The Whisky Trust: Who Killed The Trust? (Part 3)

Transcript

The Tefflon Secretary

All was quiet on Clark Street as the predawn city took one last breath before the start of a busy new day. Soon this thoroughfare would be filled with pedestrians and buggies heading to and from Printer’s Alley. And soon a church bell rang, as if to wake a sleeping city from its slumber.

A few blocks west on Jackson Blvd, a black carriage was riding through the snow lined streets, its passengers - George Gibson, his wife and his daughter - bundled up against the February cold. 

It had been a long morning for the family, catching the first train up from Peoria to Union Station. But there was great anticipation, as George had promised these two ladies a glorious stay at the palatial Grand Pacific Hotel, a chance to see the town, do some shopping, and maybe catch a performance at the Chicago Opera House. George just had one business associate to meet and the rest of the time would be theirs. 

George was lost in thought as the palatial Grand Pacific Hotel came up on his left. The buggy swung around and came to a stop in front of the hotel, Grand Pacific written on the triangular awning above the main entrance. 

Quickly a porter approaching, “Good morning Mr. Gibson.” He helped George’s wife and daughter from the carriage. 

“Could you fetch my satchel? I would like to carry that in myself if you please.” The porter nodded and found the satchel among the baggage. 

Just as George’s feet hit the snowy ground beneath him, he was suddenly startled by a man grabbing his arm. “Hey, what?” 

In a brief moment of shock, his head swung around to spot the molester, a man in a dark blue suit who had two carbon copies right behind him. It was Postal Inspector Stuart along with Deputy United States Marshal Gilman and New York Treasury Agent Brooks. Before he knew what hit him, George was being whisked away to a government building across the street, his wife and daughter left dumbstruck standing in front of the hotel. He said, “hey c’mon guys, at least let me leave my bag with my family.

But there was no way those three men were going to let that satchel out of their sight. If George was that concerned with its safety, it must contain some damning evidence.

George sat helpless in the marshal’s office for hours and when the three men returned Marshal Gilman, with a look of satisfaction on his face, told George he was under arrest as “a participant in a gigantic conspiracy involving the destruction of life and a vast amount of property.”

For George J. Gibson, the dream of a relaxing day in Chicago with his family, had quickly turned into a dark and dreary nightmare. And he knew that confident look on the Marshal’s face wasn’t going to bode well for his future.

The Crime

Postal Inspector Stuart suggested, "there is nothing that your imagination can conceive more diabolical and horrible than the intentions of the(se) conspirators." It seems the company still referred to as The Whisky Trust was ready to do whatever it took to bring down their competition.

Just 3 years before, Thomas Lynch’s H.H. Shufeldt distillery had been ravaged when sticks of dynamite were thrown on the roof. And while the crime was never pinned on the Trust, there were very few doubts as to their involvement.

Now a more diabolical plan had been put into motion. 

A few weeks before this arrest Mr. Gibson, who was the Secretary of the Distillers and Cattle Feeders Company aka The Whisky Trust, had tried to bribe a government gauger named Thomas Dewar, who had been assigned to Shufeldt’s Larrabee Street facility. 

In exchange for $10,000 cash and $15,000 in whisky all the gauger would have to do was place a pistol shaped device, which Inspector Stuart referred to as “that infernal machine,” under a vat filled with thousands of gallons of alcohol. The pistol Gibson had provided would be filled with a flammable liquid made of a compound of bisulphate of carbon and phosphorus. Once the fuse was ignited and burned down, the gun would discharge, puncturing the vat, igniting an explosion that would destroy the entire distillery. 

All that gauger Dewar would have to do is fill the device with the fluid and light the fuse. He was told it would burn for a couple of hours before the explosion would occur, securing his getaway and providing him with plausible deniability.

But the documents in Gibson’s satchel revealed that the bomb wouldn’t have gone off in hours like Gibson stated, but instead it would have gone off immediately, taking out Mr. Dewar, the only living person privy to the details of crime - thus saving the Trust the $25,000 expense and any fear of loose lips. 

It was estimated that if the scheme were successful, at least 150 distillery workers would have been killed with no time for escape. 

Luckily, this honest gauger, who had been given the job after the Trust had lobbied for him, immediately told his superiors of his interactions with Gibson and soon they went about setting a trap to catch him in the scheme.

The key to pulling off the ruse was that fluid in the device. Dewar reached out to the Secretary suggesting that he feared the fluid had deteriorated and could he bring some more. 

