It seems almost unfair to describe Daniel Drew as a bankrupt because he amassed so much money in his long life and it was only at the twilight that he lost it all. But bankruptcy did befall him and very much, in those days, people felt that if it could happen to old invincible Daniel Drew, it could happen to anybody.

He was the ultimate stock-broker robber but his legacy is honorable: Drew University.

Daniel Drew was born (1797) and raised in Carmel, New York; "Putnam County" as he was fond of calling it.

He made his first $100 as a stipend for registration into the US Army during the War of 1812, though he never saw any fighting. Once the war over, he invested the $100 into the business of buying cattle straight from farmers and selling them at market at a marked-up price; a drover as he was called. This business brought him to New York City often where he became acquainted with opportunities in the ferry boat business. Soon, he had a fleet and was competing with Cornelius Vanderbilt (1794-1877).

Drew would stoop to any low to beat his competitor. Loss leaders ... false advertising: none of these tactics was below Daniel Drew and he did so with impunity as none were as yet properly defined as offences in law. In these early days of American commerce and especially the stock market, there were few rules governing such things as insider trading.

Drew moved to railroads which he wisely saw as the successor to the ferry boat business. And his favourite pawn was the Erie Railroad Company. Shareholder, director, officer; it never was about any fiduciary duty to a corporation. Consider his personal motto, a phrase he coined:

“I’ve got to look out for number one.”

He manipulated his way onto the board (as Treasurer, no less) and then used his position, with the help of a few insiders, to manipulate the stock price and bought and sold until he had made his millions.

His diary says he found God but his legacy is anything but holy with the exception of the Drew Theological Seminary of the Methodist Episcopal Church, established in Madison, New Jersey, which he financed in 1866 by pledging $500,000, and still operating as an institution of advanced learning in the state of New York, and now Drew University. The university now refers to their founder using politically correct language: Drew was a "Wall Street financier".

Daniel DrewDrew hoodwinked Vanderbilt into buying a new set of shares he had the Erie Railroad Company print-off and issue at a set price. Vanderbilt spent millions buying shares which were eventually worth much less. How?

"When Daniel Drew sold his controlling interest in the Erie Railroad to Commodore Vanderbilt, ... he promptly turned around and issued enough new stock to block the takeover. With the board still under his control, it was only a matter of printing new pieces of paper which could then be distributed in highly liquid, impersonal markets. Drew was fascinated with the possibility that people would pay hard cash for the pieces of paper he so readily printed....

"Wall Street is a peculiarly powerful magnet for Daniel Drew and other pathologically greedy people who so often overwhelm the efficiency goals of the stock market."1

Drew left town to escape the clutches of the New York courts which Vanderbilt had quickly enlisted to support the fledgling call for shareholder relief.

It was the start of a five year battle for control of the Erie Railroad. Historians would call it the Erie War.

Daniel Drew was no stranger to using the courts to his advantage. In an era without instant communication, it was difficult to enforce stare decisis. Drew would venue shop until he got a favourable judicial decision. His philosophy about the law was straight from rural America:

“Law is like a cobweb. It’s made for flies and the smaller kind of insects but lets the big bumblebees break through.”

But Drew would get his comeuppance. Vanderbilt had a long memory and Drew missed New York too much. He returned and made an appearance of peace with Vanderbilt.

He shouldered part of the blame for the great stock market crash of September 24, 1829 (Black Friday) and it would also be his ultimate undoing. Drew worried that he might be killed by the mob of devastated investors.

Eventually, Drew was ostracized from Wall Street and in 1870, was victimized by his own proteges Jay Gould and Jim Fisk He was financially cornered and when he begged for mercy, his old friends laughed at him.

Drew sought out the help of the local court but he was too late: Fisk and Gould had beaten him to the courthouse door. Drew‘s description of this disappointment in colorful words, customary of the law two centuries ago but still not that far off the mark today:

“In war, it’s always an advantage to attack first. In the case of lawsuits, to get out an injunction first is particularly helpful. It puts the party that comes out next with an injunction in the light of mere quibblers and obstructionists, and they don’t have a standing with either court or jury.”

Fisk died a few days later – gunned down by a Ned Stokes in a dispute over an actress' affections.

The media was fascinated by Daniel Drew and they were merciless in their rebuke of him and their celebration of his financial misery. One wrote that his very name “became a proverb for rascality”. Another referred to Drew as “one of the curses of the market for years past. The London Times described Drew and his gang as:

“… a set of swindlers. Befriended by a suspected legislature and a more than suspected judiciary.”

Drew’s financial empire came crashing down when Gould cornered him into a $2-million loss.

When the stock market crashed again in 1873, it was the kiss of death for Daniel Drew. Both Vanderbilt and Gould prospered while Drew went bankrupt, unable to pay his debts and with his assets hounded out, seized and sold to pay his many creditors. His own grand-children started to suspect his trusteeship of certain family trusts and they too, sued Drew, who was further embarrassed when news got around that the Court removed him as trustee. He defaulted on the $17,500 annual interest payments he owed his seminary, and half of his $500,000 pledge was lost.

He was declared bankrupt in 1876, an event widely reported by the press. His statement of assets included a watch and chain ($150), a sealskin hat ($150), clothes ($100) and a bible and hymn book ($130).

The bankruptcy examiners did not trust Drew and they questioned him under oath repeatedly, so Drew pulled an old rabbit out of his hat and pretended to be gravely ill. When they gave him a day of rest, he promptly absconded on the next train. But the examiners caught up to him.

He floundered from rented room to hotel room until his son took him in and gave him lodging in the basement.

One of his last refrains, the empty whimper of a broken man from a bygone era of rampant insider trading:

“To speculate as an outsider is like trying to drive black pigs in the dark.”

He died in obscurity in 1879.

REFERENCES:

  • Lowenstein, Louis, Is Speculation "The Essential Native Genius of the Stock Market"?, 92 Colum. L. Rev. 232 (1992 - NOTE 1)
  • The Erie Railroad Row, 3 Am. L. Rev. 41 (1868)
  • White, Bouck, The Book of Daniel Drew (Secaucus, New Jersey: The Citadel Press, 1980).