siege by regulatory agencies, turned his company over to Texas oilman S.C. Lewis, who sculpted two overlapping confidence games. The first, coordinated by his accomplice Jacob Berman, involved a massive over-issue of Julian Pete stock; the second, the creation of investment pools to prop up the price of Julian Petroleum on the Los Angeles Stock Exchange. The pools guaranteed substantial profits to their members, who were drawn from the leaders of banking, Hollywood, real estate and the city's political and underworld establishments.

The "Million Dollar Pool," for example, included banker Motley Flint, movie baron Louis B. Mayer, real estate men W.I. Hollingsworth and Joe Toplitsky, Alvin Frank (son of the founder of Harris and Frank Clothing) and Harry M. Haldeman, president of the arch-conservative Better America Federation (and grandfather of Watergate's H.R. Haldeman). These men considered themselves pillars of morality in the community. Many of them reportedly "could have lived a thousand years on their income." Yet the lure of fast, easy profits on a sure thing proved too tempting. Though aware of rumors of an over-issue and the irregularity of their arrangement with Lewis, they couldn't resist pocketing a 75% return on their investments.

On May 5, 1927, the Los Angeles Stock Exchange finally halted trading in Julian Petroleum. The company had been authorized to issue 159,000 shares of preferred stock. Almost 4 million shares had entered circulation. The fraud exceeded $150 million. Tens of thousands of stockholders lost their investments. Pool members, on the other hand, registered healthy profits. Brokerage houses, which had to have known about the over-issue, had earned millions of dollars in commissions.

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