When Gibson was captured, his satchel not only contained the fluid but also damning notes about the scheme. 

A confident solicitor Hays would remark to reporters, "The chain of evidence against Mr. Gibson is the strongest ever forged." 

Gibson was indicted by a grand jury in Cook County a few days later - charged with five crimes, including consipracy to commit murder. He resigned his position with the Trust, but Greenhut proclaimed Gibson's innocence and kept him on the payroll.

The news of this conspiracy lit up the town of Peoria in mass protest, with picketers angrily marching in front of the Monarch and Woolner distilleries. It got so bad, the Pinkerton Agency had to be called in to keep both sides of the argument in check..

Yet as clear cut as the government felt their evidence was, in an unbelievable turn of events, a nolle prosequi (NO lay PRO sea QUAY) order was entered in for each count, which meant the prosecution had dropped the case , leading to the Chicago Federal Judge having no option but to close the case. 

The results of the fiasco, Gibson left his job, but received a payoff from Greenhut, the Trust Company escaped prosecution, and within three months, Chicago’s two biggest distilleries H.H. Shufeldt & Company and Calumet Distilling Company were under the control of the Trust Company. 

Why did Thomas Lynch give in? According to him, he didn’t know he was selling to the trust. He claimed that he had sold the company to Lyman J. Gage of the First National Bank of Chicago. But others suggested he knew the Trust Company would be the ultimate owner of the distillery. Perhaps he feared for his two boys and the lives of the distillery workers under his care in a country where justice seemed just a dream. 

One of the things that makes writing about the Whisky Trust a bit difficult is that, after their first couple of years, they were no longer officially called a trust, they only operated like one - and they really weren’t about producing what we refer to today as whisky.

Spirits in the latter half of the 19th Century would fall into one of three categories - high quality whiskies like old rye and old bourbon - high quality spirits which would be unaged and used for gins and rectified with straight whisky for medicinal whisky and for saloons - and low quality spirits which would be used at a 10 to 1 ratio for cheaper whiskies, or knocked down as low as 60 proof for use in cheap saloons, or possibly sent to states like Kansas or Maine that had gone into prohibition early - since they wouldn’t have legal access to quality whisky and the druggist could increase profits with the cheaper medicinal spirits.

For the Trust, whisky, with its need for aging, wasn’t worth their time. Their main product would come from the high quality and low quality spirits we refer to today as grain neutral spirits. And this is likely the reason the Trust didn’t run roughshod through Pennsylvania and Kentucky in the 1880s. And it’s also part of the reason Charles and Chauncy Clarke had been allowed to walk after their 5 year contract had dried up. They wanted to make their family’s rye whisky again and they made an agreement not to compete with the Trust Company’s main products. And proof of this came later in the mid 1890s, when Charles would face a lawsuit when it was discovered his distillery had been making spirits as well as whisky.

So how big did this Trust Company empire really get?

By November of 1892, it was said that the Trust Company controlled every distillery that was in active operation north of the Ohio River and controlled and produced ninety-five percent of the distilled high wines, spirits, and pure alcohol produced in the entire United States - exceeding 45 million gallons in that year alone. 

This may sound like an incredible set of statistics, but in reality, the country as a whole exceeded 112 million gallons of whisky and spirits that year. That means the Trust was only accounting for roughly 40% of the country’s total output and some 67 million gallons of rye, bourbon, and other whiskies were being produced apart from the Trust Company. 

Still 40% of the total market is pretty dominant. And the Trust Company would continue to press harder to get more market share. 

Beyond the dirty tactics at Shufeldt’s, mysterious fires would claim several independent distilleries, like Herger Bros distillery in Pekin, Illinois along with its competitor the Hamburg Distillery. But one of the most painful fires was the one at Edward Spelman's just completed Enterprise Distillery. After the fire, the damage was compounded when it was discovered that a mysterious person had requested the distillery’s insurance be cancelled, one day before the fire gutted the place. Again, nothing was pinned to the Trust Company.

It seemed the one thing the Trust Company wouldn’t do was to explicitly write into their contract anything that smacked of restraint of trade. But even that fell by the wayside when they forced a Chicago distiller to sign an agreement restricting them from building a distillery or even working in a competing distillery that was within 1000 miles of Chicago.

