The Go-Go Years (7 page)

“But you'll lose your perspective,” Jackson would protest, shaking his head.

During the later 1950s Jackson served two terms on the Amex Board of Governors, and, although he wasn't serving at the time of the court injunction, he learned enough about the Res' operation to argue before the Floor Transactions Committee that they ought not to be allowed to serve as specialists. His motion was defeated. Jackson, incidentally, had always liked Jerry Re, in the rough-and-ready manner of Amex friendships. Back in the forties Re had organized a softball team up at Monroe in the Catskills, where he had a summer place, and Jackson had sometimes gone up there to play on it. “Jerry
looked
like a crook, and it's my tendency to sympathize with people whose appearance is against them,” Jackson said long afterward. “For example, take me. I'm not exactly prepossessing in appearance myself.”

Now came the S.E.C. exposure and suspension of the Res, and—more shocking to Jackson—the peripheral revelations about McCormick. These things led Jackson and Segal, almost
alone among Amex members, to be seriously concerned about whether McCormick was fit to be their president. His dealings with the Res back in 1954 and 1955; his presumed part in brushing the Re injunction under the rug in 1957; and his taking part in the exoneration, or whitewash, of the Res by the Amex board in 1959—all those actions, Jackson and Segal felt, had been a good deal less than presidential. One day in May 1961, Segal made up his mind and said to his senior partner, “I've decided to go to Ted and ask for his resignation.”

Jackson nodded unhappily; his thoughts had been running in the same direction. McCormick was his friend, after all. But all through the two weeks or so that had passed since the S.E.C. complaint had become public, he had been asking himself what to do. At home, on East Sixty-eighth Street, he had agonized so constantly and obsessively that at last his wife, Fritz, had said, “You've got to do one of two things—demand Ted's resignation, or sell your seat.” And he had agreed that she was right.

Now he said to his son-in-law, “Don't you do it, Andy. Let me take care of it.”

So Jackson formally requested an appointment with McCormick, and it was granted. Upon arriving at the presidential office, alone and unsupported, no longer a member of the board, knowing he represented a minority view on the floor, he found McCormick flanked by the top brass of his administration, the formidable Chairman Reilly and Vice-chairman Bocklet. Whether or not they knew exactly what to expect, they clearly enough expected trouble.

Jackson said, “I don't know how to say this, Ted, but you've got to resign.”

McCormick's reaction was so violent that Jackson has since said he felt physically frightened. The president picked up a batch of papers from his desk and slammed them down. Then he walked to one of the walls of his office and punched it several times, hard enough to bruise his fist. Finally he said, “I don't know what you're talking about. I've never done anything dishonest.”

“No, I don't think you have,” Jackson said, his voice shaking. “But you've been indiscreet.”

The confrontation ended inconclusively, with Jackson repeating his demand—indeed, extending it to include the whole top echelon of Amex officers and the Amex counsel, Michael E. Mooney—McCormick rejecting it, and Reilly and Bocklet remaining silent. Jackson made it clear that he did not intend to let the matter rest there. Afterward, Bocklet, clearly a McCormick supporter and therefore now Jackson's political enemy, took him aside and said, with a kind of admiration, “Davy, you go home and tell your Fritz that she's married to a man.”

Reilly also took Jackson aside, to make another kind of comment. “You haven't got any proof of anything against Ted,” he said—rather irrelevantly, it would seem, since Jackson's charge was based entirely on published material that was now common knowledge. “The thing for you to do is to appear before the Board of Governors, and argue your case there.”

“Joe, you know perfectly well that would be like pissing up Niagara Falls,” the house philosopher replied.

Jackson and Segal—a fifty-nine-year-old maverick and a thirty-two-year-old upstart—were now official enemies of the Amex management. Through the summer and into the fall, they went on arguing their case, but not before the board. Instead, Jackson committed what in the view of the Amex management was almost the ultimate sin—he argued it in the newspapers. This was in defiance of explicit orders from Reilly to all Amex members, and particularly specialists. The House Committee on Interstate and Foreign Commerce had scheduled hearings on the Amex for that summer, and the S.E.C. had laid similar plans for early fall. Anticipating that many Amex members, and specialists in particular, would be called to testify at the various hearings, Reilly began taking them aside separately and in groups. “When you talk to the government people, don't tell them anything you don't have to,” Reilly, according to Segal, would caution in his characteristic corner-of-the-mouth style. He would go on to say that, in view of the delicate state of affairs at the Amex in the wake of the Re exposure, in the Exchange's best interest it was equally necessary to avoid talking to the press under any circumstances. And in the case of Jackson, Reilly added a further urgent instruction—do not, he said, press
the matter of McCormick's resignation any further, at least until the hearings are over and things have had a chance to cool down.

