“He really started out when he was about nineteen. He seems to have educated himself in libraries, mainly-he never spent any time in school after he left the orphanage. But at nineteen he had a hell of a vocabulary and the brains to go with it. He saw a chance to buy the capital stock of a bankrupt company for two thousand dollars of borrowed money at a sheriff’s auction in Wisconsin. He had to borrow it from loan sharks in the mob, but it gave him a foothold-an established corporate name-and he’s never stopped climbing since then. He got together with Berkowitz, and the two of them put the company into trivial production, just enough to make it look alive. Then they brought in a couple of other partners and started trading the stock back and forth among themselves. Pretty soon the over-the-counter market took note of it. The public watched for a while and decided it was an active stock, so they started to fool with it too, and so the price went up. Naturally, that was when Villiers and his partners pulled out. They took healthy profits after they’d churned the stock, and they left the public holding the bag.”
Quint murmured, “It’s a little game that’s probably been played only a hundred thousand times. But they never learn out there, do they?”
Burgess smiled and nodded; he went on: “Villiers paid off the loan sharks and went into corporate finance for himself. He established an insurance company, chartered in Maryland, where the laws are pretty loose, and he issued reams of paper and used it to buy stock in other companies. Pretty soon he was just trading his own stock back and forth the same old way, but the public saw all the activity going on, and they kept moving in. Villiers took handsome profits and moved on into the plastics business by using Lee Central Plastics Company’s own assets to buy control of the company. It seems to have been a watertight job he did with that one. He issued insurance-company securities and sold them to Lee Central Plastics in exchange for Lee Central stock. Got control, and shifted the watered insurance stock back into a dummy pocket quick enough to get it off Lee’s books before the next annual report came due. Everybody knows he had to have some weapon to hold over Lee’s directors to put the deal through but nobody ever proved anything.”
“While he was in the middle of the Lee Central thing he was working another interesting stunt at the same time-starting a rumor along the Street that the Federal Reserve and the ICC were going to raise margin requirements. He did a hell of a job of planting information, sort of like this plant he’s pulled through Wyatt on Claiborne’s outfit. He got the rumor working so well it drove stock prices down across the board for two days, and he was right in there selling short all the way, buying in at the bottom and riding it back to the top after the rumors fell apart. That kind of thing goes on all the time, I guess-painting the tape. Nobody ever proved Villiers started those rumors, of course, but the word got around somehow, and after that and the Lee Central thing, he’s had a hard time doing business down here. That’s why he shifted most of his base of operations to Canada.”
“He’s a con man, of course, a common swindler, but on a grand scale. That gives you the background-I think it may help, sometimes it’s easier to anticipate what a man will do when you know how he tends to operate in a given situation. All right, now we’re up to the present. That brings us to this item.” He took a folded newspaper proof sheet from his pocket and spread it open on Quint’s desk. “Better come over here and read it, Russ.”
This announcement is neither an offer to sell nor a solicitation of an offer to buy or exchange the securities referred to below. The Exchange Offer is made only by the Prospectus, copies of which may be obtained in any jurisdiction only from authorized dealers, including the undersigned.
NOTICE OF EXCHANGE OFFER TO HOLDERS OF NORTHEAST CONSOLIDATED INDUSTRIES, INC. COMMON STOCK BY HEGGINS AIRCRAFT CORP., INC.
Heggins Aircraft Corp., Inc., is offering by the Prospectus to exchange unlimited shares of Common Stock of Northeast Consolidated Industries, Inc., for Convertible 5?% Debentures of Heggins Aircraft Corp., Inc., in the ratio described below. The Exchange Offer will expire at 5:00 P.M. Eastern Daylight Time on September 30, 1970, unless extended by Heggins Aircraft or withdrawn as aforesaid.
There was a good deal more, and Hastings, peering over Quint’s thick shoulder, read all of it, right down to the italicized signature of Hackman and Greene, Registered Brokers.
Bill Burgess said, “We got that proof from the Times. The same ad’s set to run Monday in The Wall Street Journal and every big metropolitan daily in the country.”
“The fat,” Quint said obliviously, “is in the fire. Not only that, but the damnable thing about it is, he can do it. Legally. Unless we find a means to stop him.”
Bill Burgess said, “What I still don’t understand is how he managed to beef up Heggins so fast. Two weeks ago it was a dying company floundering on the verge of collapse. Now the price has shot up six points, and you hear nothing but glowing reports-and don’t tell me all of them were planted by Villiers’ people.”
“Part of them,” Hastings said. “The rest of it must have been done by cooking the books. A lot of things. I’ll lay a few examples on you to give you the drift. First, the company deals in a low-down-payment product-airplanes. Say a plane costs fifty thousand and the customer buys it with five thousand down. Ordinarily you report only the five thousand as income. But when Villiers took over, suppose his accountants cooked the books by inflating earnings with the whole thing in the income column-they report the full scale price as income, not just the down payment. Shady, but legal. They can juggle the inventory accounts to make the assets look greater. They can bring in their own team of auditors, who’ve been coached to show how depreciation has been taken inaccurately, and fiddle with earned-surplus figures and net working capital and other vagaries. They can report the company’s subsidiaries at book value instead of original cost. They can choose between accelerated depreciation and straight-line depreciation. They can take research costs immediately instead of amortizing them over a five-year period. They can announce they’re going to grant stock options, which aren’t charged to income, in lieu of cash bonuses. They can credit capital gains to income. They can, and did, declare a cash dividend last week to increase stockholder confidence. Villiers has created a bull market in Heggins stock overnight by operations like that and by putting out sales literature that convinces the readers it’s a good company to invest in. All kinds of happy talk about talented scientists and engineers, capable financial leadership, and a new management that’s balanced in depth so that the loss of a key exec won’t wreck the company. A spirit of innovation. An aggressive intent to exploit existing markets and create new ones. A good record of sales expansion five years ago, and never mind the years in between. Hell, our boy’s been a one-man inflation for Heggins stock. And it’s easy enough to see what he’s doing now. It’s relatively cheap for one company to take over another company by issuing interest-bearing Chinese money like these Heggins debentures in Villiers’ ad. And I’m not even sure the NCI board of directors will put up a fight.”
Quint said sharply, “Why the devil shouldn’t they?”
It was Burgess who answered him. “Because according to our information, at least two of them have got themselves into a trap that Villiers ingeniously set for them. And if two of them fell into the trap, it’s possible one or two others are in it too that we don’t know about. If it makes up a majority of the board, then the rest of the board members can’t act-they’ve got to sit on their hands while Villiers moves right in.”