MARKETS: Code of Silence

Wall Street last week came to the dregs of the Richard Whitney cup. Having issued a factual summary of the case and a set of drastic rules to prevent its recurrence (TIME, Nov. 7), SEC wrote finis to the tragedy with a stinging lecture and rebuke to the Old Guard which Richard Whitney once ruled. Excerpt:

“The inescapably outstanding fact revealed in this report is the dangerous outmoded philosophy which, until the recent advent of a new management, dominated the affairs of the Exchange. This philosophy was characterized by the unwritten code of silence respecting misdeeds or misconduct of a member such as Richard Whitney. . . .

“The two Morgan partners, Thomas W. Lamont and George Whitney, although they knew, in November 1937, of Richard Whitney’s misconduct,* never called that fact to the attention of the Exchange authorities. Had it not been for their silence and inaction, he could not have continued in business, as he did, for months thereafter. George Whitney was Richard Whitney’s brother.

“But even if this factor should be regarded as an adequate explanation of his silence, it was not present in the case of Mr. Lamont, who was in no wise related to Richard Whitney, and had none but business contacts with him. Yet Mr. Lamont testified that he considered his failure to advise the Exchange authorities of Richard Whitney’s criminal conduct entirely proper. J. P. Morgan testified that even if he had known of Richard Whitney’s unlawful acts, he would not have reported them to the Exchange. . . .

“It is axiomatic that in any community the attitudes of its outstanding members are likely to color the attitudes and morals of most of the community. The essence of the repeated indications, from the mouths of witnesses, of a stubborn indifference to the public responsibility of the Exchange as a basic characteristic of the old order of Exchange thinking stands starkly revealed in the testimony of Thomas W. Lamont. . . .”

J. P. Morgan & Co. at once retorted: “We deplore the reflections in the report of the Securities and Exchange Commission upon Thomas W. Lamont and George Whitney. They are unjust and unwarranted. George Whitney did what any brother would do. . . . Mr. Lamont did what a friend and partner should have done—lent George Whitney temporarily the cash to make restitution possible. There was no concealment from the Stock Exchange and could not have been, for the Stock Exchange by its vice president and chairman of its Gratuity Fund had made the demand and received restitution, had with the approval of its counsel refused a day’s delay, and had sought and obtained the assurance of George Whitney that payment and delivery would be made, an assurance which would obviously have been unnecessary if Richard Whitney had not misused the securities.”

*George Whitney borrowed $1,082,000 from Lamont in November to enable Richard to restore cash and securities to the N. Y. Stock Exchange’s Gratuity Fund.