Shufeldt and Calumet now under their thumb, the Peoria Journal noted a change in the attitude of the Trust Company’s men, saying "members now walk the streets like ordinary men and are no longer interested in the price of dynamite, the beauties of an antiseptic fluid or the possibilities of making gin. Instead they are rejoicing that the new Japanese process of making whisky will give them the market any way." 

Yes they had their terror tactics, and rebates, but rest assured Dr. Takamine's koji fungus would be their ace in the hole. The production optimizer that no competitor could match.

That is until that mysterious fire ravaged the recently outfitted Manhattan Distillery - And while Greenhut and the Trust Company’s enemies were growing in number - it still had to be asked, could anyone stop them or was there even a willingness to do so?

Death by a Thousand Cuts

Amazingly, the trust system had many supporters among distillers, especially those who were around prior to the pools. Charles Clarke himself would say years later that trusts were a great way to help the industry be profitable as a whole. Maybe this was part of the reason no government intervention in the Trust Company was on the horizon as 1892 came to a close.

Times were good, rebates were being paid, and distilleries that had suffered under the pools were either busy producing for the trust company or they were shut down with owners rich in stock, receiving dividends, and collecting salaries without a lot of effort.

But it wouldn’t take much for this rising house of cards to reach a point of instability.

And Greenhut’s need to get H.H. Shufeldt under the Trust Company’s control created consequences. 

But rather than legal liability, the trouble came from lavish spending with Thomas Lynch’s distillery costing a whopping $1.6 million. And it didn’t stop there, He also bought Calumet for $500k, Star and Crescent Distilleries in Pekin for $700k, Central Distilleries in St. Louis  for $850k, as well as Riverdale Distillery in Cook County Ill, and Nebraska City Distillery, Nebraska City, Nebraska. And he paid for them all in cash instead of stock. 

Where did he raise that much capital? He didn’t. He stole the money out of the funds meant for rebates and he cut dividends. The dividend cut sent the stock into a tailspin, dropping from $70 a share to $8. The lack of rebates being paid angered wholesalers who formed a committee to stand up to the board. Eventually bonds were created to protect the rebate system, placed with a New York trust company.

Then Greenhut and other officers began a scheme of taking company funds to buy stock as a company then sell it as individuals. Then Greenhut began shorting the stock, or betting against it, losing even more money when the scheme failed. It is estimated that some $800,000 of the company’s money was lost in these schemes.

And then there were the mysterious dealings around the Nebraska City Distillery. Purchased with $425k in cash, shortly thereafter it was sold for $10k with guarantee that it would not be used for distilling spirits, but the company that purchased it didn't follow the rules and went into direct competition with the Trust Company. So the Trust purchased it back for $410k with the sole intention of shutting it down.

And little did Greenhut or the company officers know, but this would end up being the worst time to put a company on shaky ground. The days of easy money were coming to an end and soon the entire country would pay the price.

The Depression of the 1890s

Growth in the railroad industry exploded in the years following the Civil War. And like the DOT.COM and Real Estate booms of the 21st Century, it seemed like investing in railroads was easy money and a guarantee of profits. But like the bubbles that formed in Real Estate and the DOT.COMs, the unthinkable would happen in February of 1893. Just like Lehman Brothers failure acted as a catalyst to a much bigger failure in 2008, so did Philadelphia and Reading Railroad failures in the winter of 1893. An overextended railroad was forced into receivership.

The news only got worse from there - bad crops in Argentina, South Africa, and Australia hit Europe and sent investors looking for safe havens and US gold seemed the most reliable. This hoarding of gold put even more pressure on the economy and the panic caused wheat prices to crash which put highly indebted farmers into a cash crunch as the dollar deflated. Banks failed, as did several major railway lines including the Union Pacific and Atchison, Topeka & Santa Fe. 

As unemployment spiked to near 20% people couldn’t pay their mortgages and the country was soon in the grips of a great depression.

And with the depression also hitting Europe, exports of American spirits for use in Madeira and other fortified wines dried up. None of this helped a behemoth distilling company that had put itself in a precarious position with bad management, speculation, and a fist full of land leases that had to be paid. And now with frustrated shareholders to deal with, big brother saw a chance to pounce.

A Government With No Teeth

Whether it was the cries of the investors or the government just having enough of this pseudo trust, the Illinois legislature would appoint a committee that February to look into possible illegal activities by what was still being referred to as the Whisky Trust. 

By June, Illinois would file suit, looking to brand the Distillers and Cattle Feeders Company as an illegal trust under the Sherman Antitrust Act, with a goal of revoking the company's incorporation certificate.

