Never has there been such wild scenes on the Curb, so say the oldest veterans of the outside market.

—Wall Street Journal, October 17, 1907

In early October 1907, Arthur Heinze, who was monitoring the activity in the Heinze‐Morse stock pool, conducted a precise audit of all United Copper Company shares.¹ To his great surprise, he discovered what appeared to be an oversold position of 100,000 United Copper shares in excess of the 450,000 shares issued and outstanding.² In other words, it appeared that a massive short interest in United Copper of 22 percent had emerged. Otto and Arthur surmised that this was only possible if certain securities brokers were secretly loaning out their shares of United Copper to traders who wanted to speculate in the stock. Those traders, Otto believed, were then selling the borrowed shares at prevailing prices in the expectation that the prices of those shares would fall. If United Copper prices did fall, then when the traders were called upon to return the borrowed shares, they could repurchase them at lower prices and pocket the difference.^a

The Squeeze

Otto Heinze believed, however, that he and his brothers owned most of the United Copper shares, many of which they had pledged as collateral for margin loans from brokers. Otto suspected that the brokers in turn had secretly loaned the shares to the short sellers. If the Heinzes “called in” those loaned shares, then the “shorts” would be squeezed. The squeeze would force the short sellers to scramble to find United Copper on the market; finding none available, the shorts would have to settle directly with the Heinzes. To execute this move, the Heinzes would need to purchase shares of United Copper for sale on the market to drive up the stock price and to blockade the short sellers from being able to cover their positions. Once the Heinzes had achieved the necessary “corner” in United Copper, they would repay their margin loans, issue the call for the delivery of all the shares they owned, and initiate the squeeze.³

Rising Pressure on the Heinzes

Excited by the prospect of the squeeze, Otto Heinze approached his brother, Augustus, on Thursday October 10, for help (his other brother, Arthur P. Heinze, was traveling in Europe). Augustus was aware that over the past several months, in an ongoing effort to support United Copper’s price, the two brothers had been buying the company’s shares through brokerage houses in New York, Philadelphia, and Boston. They had paid for most of these purchases by borrowing money from brokers, in a method called buying on margin. As such, the securities they purchased served as collateral for loans and the certificates remained in the brokers’ possession. Otto concluded that their brokers had lent those same shares to short sellers and that the company was the target of concerted short‐selling.⁴ By the fall of 1907, the Heinzes had become indebted to their brokers for $2 million for these margin purchases. As the market at large (and the share price of United Copper) had weakened, the brokers increasingly called for more collateral from the Heinzes.⁵ If the Heinzes initiated the squeeze, the brokers from whom the Heinzes had borrowed on margin would have to be paid the full amount for the cost of these shares immediately.⁶

Otto believed that to carry out the scheme he would need to borrow at least $1.5 million (he would make up the remaining difference for his margin debts from squeezing the shorts). However, when he approached his brother on October 10, Augustus denied Otto’s request, saying that he lacked the money and could not jeopardize his position as president of the Mercantile National Bank. Over the past four months, Augustus revealed, there had been a “silent run”^b on his bank and depositors had quietly withdrawn $4 million. Augustus had already called in some of Mercantile’s outstanding loans and would not make any substantial advances to his brother.⁷

Yet, in an apparent effort to facilitate the maneuver, Augustus arranged a meeting for himself and Otto with Charles W. Morse and Charles T. Barney. Barney was the president of the Knickerbocker Trust Company, the second‐largest trust company by deposits in the city, and had been involved in various Morse schemes. They met at Barney’s Fifth Avenue home on Sunday October 13, where Morse told the Heinzes that they were wrong. The squeeze would require far more than $1.5 million—perhaps as much as $3 million.⁸ All three men rebuffed Otto. Meanwhile, as the price of United Copper shares fell, the margin calls from brokers accelerated, and Otto feared the cash reserves of his own firm would be wiped out.

The stock of United Copper Company was not listed on the New York Stock Exchange. Rather, it was traded among a crowd of brokers literally dealing “on the curb” outside the Exchange building on Broad Street in Manhattan. On Saturday morning, October 12, during a short day of trading on the Curb, United Copper shares opened at 45¹/₂. During the day’s two hours of trading, it sold down to 37³/₄, and it appeared to the Heinzes that again the shorts were active in the stock.⁹

Executing the Squeeze

Convinced the time was right, Otto Heinze had determined to engineer the corner and the resultant squeeze by himself. On Sunday night, October 13, he called a meeting with Philip Kleeberg, a partner in the stock exchange firm of Gross & Kleeberg, and issued two instructions. First, Otto ordered the broker to purchase 6,000 shares of United Copper stock at ascending prices on Monday, to create a commanding corner. Second, he would repay the margin loans and issue a call for all the Heinze‐owned United Copper shares to be delivered.