But Jackson had made his decision; he talked to the press— Ed Cony of the
Wall Street Journal
in particular—and he pressed his case against McCormick in conversations with other members on the floor. In early summer, Reilly took the unusual step of mounting the podium overlooking the floor and interrupting trading to make a brief speech. In it, he asked the members for loyalty in a time of crisis, emphasized that the good name of the Amex must come first in all considerations, and defended McCormick, whom he said had been publicly maligned. But he made no mention of Jackson or Segal. Then in July the House held its hearings, at which both McCormick and Reilly testified in public. McCormick listed some of the mighty American companies that in their salad days had been traded on the Amex— Armour, Swift, Cities Service, Eversharp, Alcoa, Gulf Oil, Pittsburgh Plate Glass, Quaker Oats—and said roundly, “I will stack the honesty and efficiency of our specialists against any other specialists … in the country.” He admitted his 1954 and 1955 dealings with the Res, but pointed out that such things belonged to a closed chapter in his past: “I have not owned a single share of stock traded on the American Stock Exchange since 1957.” The implication—though only an implication—was that the Congressmen were looking at a penitent who had reformed. The reason McCormick would not come out and say that he was reformed was, of course, that such a statement would be an admission that he had previously been
un
reformed.

Reilly, after telling the Congressmen about his rise from lowly beginnings in a huge, impoverished family, described in some detail the Amex's rules for specialists and its disciplinary procedures against erring members. He insisted that the only reason the stock manipulations and nominee trading of the Res had not been uncovered by the Amex authorities as early as 1957 was the fact that they, unlike the S.E.C. and the courts, lacked subpoena power over nonmembers of their institution like the useful dummy Charles A. Grande. This seemed to Jackson to be a poor excuse, and when Reilly stopped him on the floor a few
days later to ask what he had thought of the testimony, Jackson replied that he had found it inadequate.

5

By this time, the floor was seething. A little cluster of a dozen or so other members, most of them under forty and soon nicknamed the Young Turks, had rallied to Jackson's and Segal's standard and joined them in calling for McCormick's resignation and a complete reorganization of the Amex. But they were badly overmatched in both numbers and influence, and soon they found the power of the in-group pressing upon them most uncomfortably. According to Segal's account, the classical arm-twisting methods of ward politics were applied to the dissenters by representatives of the administration. One Young Turk, for example, was pointedly reminded of a questionable stock transaction in which he had been involved some years earlier, and of how easily the matter could be called to the S.E.C.'s attention; to another it was suggested that certain evidence at hand, if revealed, could make a shambles of his pending suit for divorce; and so on.

So it was a hot summer on Trinity Place for the Young Turks, and when Labor Day came bringing with it the first breezes of autumn and the real beginning of a new Wall Street year, they were all but routed, leaving Jackson and Segal standing almost alone. And then came the turning point. It came in a strange form—that of a savage attack, or what Jackson construed as such, on him by the only people he still had reason to think of as his allies in the cause of reform. On September 18, Jackson, under subpoena, appeared before representatives of the S.E.C. at their New York office on lower Broadway. The S.E.C. men present were the agency's top investigators—Ralph Saul, who had headed the Re investigation, and two other lawyers, David Silver and Edward Jaegerman. Possibly the investigators
came to the hearing with the preconceived idea that Amex specialists were a bad lot and that, the Pantepec affair notwithstanding, Jackson was no better than the rest. At all events, for more than four hours they grilled him with what seemed to him to be hostility, scorn, and sarcasm. Their attention focused on a single incident several years earlier in which a former member of Jackson's firm had, by his admission, done a poor job of specializing. But the S.E.C. men were not to be put off by admissions; hour after hour they bored in until Jackson, on the verge of hysteria, found himself in tears.

He was released early in the afternoon, and when he got to his Amex post, his partner Segal was alarmed to find him completely distraught. “So that's the way they treat an honest man,” Jackson was muttering. “As if he were a criminal and they needed a confession.”

