The Biggest Stock Fraud in the District Attorney's Memory1
Very soon after Tom Hofstetter became national insurance sales manager, he learned why Bill Fleming was extra anxious to get Walston & Co., Inc. into the insurance business. Walston & Co. needed capital, and Bill Fleming hoped that an insurance company profiting from a relationship with Walston would supply it.
The Glass-Steagall Act of 1933 had inspired the founding of Walston & Co. and spurred its early growth by forbidding commercial banks to engage in the brokerage business. Walston & Co.'s founder, Vernon C. Walston, had been the male SECretary to A. P. Giannini, the CEO of the then largest bank in the United States, San Francisco-based Bank of America. Vern Walston had located Walston & Co.'s offices near those of Bank of America throughout Califomia, and the bank had steered customers to Walston & Co.
The firm had spread northward and eastward across the country partly through mergers, partly by opening new offices, and had relocated its headquarters from San Francisco to City. By the sixties, Walston had more than a hundred offices from coast to coast, making it one of the largest brokerage firms in the United States.
Walston & Co.'s need for capital in 1971 and 1972 didn't, however, derive from its fast growth. Nor did it need capital because it had too many fails. Its back office operated efficiently.
Walston needed capital partly because its top officers had been overly ambitious but mostly because they made a mistake that no sensible investor would. First the story about the management being overly ambitious:
The most prestiguous firms on Wall Street were -- and continue to be --