Wall Street Crime And Punishment: Joseph P. Kennedy, The Crooked Dynasty Patriarch

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall that chronicles the bankers, brokers and financial ne’er-do-wells whose ambition and greed takes them in the wrong direction.

Joseph P. Kennedy was one of the most controversial figures in business and politics during the first part of the 20th century. Most people today might recognize him as the patriarch of the dynasty that had a profound impact on government, but the methods that he used to build his business empire deserve attention for this series.

An Outsider Standing Out: Kennedy was born in Boston in 1888, the eldest son of Patrick Kennedy, a first-generation Irish-American who made his fortune in saloon ownership and investments and became an important figure in the city’s Democratic Party machinery.

Although Kennedy attended Harvard and graduated in 1912 with a degree in economics, he could not gain employment in Boston’s banks due to the anti-Catholic bigotry by the Protestant executives that controlled the institutions.

Instead, Kennedy’s father arranged for a state job as a bank examiner, which gave him an insider’s education on how the banking system worked. In 1913, Boston’s only Irish-owned bank, Columbia Trust Company — which his father helped organize in 1895 — was threatened with a takeover. Kennedy quit his state job and raised $45,000 (about $1.1 million in today’s money) from family and friends to stave off the takeover bid and take control of the institution.

The 25-year-old Kennedy was appointed president of Columbia Trust and he promptly used his connections in the local media to push the story that he was the nation’s youngest bank president.

Whether that claim was true could not easily be confirmed, but it didn’t matter to Kennedy. It began a lifelong mania for securing high-profile media coverage for himself, which continued in 1914 with his marriage to Rose Fitzgerald, daughter of Boston Mayor John F. Fitzgerald.

What Kennedy did not publicize was how he borrowed from the bank to finance his personal stock trades and commercial real estate investments.

When the U.S. entered World War I in 1917, Kennedy shifted his career focus to become assistant to the general manager of Bethlehem Steel’s Fore River Shipyard in Quincy, Massachusetts. While the job paid a handsome $10,000 annual salary, he fattened his wallet by opening a cafeteria at the site to serve its 22,000 employees.

After the war ended and the shipyard was stuck with surplus vessels, Kennedy tried to sell these ships to a local steamship line. That company’s chairman, investment banker Galen Stone, didn’t want the ships but admired Kennedy’s aggressiveness and recruited him to join his investment house, Hayden Stone & Co.

Stone served as Kennedy’s mentor, introducing him to the financial markets. In those unregulated years, the markets were ruthlessly manipulated by men who never suffered from ethical anguish. Kennedy adapted to the scene easily and quickly amassed greater wealth through rampant insider trading and through his manipulations as a stock pool operator, which involved selecting a poorly-trading stock and putting it through a rapid buy-and-sell regimen, which gave retail investors the false impression that the stock had suddenly gained a burst of organic vibrancy.

Kennedy referred to this stock pool tactic as “advertising the stock.” The public would suddenly invest in its artificial upward motion. By the time the stock’s value ballooned by around 20%, Kennedy and his cronies sold their shares, dooming the stock and the unsuspecting investors.

“It is easy to make money in this market,” Kennedy confided happily to an associate. “We better get in before they pass a law against it.”

Related Link: Wall Street Crime and Punishment: Charles Ponzi

Hollywood Mayhem: While having fun and profiting at the expense of honest investors, Kennedy also became involved in the film industry by purchasing the Maine & New Hampshire Theatre Co., which operated 31 movie theaters across New England.

He then decided to expand into film production, thus becoming the rare movie industry figure who controlled both creative output and product distribution.

Kennedy arranged for the 1926 purchase of Film Booking Office (FBO), a minor film studio, for $1.5 million. To ensure his FBO films were being seen by the widest possible audiences, he acquired the Keith Albee Orpheum Theaters Corporation (KAO) in 1927, which owned more than 700 cinemas across the U.S. FBO and KAO would be merged into Radio Keith Orpheum, which became the RKO Radio Pictures studio.

Unsatisfied that his film exhibition presence wasn’t wide enough, he sought to acquire the Pantages Theaters chain of 63 prestige theaters with an $8 million offer. But company owner Alexander Pantages had no interest in selling his business. After Kennedy was rejected, Pantages was arrested on a rape charge — and while he was later acquitted in court, the emotional and financial damage was severe and his reputation was in tatters.

Following Pantages’ acquittal, Kennedy re-emerged with a much lower $3.5 million offer to buy his theaters, which the financially devasted Pantages reluctantly accepted. Many years later, Eunice Pringle, who accused Pantages of rape, would acknowledge the accusation was a lie and she was manipulated by Kennedy to destroy Pantages.

Shifting to Politics: By the end of the 1920s, Kennedy realized the stock market had become wildly overvalued while the film industry was facing great expenses in its migration from the silent movie format to the new “talkies” audiences demanded following the 1927 commercial success of “The Jazz Singer.”

Kennedy’s Hollywood foray earned him $5 million (roughly $75 million in today’s money) and his net worth from his investing was about $4 million ($60 million in current rates).

