Business & Finance: Mamma Spank

Cool on the banks of piney Lake Mendota rests the quiet city of Madison, centre of a rich dairy and farming area, home of Wisconsin’s State capitol and State university. Last week, though no petroleum has ever been found there, Madison became also the temporary capital of the U. S. oil industry. In the biggest trust-busting case since the famed dissolution of Standard Oil, the Federal Government last week brought to trial in Madison 18 major U. S. oil companies, five of their subsidiaries, three oil trade journals and 57 ranking oilmen.* Under the Sherman Anti-Trust Act all stood criminally indicted for having “combined and conspired, beginning in February 1935 … to raise and fix prices of gasoline sold in … ten States of the Middle West.”

In the spring of 1936 Attorney General Homer Stille Cummings announced that the Department of Justice would investigate complaints of price-fixing. Presently a Federal grand jury began sitting in Madison, chosen because Wisconsin is the most centrally located of the ten States in question, because all but two of the indicted companies do business there. A year ago having examined some 18 tons of documents and endured sweltering heat for the longest period any Federal grand jury has ever sat in a Department of Justice case, the jury charged the defendants with price-fixing by: 1) operating two buying pools to acquire gasoline from independent refiners at artificial prices; 2) selling gasoline to jobbers under long-term contracts in which price would be determined by the average of the spot market prices published in the Chicago Journal of Commerce and Platt’s Oilgram; 3) taking “distress” (i.e., excess) gasoline off the market (TIME, Aug. 17, 1936). Result, according to the jury, was severe losses to jobbers and independents.

Far from denying such charges, oilmen plaintively asserted that this was merely what they had been directed to do by the New Deal and NRA. Best summary yet of the situation from the oilman’s point of view was the remark of one executive: “The oil industry feels like a small boy spanked by mamma for doing something papa told him to do. …” Last week, when trial finally got under way on the second floor of Madison’s eight-year-old Federal building, it was obvious that this would be the major line of defense.

Sitting on the bench in the stuffy courtroom last week was Judge Patrick Thomas Stone, 48, regular presiding justice for the district. Appointed by President Roosevelt in 1933, he is softspoken, dignified, erect, has a reputation for scrupulous fairness. That he would tolerate no undue fuss and delay became apparent when he succeeded in getting a jury chosen on the first day, instead of allowing the week that had been estimated would be necessary. His sternness was also apparent in the first skirmish of the trial, when Prosecutor Hammond Edward Chaffetz, 30, who has been with the Department of Justice since graduation from Harvard Law School seven years ago, tried to forestall the obvious plan of the defense to shoulder all blame on the New Deal. Prosecutor Chaffetz asked Judge Stone to forbid the defense to assert that its practices had Government approval unless they could produce letters from President Roosevelt or Secretary of the Interior Ickes to substantiate the assertion.

To this request Colonel William Joseph (“Wild Bill”) Donovan, 54, onetime assistant U. S. Attorney General in charge of trust-busting and now head of the defense’s 57 attorneys, had an obvious comeback. In hope of getting convictions instead of a mere injunction the Government for the first time in a big case had used its power to conduct a criminal rather than a civil action. “Since they have chosen to institute a criminal case,” stormed Wild Bill, “they must be bound by the rules that our Constitution has prescribed in order to protect the defendants when they are accused of crime. Now, an essential element in this case is the question of intent: did these men have a guilty intent in what they did? And it isn’t sufficient alone … to show that there was written approval, or statutory approval. There is the question of instigation; there is the question of inducement; there is the question of approval. . . .”

At first Judge Stone ruled against Attorney Donovan, but presently he modified his ruling, which was a major victory for the defense. With the death of NRA, the Government’s price-fixing and stabilizing ideas became generally nonstatutory. Strongly supporting defense contentions, however, is many a past remark by President Roosevelt and Secretary Ickes. Last week Judge Stone ordered Attorney Donovan to cease quoting President Roosevelt, but Secretary Ickes is not likely to get off so easily, for he committed his ideas to writing in a letter to none other than the man the prosecution last week accused of being the “master mind” of the combine— Vice President Charles E. Arnott of Socony-Vacuum Oil Co.

According to Prosecutor Chaffetz, white-crested Mr. Arnott arranged that the indicted group of companies, which already controlled about 85% of the oil business in ten Middle Western States, should raise and fix the whole price level in the area by buying gasoline at artificially high prices from specified independent refiners who came to be called “dancing partners.” But Secretary Ickes in 1934, month after he urged oilmen to undertake pool buying under NRA, wrote as follows to Mr. Arnott: “It has been brought to my attention that the market for gasoline and other petroleum products has recently been disturbed by numerous price wars. . . . This has resulted in petroleum products being sold below cost in some areas in order to meet unrestrained competition. . . . Price wars necessarily injure small independent marketers. . . . Therefore, I am requesting and authorizing you, as Chairman of the Marketing Committee, to designate committees for each locality when and as price wars develop, with authority to confer . . . and in a co-operative manner to stabilize the price level to conform to that normally prevailing in contiguous areas where marketing conditions are similar.”

What twelve good men & true, nine of them bald, would make of this seeming conflict between Governmental intent and law last week, of course, lay well in the future, presumably at least three months. In Madison, however, there were hopes that the trial might last as long as two years, for Madison, though accustomed to the comings & goings of legislators and 10,000 university students, had never seen anything like the inflow of tycoons last week. In Madison, where even the biggest shot drives his own car, eyes popped at the limousines driven by Negro chauffeurs, and housewives gabbled about the luggage and retinues of the visiting oilmen, all of whom, as defendants, must remain till the trial’s end. Madison’s houses were already 99% occupied, and last week saw many a local bigwig moving out to rent at a premium. Rents of $75 to $150 a month were up in some cases to $350 and $1,200. Wild Bill Donovan took a large house in fashionable Shorewood Hills, brought his broad-beamed English cook, Madge Sciarra, to keep him comfortable. Said this winner of six medals for bravery in France: “We are standing on our Marne and may as well make our fight here— and we do.”

*Virtually every important U. S. oil company east of the Rockies save for Standard of New Jersey was indicted with some of its top officers. Total investment on trial equals more than half the $14,000,000,000 invested in U. S. oil. Among the individuals: President Edward G. Seubert, standard of Indiana; Vice President Allan Jackson, Standard of Indiana; Vice President Edward J. Bullock, Standard of Indiana; Vice President Charles E. Arnott, Socony-Vacuum; Vice President Harry D. Frueauff, Cities Service Export; President. Dan Moran, Continental; former Vice president Edwin Karstedt, Continental; President Henry M. Dawes, Pure Oil; President Alexander Eraser, Shell; President W. S. S. Rodgers, Texas; Vice President Edward L. Shea, Tidewater; President and General Manager Jacob France, Mid-Continent; President Frank Phillips, Phillips: President William G. Skelly, Skelly; President E. B. Reeser, Barnsdall; President I. A. O’Shaughnessy, Globe; President Warren C. Platt, Platt’s Oilgram and National Petroieum News; President Clyde M. Boggs, Western Petroleum Refiners Association.