“But Dave, what happened?” Segal asked. “The S.E.C. is supposed to be our friend!”

“I can't talk about it now,” Jackson said. He went home, and that evening, after consulting Segal by phone, dashed off in longhand a furious and agonized letter that he planned to address to various public officials, including Senator Jacob Javits of New York. “I was besieged and harassed continously,” he wrote of the hearing. “The questioners were never satisfied until they got the answers they wanted.… I never really understood brain-washing before. We in America believe people innocent until proven guilty. When those of us with immaculate records of ethical and moral responsibility are treated with scorn and contempt, badgered to the point of emotional breakdown, then our representatives must take action.…” That evening, feeling like a prophet without honor not just in his country but everywhere, Jackson almost let despair persuade him to abandon the fight to reform the Amex.

What he did, instead, after finishing his letter, was to read it on the telephone to Ralph Saul of the S.E.C. before mailing it to Javits. Horrified, Saul pleaded with him not to mail it, apologized for the excessive zeal of his colleagues, and promised that some sort of amends would be made. Somewhat mollified,
Jackson did not mail the letter. (But neither did he destroy it. He still has it, the almost illegible scrawl testifying eloquently to his emotional state at the time.) A couple of days later a delegation of S.E.C. men—headed by none other than Silver, one of the inquisitors at the hearing—came to the Amex floor and spent the entire trading day watching the Jackson-Segal operation, trade by trade. It turned out to be an unusually lively day for them, because one of the stocks in which they specialized, Mead Johnson, was fluctuating wildly on conflicting rumors about a new contraceptive product, calling for particularly risky and fast-footed specializing. All day, the S.E.C. men watched without comment. After the close that afternoon, they declared themselves convinced that Jackson and Segal were honest, and flatly asked them to become allies of the S.E.C. in the reform of the Amex. With a lack of enthusiasm that in the circumstances must be considered understandable, Jackson and Segal agreed.

“Now, what do you know about what's going on upstairs?” Silver asked his new allies, when they were all gathered on the Amex floor, late that afternoon after the janitors had swept up and everyone else had gone home.

In fact, one of the things that was going on upstairs just then was the surreptitious retyping, with significant emendations and deletions, of the minutes of certain recent meetings of the Amex Board of Governors. But Jackson and Segal, of course, did not know this. Indeed, they told the S.E.C. men that they knew nothing of what the Amex administration was doing and could only promise to cooperate with the S.E.C. in its investigation in any way they could. The following week, Jackson made good this promise by going to Washington and, in a long session with the S.E.C. at its headquarters, giving his views on what reforms were needed.

So at last, painfully, the federal investigators came to believe in the existence of a minority element within the Amex that, if encouraged, might be able to bring about reform from within. Much later, S.E.C. officials would say that until the day when their delegates came to the Amex floor and reached an understanding with Jackson and Segal, the agency had been on
the verge of exercising its legal prerogative to padlock the executive offices of the Amex and take over its operation
in toto.
Such a seizure, representing socialism rampant in one of the last bastions of free capital, would have been a crushing, perhaps fatal blow not just to the Amex but to all of Wall Street.

6

In October, the rest of the Street finally came to realize that it would be caught in a backlash from the Amex scandal. Wall Street at its highest level took action, forming a securities-industry committee to review the Amex's rules, policies, and procedures and make recommendations. Its membership was a cross section of top-echelon Wall Streeters, including the president of Merrill Lynch, the managing partner of Paine Webber, the senior partner of Goodbody, the president of Clark Dodge, and, as chairman, the formidable Gustave Levy, senior partner of Goldman, Sachs. The Amex, meanwhile, went on its bumbling way. A meeting of the remnants of the Young Turks, intended for regrouping and for planning a new offensive, was scheduled for the day following the announcement of the Levy committee. Reilly, getting wind of the meeting, arranged to have its location changed from someone's private office to the Amex governors' room, invited all Amex members to attend, and, as a final touch of irony, called in the press. Just as he had planned, the well-reported meeting fell flat in a morass of platitudes about unity. Even Jackson, thus mousetrapped, found himself saying, “Let us close ranks, forget personal feelings, and save our Exchange.” Over the subsequent days, though, he resumed his defiant contacts with the press, giving his version of the state of affairs at the Amex in pointed detail; and at last Reilly was goaded to a reprisal that stands unique in the annals of Wall Street.