Meanwhile the 52nd US Congress was now in session and the house judiciary committee decided to launch their own investigation through the prodding of a man named James Veasey. 

But Veasey’s intentions were anything but virtuous. He had stirred up questions about the Trust Company with congressmen, hoping an investigation would cause a sharp decline in the Trust Company's stock allowing him and a stock broker from Allen and Company in New York to short the stock and make windfall profits. 

Years later Veasey would confess to the scheme, but his most damning testimony came not in the form of evidence of financial wrongdoing by the Trust, but instead in the company’s practice of deceptively adding chemical flavorings labeled as bourbon, Jamaican Rum, as well as others to their pure grain spirits in an attempt the fool the American public. Testimony that would spur on a Kentucky Colonel named Taylor to lobby congress for the Bottled-in-Bond Act a few years later. But otherwise, the Federal case seemed to go nowhere.

As for the Illinois case, the Trust Company defended itself by claiming it acted fairly in its pricing models and rebates - and that it needed to tear down the distilleries that were underperforming in order to utilize the equipment from these distilleries to repair faulty equipment in their more productive and well placed distilleries. 

But to the State of Illinois, it was overwhelmingly obvious that they had not become a monopoly by luck and fair trade, but instead with a goal of dominating the market by any means possible. Within 6 months, they heard the verdict. The Distillers and Cattle Feeders Company was guilty of anti-competitive practices and their Illinois incorporation certificate was to be revoked. Only an appeal to the Illinois Supreme Court could save them. Their stock plummeted to near $7.   

The End?

With all of the talk of lawsuits, conspiracies, and the actual burning down of distilleries, including the one he was working in, one has to wonder about Takamine Jokichi’s state of mind during all of this chaos. But through it all, he finally succeeded in getting his Japanese Process ready for production at the Manhattan Distillery. On December 1, 1894 the distillery began its first runs of the innovative new spirit. The goal was to produce 2,500 bushels a day, or four million gallons a year from this single distillery.

But Jokichi's plan was doomed from the start. Not because his process failed, but because of who he decided to partner himself with.

By January, the concern grew with stockholders and they formed a committee and called for a meeting with the directors. But before the meeting took place, a pocket of shareholders took matters into their own hands and reached out to the Federal Court in Chicago to appoint a receiver to help bring the company out of its financial collapse. 

Who was the court's choice? A man named Lawrence, another named Mitchell and Joseph Greenhut, the man behind all the chaos and mismanagement.

The stockholders were furious and they lobbied the court to change their position, presenting proof of Greenhut’s stock manipulation. The judge reversed his decision and instantly the founder of the infamous Whisky Trust, one of the country's most powerful combinations was unceremoniously dumped from the company he’d built. He was replaced by General John McNulta, a lawyer of some 30 years and the court’s choice to represent their interests.

The new receivers formed a group called the Spirits Distilling Association, that would be open to DCFC and independent distilleries. And to cut off any unfair advantage at the Manhattan Distillery, they shut down Dr. Takamine's Japanese. This would lead Jokichi to ask the receivers to cancel his contracts, which they did. But then they did a very Trust-like thing, they started dictating production limits for the member distilleries and started raising prices. When the public outcry became too much Lawrence and Mitchell were forced to resign as receivers, leaving just General McNulta. 

That same month the court would order the directors to quick-deed 58 of the Trust Company’s distilleries. Bids were to be taken, but curiously, only one offer came in - it just so happened, it was from a group of shareholders from the old Trust Company. 

As if to put pressure on McNulta and the courts to proceed with the deal, the Illinois Supreme Court had reached their verdict on the status of the Trust Company.

On July 14th, the upper court upheld the lower court's verdict and the Distillers and Cattle Feeders Company was labeled an illegal monopoly and its charter was revoked. The Whisky Trust was finally dead...or was it?

The King Is Dead, Long Live The King

As for the founder of the Trust, Joseph Greenhut, he wasn't going without a fight, kicking up lawsuits to try to retrieve what he still felt was rightfully his. And he wasn't alone. Many of the former distillery owners, especially those whose distilleries hadn't been torn down, wanted their buildings back and were determined to let the government in Springfield know their frustration.

McNulta later testified that while records of the Distillers and Cattle Feeders Company were pretty straightforward, records for the original trust were either "lost, destroyed, or not in existence." And when 2 safes were to be examined by McNulta, the officers refused to open them, saying they held private papers. McNulta had to break into each to retrieve the records. Whether he found anything incriminating, he did not say.