When the stock market crashed and the nation was swept into the Great Depression, Kennedy was not impacted. Instead, he invested in New York City’s real estate market, picking up properties at a fraction of their pre-Depression worth.

Kennedy had always harbored political ambitions, but he was not interested in being limited to the Boston machinery of his father and father-in-law.

Yet national office seemed out of bounds. New York Gov. Al Smith was the first Roman Catholic to run for president as the Democratic Party’s 1928 candidate, but he was soundly defeated in a campaign where political rivals and hostile media unleashed virulent anti-Catholic rhetoric.

Instead, Kennedy sought to gain political power as an influencer. He hitched his wagon to the rising star of Franklin D. Roosevelt, who succeed Smith both as governor and Democratic nominee for president. Kennedy was a major donor and fundraiser for Roosevelt — a fact widely covered by Kennedy’s friends in the press — and after the 1932 election he was expecting a seat in Roosevelt’s cabinet.

But Roosevelt was wary of Kennedy. He had dealt with him earlier when he was Assistant Secretary of the Navy in World War I and Kennedy was at the Bethlehem Steel shipyard, and Kennedy’s conservative politics were at odds with Roosevelt’s New Deal.

When Prohibition was lifted in 1933, Roosevelt encouraged his son James to partner with Kennedy on launching Somerset Importers, which gained exclusive U.S. rights to brands including Haig & Haig, John Dewar and Gordons Dry Gin.

Despite the president’s effort to buy him off, Kennedy did not give up in his pursuit of a cabinet post, and in 1934 Roosevelt announced Kennedy as the first chairman of the newly-formed Securities and Exchange Commission (SEC). When his incredulous aides asked the president how he could appoint someone with Kennedy’s scoundrel reputation to police Wall Street, the president calmly replied, “Set a thief to catch a thief.”

In a way, Roosevelt’s judgment was cogent — Kennedy knew all of the insider trading, short selling and pump-and-dump tricks of the trade and instructed his SEC team, which included future Supreme Court Justices William O. Douglas and Abe Fortas, to bring regulatory order to a chaotic industry.

Kennedy also kept his media contacts occupied with updates on his reform work, although the press coverage gave the impression Kennedy was a one-man enforcer taking on Wall Street.

Kennedy left the SEC after a year, but returned to Washington in 1937 to run the U.S. Maritime Commission. As with the SEC, he fed the media constant information on his one-man reform efforts aimed at the nation’s merchant shipbuilding program.

Related Link: Wall Street Crime And Punishment: Albert H. Wiggin, An Old-School Banker Whose Stock Prescience Got Him In Trouble

A Diplomatic Disaster: Roosevelt came to appreciate Kennedy’s work and in 1938 agreed to raise his profile on a global stage by naming him U.S. Ambassador to the United Kingdom, the first Irish-American to receive the position.

Initially, Kennedy charmed the British media with his large and photogenic family — his wife Rose and their nine children joined him in London and were a ubiquitous presence at society events.

But Kennedy inexplicably decided to unilaterally create his own foreign policy by opening secret communications with representatives of Nazi Germany. His generous praise for Hitler’s government coupled with his indifference to the Nazi persecution of Germany’s Jewish population baffled his embassy staff. (When told of the violence brought against German Jews during the Kristallnacht campaign, Kennedy sourly responded, “They brought it on themselves.”)

After the Nazi bombing raids on London, he created outrage on both sides of the Atlantic when he told a Boston Globe reporter in November 1940, “Democracy is finished in England. It may be here.” He later told other journalists that the British nation wasn’t fighting to save democracy, but only for its self-preservation.

Roosevelt withdrew Kennedy from London and offered him no further government positions. Kennedy refused to apologize for his comments, and in 1944 he confronted Roosevelt’s election running mate, Sen. Harry S. Truman, by asking, “Harry, what the hell are you doing campaigning for that crippled son-of-a-bitch that killed my son Joe?” — the latter was a reference to Joseph P. Kennedy Jr., his oldest son who died in the war. Truman responded by threatening to physically throw Kennedy out of a window with the men having to be separated because the furious Truman was not joking.

Kennedy spent the remainder of his life mostly out of the public view. His ambitions for elected office were destroyed through self-immolation, he used his wealth to finance the political careers of his sons John, Robert and Ted – and, lesser-known until after his death, the reckless Red-baiting Republican Wisconsin Sen. Joe McCarthy. Kennedy was incapacitated by a stroke in 1961 and died in 1969.

In 1973, Mafia mobster Frank Costello publicly relayed details of Kennedy’s alleged involvement in alcohol bootlegging during Prohibition. Historians have not been able to independently corroborate Costello’s claim, although there is an anecdote that Kennedy brought a shipment of scotch to his college reunion in 1922, claiming it “came ashore the way the Pilgrims did.”

Nonetheless, considering what he did during his life, there is no reason to add invented tales to Kennedy’s complex and bewildering odyssey.

(Photo of Joseph P. Kennedy in 1914 as the president of the Columbia Trust Company. Photo courtesy of the John F. Kennedy Presidential Library and Museum.)

For comments and suggestions on this series, contact editorial@benzinga.com or philhall@benzinga.com.