How a Giant Investment Firm Very Nearly Went Bankrupt in 1971, Potentially Causing Investors to Lose Millions of Dollars Despite the Existence of the Securities Investors Protection Corporation
Immediately following Wally's November 25, 1970, announcement that F. I. duPont, Glore Forgan would get a $15 million capital infusion -- $10 million from Ross Perot, $5 million to be raised by the investment firm's partners -- many outsiders thought Ross Perot had accomplished a great coup: gaining the right to control the third-largest investment firm by lending the firm a relatively modest sum.
But in December outsiders got some hint that Ross might have made a bad bargain. A story in the Wall Street Journal revealed that F. I. duPont, Glore Forgan would lose at least $16 million in 1970, stating, "The deficit looms as the largest on record for a brokerage house."1
The story also revealed that a duPont relative and another partner had together withdrawn more than $5 million in capital at the beginning of 1970.
And then the reputation of the firm was tarnished in mid-December -- thereby affecting its ability to attract and keep customers -- by the indictment of a senior officer on charges of insider trading. He was Charles J. Hodge, who had been vice chairman of Glore Forgan Staats, Inc. and a god-like figure to many Glore Forgan employees including Jim Lynch.
The insider-trading scandal made headlines day after day because it involved the biggest bankruptcy to date in U.S. history -- that of the Penn Central Railroad. (More about this is in Chapter 12.)
Yet many outsiders, including most people in the investment business, continued to be optimistic about the future of F. I. duPont, Glore Forgan -- and would continue to be so for several months to come. Fortune magazine would call Ross Perot "a dominant figure on Wall Street" and