HOW A BIG FARMERS' CO-OP WAS WRECKED
Manly, Basil
How a Big Farmers' Co-Op Was Wrecked Shocking, Story of Fraud Carried Out by Armour Grain Company is Revealed for the First Time By BASIL MANLY (Director, People's Legislative Service) I N THE...
...The arbitrator, in his decision, found that: "The total grades so raised on the stock books aggregated over 2,000,000 bushels...
...Where the wheat was only slightly damaged they would pick out the bad kernels, but if it was too bad they dumped the entire sample and substituted other first class wheat...
...A city's commercial greatness rests upon honesty quite as much as upon its geographical position...
...Falsifying books and changing the records on the bin boards had been easy, but now a really bold act of fraud became necessary...
...The Armour interests had attempted to carry over, for speculative purposes, from the 1923 crop a large quantity of exceptionally fine wheat which they had secured at low prices...
...Discovery of the Fraud IT IS probable that these frauds would have gone undiscovered except for a combination of two circumstances...
...Thompson looked over the figures and he says, 'You are way below your stock figures, aren't you?' I said, 'Yes, we are.' 'Well,' he says, 'we have got to bring them up closer than that.' Says I 'How are you going to bring them up closer?' He says, 'Why we will just bring fehem up,' he says, 'add approximately ten per cent 'to your figures.' " First Act of Fraud THOMPSON, the General Superintendent, then made calculations showing just how these alterations in the stock books were to be made...
...Not only the farmers, but grain merchant* and other business interests should join in cleaning up this rotten situation...
...After the stock books had thus been fixed up, it was also necessary to falsify the bin boards...
...Crombie testified that on or about June 28th, Thompson, the General Superintendent, came to him again and told him that the organization of the Grain Marketing Company was now assured and that "there was a chance of making a bunch of money for the Armflur Grain Company...
...A large amount, estimated at from 300,000 to 500,000 bushels, was bin-burnt...
...It was in this elevator that the various frauds committed by the officials of the Armour Grain Company took pace...
...How a Big Farmers' Co-Op Was Wrecked Shocking, Story of Fraud Carried Out by Armour Grain Company is Revealed for the First Time By BASIL MANLY (Director, People's Legislative Service) I N THE summer of 11)24 the Grain Marketing Company, the greatest co-operative enterprise ever launched in the United States, was formed for the purpose of handling the American wheat crop...
...Thompson said: "Yes, make new sheets for every one...
...When it became clear that the frauds could no longer be concealed, Crombie "came clean" and told the whole story of the frauds and the part he had played in them to the representatives of the Grain Marketing Company, It was fortunate also that the Grain Marketing Company had retained as their counsel, Frank P. Walsh, who had the nerve, courage and ability to compel the officials of the Armour Grain Company to admit the truth and make restitution...
...The Rosenbaum Grain Corporation and Rosenbaum Brothers guaranteed the quantity and quality of their grain as delivered to the Grain Marketing Company...
...These bin-boards—blackboards that show the quantity of grain in the bins—are the bible of a grain elevator...
...These charges were brought by E. F. Rosenbaum, president of the Rosenbaum Grain Corporation...
...The • Grain Marketing Company was an Illinois corporation, capitalized at $20,000,000, organized under the Cooperative Marketing Act...
...Some attempt was made by the Armour Grain •{Company in their defense to avoid responsibility for tho damages caused by these frauds on the ground that they were committed by subordinate officials of the company...
...The inference is unavoidable that they were then trying to conceal something that had happened in connection with the sale of the wheat by the Armour Grain Company to the Grain Marketing Company and were willing to continue an inefficient manage-met to effect that concealment...
...The testimony on this point is overwhelming and conclusive...
...About the 19th of April, George E. Thompson, General Superintendent of the Armour Grain Company, can-i to him and told him: "We will have to get our stock books adjusted for their coming in...
...By the Spring of 1*24 this wheat was already beginning to deteriorate...
...Brown has alleged-go unpunished without staining the honor of all Chicago merchants and cheapening all Chicago merchandise in the markets of the world...
...The Armour Grain Company, however, did not guarantee their grain but proposed that it should be taken over on the basis of samples taken by inspectors of the Chicago Board of Trade...
...The decision of Mr...
...They did not change the management of the elevator...
...In order to reveal the full extent of the frauds, Mr...
...They are supposed never to be changed under any circumstances...
...The time is ripe for action to protect the agricultural interests from such manipulation and fraud as has been proved in this case...
...In order to do this, however, it was necessary to find some way to manipulate the samples that were to be taken by the Board of Trade samplers as a basis for the sale of the grain to the Grain Marketing Company...
...How Big Co-operative Was Wrecked NOW the mystery is solved and proof is complete that the Grain Marketing Company was wrecked by one of the most amazing frauds in the entire history of American business...
...They had not only marked up the stock-books to show nearly 600,000 bushels more grain than was actually in the elevators, but had also falsified the grades on about 2,000,000 bushel3 of wheat...
...This case should arouse the farmers of the entire nation...
...The carrying over of such a large quantity of wheat from one crop year to the next is practically unknown in the grain trade...
...They were to take a sample from each of the bins in the Northwestern Elevator and on the basis of these samples, the price that the farmers were, to pay for the wheat was to be determined...
...They are no damn good to me...
...About August 1, 1924, the samplers of the Chicago Board of Trade started work...
...Many false and malicious rumors were circulated but the real cause of the bankruptcy of the Grain Marketing Company has remained a mystery from that day to this...
...The facts have just been set forth in the decision of Edward Eagle Brown, an eminent attorney and vice-president of the First National Bank of Chicago, sitting as arbitrator in the case brought by the Grain Marketing Company, the Rosenbaum Grain Corporation and Rosenbaum Brothers, against the Armour Grain Company...
