John Hempton at Bronte Capital has a wonderful account of the Stutz corner - a market scandal in the 20s with remarkable similarities to the current farce surrounding Volkswagen.
Stutz made legendary sports cars, such as this 1913 Stutz Bearcat here.
When the company came under financial pressure, unscrupulous short-sellers targeted the firm — causing the main shareholder, Alan Aloysius Ryan, to defend the price by mopping up stock.
Then, one day in 1920, Ryan declared that he owned 105 per cent of Stutz - and invited the bears to settle with him on his terms.
Notes Hempton:
Well to put it bluntly the financial market and regulators defended their own… Eventually the New York Stock Exchange –with the threat of criminal proceedings – arbitrarily determined a price to settle the short positions. The shorts even got an officially sanctioned “protective committee”.
With Ryan’s debts now entwined with those of Stutz, both the car maker and the man soon went bust. in the end, the only winners were the ordinary long-holders who sold out along the way.
Related links
EXCHANGE FORBIDS TRADING IN STUTZ - NYT archives
Porsche offers to settle VW hedging trades - FT.com
So how many hedgies did Porsche really kill? - FT Alhaville