Not long after, he would approve the only bid he had received and for a price of $9.8 million dollars, on July 1st, 1895, 17 of the choicest distilleries, including Peoria's Manhattan, Monarch, and Great Western would be brought under the newly incorporated American Spirits Manufacturing Company, a firm incorporated in New York and comprising the old Trust Company’s shareholders.

And in what might have been one of the best Freudian slips in whisky and financial history, when Charles Dow posted his inaugural Dow Jones Industrial Average on May 26th, 1896, one of the first 10 companies listed was the Distillers and Cattle Feeders Company, amended in the August edition as the American Spirits Manufacturing Company. 

As for Joseph Greenhut, he stayed in Peoria for some time and served as the president of the National Cooperage and Woodenware Company and then organized the Corn Products Company which brought several glucose plants under the same umbrella. Later he sold his mansion and moved to New York. He made brilliant investments and thrived in the Big Apple. But he never forgot Peoria and provided monies for the building of Greenhut Memorial Hall and a Civil War Soldiers and Sailors monument in the courthouse square. He also didn't stay out of the distilling business forever, keeping sizable interest in the Standard Distilling and Distributing Company. He died in New York just prior to Prohibition.

Peoria's reign as the Whisky Capital of the World would quickly come to an end, as by 1900, there were only a handful of distilleries, including Great Western, Monarch, Manhattan, and Atlas (which had been snapped up by Joseph Greenhut’s Standard Distilling Co.) - as well as the venerable old independent Clarke Brothers distillery and Corning and Company.

As for the whisky industry as a whole, its time with trust-like activity would continue through the rest of the decade and into the future - thanks to American Spirits Manufacturing Company, Greenhut’s Standard Distributing Company, and a Kentucky company whose aggressive consolidation would finally find Bluegrass distillers in the crosshairs. 

But that’s a story for a later series.

As for Takamine Jokichi, when the contracts with the trust company were dissolved it left him with no future compensation. And at first, his health suffered. Struck down again by liver ailments, he was rushed to a Chicago hospital and recovery was long and hard. 

But while lying in that hospital bed, he came upon a different use for his enzyme, as a product for indigestion relief. He soon drew the attention of a Detroit pharmaceutical company Parke, Davis and within 5 years would be a millionaire. And his drug is still on the market in the United States and Japan.

Financially able to support himself, he moved his family to New York and built a lab where he began a study of adrenaline. His experiments would lead to the first extraction of pure adrenaline in crystalline form. It would be used to stop haemorrhaging in patients during surgery. Jokichi’s patent for adrenaline would be the first ever for a natural substance. 

But Jokichi isn’t just known for his scientific achievements. Next time you head to Washington DC in April to marvel at the beautiful Cherry Blossoms, send out a message of thanks to Dr. Takamine, who so loved his adopted country, he provided this wonderful gift from his homeland.

WIth all of his great achievements, his time in the whisky industry is little but a footnote to a brilliant career.

As for the Sherman Antitrust Act, it had its flaws and would require several amendments to sharpen its teeth. But its greatest weapon came in the form of a man. A man who started out as a sickly child, traveled out west to strengthen his body - only to return to witness the devastating death of his wife and mother within hours of each other. 

But that enormous strength and character would return to him. He would fight for his country in Cuba, and battle corruption in New York as Governor and use his bully pulpit to shine a spotlight on the abuses of the titans of industry. His enemies would push to bury him in the weakest political office they could find, as Vice President of the United States.

But he would get the last laugh, when upon the untimely demise of the Commander In Chief, he would take the reins of the country and put John D. Rockefeller’s Standard Oil and all of the other trusts on notice. 

Some called him T.R., others “the Trust Buster,” but one of his most famous nicknames gained widespread popularity after a hunting trip to Louisiana where a bear had been trapped and tied to a tree for him to shoot for a photo op. Being an avid outdoorsman, he felt the deed unsporting and declined. 

Newspapers fell in love with the story, and not long after, his nickname would forever be affixed to the little stuffed toys that bear his name “Teddy.”

Yes, thanks to Theodore Roosevelt, trusts would no longer just be a dirty word, and Sherman would find his champion.

I’m Drew Hannush and this is Whiskey Lore

Whiskey Lore is a production of Travel Fuels Life LLC

Production, stories, and research by Drew Hannush

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