...The officials of the Armour Grain Company got ready for them...
...The arbitrator's decision specifically finds that no controversy whatever has arisen regarding the grain turned over by these two companies...
...The hearings lasted for nearly a year and more than 10,000 pages of testimony were taken...
...When asked how he proposed to do this, Thompson said: "Get me a sheet of paper with the stocks as they show-on your stock books and I will raise the grades...
...Half the lights in the Elevator were turned out so that in the semi-darkness they could not see that a large part of the grain was bin-burnt or otherwise damaged...
...When he had finished and the changes had been carried into the stock books, these work-sheets were thrown into the waste basket...
...Nevertheless, Thompson and Crombie rubbed out the old figures on the bin boards and arbitrarily wrote in the new figures which they had determined upon under the instructions of Marcy, then president of the Armour Grain Company...
...It has now been revealed in the arbitrator's decision, written by the vice-president of one of Chicago's greatest banks, how easy it is for the farmers to be defrauded of millions of dollars in the handling of their grain...
...The Armour interests were eager to find some way to unload this bad wheat...
...Brown, as arbitrator, awards to the Grain Marketing Company and the Rosenbaum interests damages of $3,000,000 and costs from the Armour Grain Company, and finds that the Grain Marketing Company was wrecked by deliberate frauds perpetrated on three separate occasions by the officials of the Armour Grain Company...
...F. D. Crombie, Superintendent of the Northwestern Elevator, testified before Arbitrator Brown that in April, 1924, he first heard of the possibility of a farmers' organization taking over the Armour Grain Company...
...With reference, however, to this question of responsibility the declaration of Arbitrator Edward E. Brown appears conclusive: "The law makes the Armour Grain Company responsible for the proximate damages caused by their fraud...
...Take the old sheets out...
...One year later in July, 1925, the Grain Marketing Company was a wreck...
...They, therefore, eagerly accepted the proposal that they should go in on the plan for the creation of the Grain Marketing Company...
...But Crombie, who was a canny Scot, picked them up and preserved them to show that these changes were actually made by the General Superintendent of the Armour Grain Company and were in his handwriting...
...In order to understand the frauds revealed by" the arbitrator's decision, it is necessary to recall that under the plan on which the Grain Marketing Company was organized, it was to take over the elevators of the Armour Grain Company, the Rosenbaum Grain Corporation and Rosenbaum Brothers, together with all wheat, corn and oats and other grain which they contained on the date of transfer...
...About 4:30 in the afternoon the Board of Trade samplers stopped work for the day, piled up the bags containing samples they had taken in the inspector's room in the Northwestern Elevator, locked the door and took the train downtown...
...On this point, the Chicago Tribune says: "Chicago's gunmen have done much^to injure the city's reputation, but all the gunmen together have not done the damage to the business community which one such case as this can work...
...The enemies of co-operation used it as proof that American farmers were incapable of organizing large business enterprises of this character...
...Fleecing the Farmer THE STAGE was now set for the farmers...
...Frank D. Crombie, the Superintendent of the Northwestern Elevator, was a young Scotchman with a conscience...
...This even if Marcy and the other officers of the Armour Grain Company had no knowledge of the change of samples and no complicity in the fraud perpetrated and did not subsequently discover it and conceal it...
...The clear preponderance of the evidence is, however, that by the close of navigation in 1924 officers of the Armour" Grain Company knew that there was a considerable quantity of badly bin-burnt wheat in the Northwestern Elevator and that a large part of it had come over from the Awnour Grain Company.** * * They did not disclose to the officers interested in the Grain Marketing Company the bad conditions existing at the Northwestern, or the presence there of a large quantity of bin-burnt grain, but on the contrary said there was no low grade wheat in the house...
...Walsh had to trace more than 100,000,000 bushels of wheat through the Chicago elevators...
...The Armour Grain Company was now ready "to make a bunch of money...
...The failure of the Grain Marketing Company was a staggering blow^Jo the growth of the cooperative movement in the United States...
...The second act of fraud took place about the lirst of July, 1924...
...Crombie testified that they found on measurement of grain in the elevator, that they were about 585,000 bushels short...
...Nobody knew how it was wrecked or who was responsible for its failure...
...That night Crombie, the Superintendent of the elevator, with several assistants went back to the elevator, unlocked the door of the inspector's room, noted with scrupulous care how the sam-* pies were arranged and then proceeded to change them so that they would show the kind of grain that the Armour Grain Company claimed was then in the elevator...
...This attempt was made in the face of the fact that George E. Marcy, president of the Armour Grain Company, admitted having directed the changing of the grades on 2,000,000 bushels of wheat and that the work sheets showed that the calculations for the manipulation of the stock books were in the hand-writing of George E. Thompson, the General Superintendent...
...Other evidence demonstrated that this raising of the grades of wheat was carried out under the instructions of George E. Marcy, then president of the Armour Grain Company, and this was admitted by Marcy under cross-examination...
...Chicago cannot let such practices as Mr...
...Where Frauds Occurred AMONG the elevators taken over by the Grain Marketing Company from the Armour Grain Company was the Northwestern Elevator, the largest grain elevator in the world...
...The bookkeeper, Robert E. Dornan, testified that he asked Thompson, the General Superintendent, whether he should make ut a new set of sheets for each item...
...Responsible THE arbitrator in his decision, after reviewing the hundreds of pages of testimony regarding this manipulation of the samples, declares: "A large percentage of the samples were changed either by substituting entirely different wheat, by picking out bin-burnt kernels or by throwing out part of a sample containing damaged wheat and replacing the part thrown out with good wheat...
...These arbitrary raises in the grades of wheat were carried into the stock books...
Vol. 19 • March 1927 • No. 3