On Monday morning, October 14, the stock of United Copper opened quietly, with a few sales at 39⁷/₈, and then one at 39. Observers reported that within a few minutes of the opening a broker representing a well‐known stock exchange house entered the crowd excitedly and began bidding up the stock and asking for offers on 5,000 shares. Within 15 minutes the price rose in rapid increments: 100 shares at 40, 100 at 41, 100 at 49⁷/₈, 1,000 at 51, 100 at 52, 100 at 53, 700 at 57, 1,000 at 59, 1,000 at 60.¹⁰ By 10:50 a.m. the first advance was over, the stock having risen nearly $23 above the previous day’s close. Four thousand shares had been traded in.¹¹

“Traders noticed that there was very little anxiety on the part of those in the United Copper group to take real stock at the higher prices,” the New York Times reported. “The bid and asked quotations were kept 2 or 3 points apart, and those who had stock to sell found that to get it off their hands they had to throw it out at the bid price or find the bidders dropping from the market. These circumstances, together with the fact that United Copper had been almost impossible to borrow, and therefore avoided by short sellers, were taken by curb traders as indicating deliberate bidding up of the stock rather than a squeeze of shorts.”¹² After the initial flurry on Monday morning, “which occurred so rapidly that the brokers were not able to get in touch with their clients,” the stock dropped almost immediately and remained between 50 and 53 for the balance of the day’s session, closing at 52⁷/₈. The total shares traded for the day was 18,200, and the highest bid quoted was $62⁷/₈.¹³

Meanwhile, thousands of stock certificates were arriving at the offices of Otto Heinze & Company for which payment of $630,000 was due.¹⁴ By the rules of the Exchange, the Heinzes were obliged to pay for these shares in cash by 2:15 p.m. that day.¹⁵ Otto returned to Charles Morse, chairman of the board of Mercantile National Bank, on October 14 to plead again for a loan. This time Morse, as Otto later explained to the New York Times, “told me to get the money at the Mercantile Bank … and I took that as meaning that I was to make my note to the Mercantile and deposit the [incoming short‐sold] securities there.”¹⁶

Otto appealed once again to his brother, Augustus, for a loan to cover the cost of the incoming securities. The Heinzes calculated that since United Copper was trading around $60, to secure the loan they would need only about one‐third the value of the securities, which would serve as collateral, to repay the brokers that day. This time Augustus consented, and he arranged for a loan from his Mercantile National Bank to cover any of the checks written against the Otto Heinze & Company’s account.¹⁷ Augustus had personally guaranteed the loan.

Squeeze and Delivery of Shares

On Tuesday, October 15, Otto Heinze put in motion the final phase of his plan, which the Chicago Daily Tribune captured, as follows:

Twenty stock exchange houses were carrying United Copper stock at the direction of the managers of the corner. It was decided to serve notices on these to deliver their stock at the earliest possible time, which was 2 o’clock Tuesday afternoon, and, it was said, it was undoubtedly the belief of the managers of the corner that they would find many of these houses bare of stock, and expected the brokers to default, in part, in their deliveries. In this event the Heinze brokers could buy in the stock under the rules and force the delinquents to pay the difference between the purchase price and the price at which the stock was carried for the Heinze brokers on the particular firms’ books.¹⁸

United Copper opened Tuesday morning at 50, and trading in the stock remained mostly subdued during the morning session with only a few hundred shares traded in.¹⁹ Responding to the call issued by Heinze, however, and much to his surprise, every one of the 20 brokers produced the stock that had been called.²⁰ There were no defaults, and United Copper stock was plentiful on the market. Heinze had been wrong. In fact, the brokers were producing so much stock that Heinze was eventually forced to refuse delivery.

On this news, the stock price briefly rose to 59 in heavy trading, then broke. “Thousands of shares began to appear as fast as the mails could carry them from points where news of Monday’s rise had penetrated,” the New York Times reported. “Gross & Kleeberg were unable to stem the flood and the market went to pieces.”²¹ The brokers, unable to transfer their shares to the Heinzes, had thrown all their shares on the market, and the corner attempt was crushed. Without any warning, the stock broke amid wild scenes. In a few minutes the price crumpled to 50, then to 45, and still to 36, which was the last sale of the day. At the market close the stock was offered at 38 with no bid, and one man rushed into the crowd to make a nominal bid of 25.²²

The late‐day slide in United Copper was stunning. “It is a long time since the Curb has seen anything of the like,” the Wall Street Journal reported. “In fact, old‐timers on the Curb say that they have never seen anything quite like it before.”²³ The slide, however, was far from over. After closing at 36 on Tuesday, United Copper opened Wednesday morning with a sale at 30. Scarcely had this sale been recorded on the reporters’ books when the stock was offered down to 20 within three minutes of the opening gong. On the way down, a block of 500 shares was traded in, and for a while there was a lull and the stock hovered around 25. This calm lasted about an hour when it started down again. Then came a sale at 18. During the last hour came the grand finale, “with the crowd of brokers rushing up and down the Street shouting and fighting,” as the common stock of United Copper Company crashed down to $10 a share.²⁴ At one point, there were as many as five different simultaneous quotations. The arbitrage business in the stock was practically at a standstill. “Never has there been such wild scenes on the Curb, so say the oldest veterans of the outside market,” the Journal reported.²⁵

“Rumors of all kinds were flying round the Curb,” the New York Times said. “Brokers demanded Stock Exchange names of their best friends and the houses had to be of the best. Traders took a hand, but after one or two had taken quick, but huge, losses they eschewed the United crowd, seeing that it was not the place for even a moderately big trader.”²⁶ With apparently unlimited supplies of the stock at hand and no shorts in sight, the common stock price had declined 50 points in three days; the price of United Copper’s preferred had also declined 50 points over two days. The last sale for the common on Wednesday was recorded at 15 (see Figure 6.1). Dealings on the day for the common amounted to 6,800 shares.²⁷ After the market closed, bankers held conferences across Wall Street and throughout the city trying to assess the fallout.²⁸

Why the Squeeze Failed

The slump in share price on October 14–15 is generally attributed to the inflow of shares from the market. However, Mary Tone Rodgers and James E. Payne²⁹ cite a source claiming that none other than Charles Morse, partner of Augustus Heinze, had dumped 30,000 shares on the market—perhaps the same 30,000 shares that Arthur Heinze had loaned Morse in 1904. If so, this was a stunning betrayal of a business partner.

However, Morse’s selling alone would not have been sufficient to ruin the attempted corner on United Copper. Historian Robert Sobel argued that the corner attempt failed because of the incompetence of the brokers to coordinate their calls for delivery of shares. He also noted that some newspapers published articles “containing hints of wrongdoing” that had been planted by Heinze’s enemies at Standard Oil and that Rockefeller‐affiliated banks called in loans to Heinze and insisted on the sale of United Copper to meet the obligations.³⁰

A final reason for failure of the attempted corner would be the inexorable pressures against copper prices, the worsening economic conditions, and the credit crunch. A recession began in May 1907.³¹ The revenues of firms in the metals mining and refining sector are highly sensitive to changes in the cycle of the economy. Rodgers and Payne (2017) found that “a copper commodity price channel may have been active in transmitting the [Bank of England’s restrictive monetary] policy to the New York markets.”³² If so, the Heinzes were betting against the Bank of England, with strong odds that they would lose. The Heinzes should have expected that with the onset of a recession the prices of copper companies would weaken. The evidence of a contraction was widely available and discussed in the business press of the day. In the face of worsening news about the industry, this seemed to be a poor moment to try to pump up the stock price. Investors were glad to sell when share prices suddenly rose; and they reverted to panicked selling as United Copper’s share price suddenly slumped.

Figure 6.1 suggests the gravity of Otto Heinze’s errors. Clearly, until June, shares in United Copper did not trade much differently from those of two benchmarks: (a) Amalgamated Copper, a close industry peer, and (b) an average of industrial stocks. The dominant insight is the downward trend in United Copper and its benchmarks from the beginning of the year onward. The slump in share prices for both firms in March was consistent with the “silent crash” described in Chapter 3.

From March to June, both United Copper and Amalgamated shares traded below the price trend of commodity copper. Amalgamated was withholding copper from the market in an effort to prop up its price, but as the figure showed, the effort failed. Meanwhile, the decline in prices and volumes for both companies took a toll.

That spring, Heinze began actively to manipulate United Copper’s share price upward, financed by call loans, which were collateralized by shares in United Copper. This succeeded in the sense that United’s price trend returned to that of copper prices and the industrial average. But it was unable to restore United Copper’s share price to the level of January 1. From June until mid‐October, United traded above Amalgamated. O’Sullivan notes that the difference may have motivated short sellers who believed that the small company (United) would have to fall in line with the industry leader (Amalgamated).³³ Macroeconomic pressures forced United Copper’s price downward. The demands from creditors for more collateral squeezed the Heinzes and eventually prompted them to action.

In hindsight, the effort to corner United Copper shares was ill‐informed and foolhardy. The comparison of United Copper’s share price performance with the benchmarks makes it hard to conclude that the stock was the victim of heavy short‐selling pressure. Against these findings, the Heinze brothers’ assertions of mispricing and victimization by short sellers is hard to fathom. Nonetheless, the significance of the copper corner to the Panic of 1907 invites more research into the conflicting accounts and the causes of its failure.