The 1980s for Kidder, Peabody & Co. ended on a very sour note. Its star banker, Marty Siegel, was at the center of the Ivan Boesky scandal that blew up in 1987. General Electric (NYSE:GE), parent company to Kidder, Peabody & Co., acquired the bank and was required to pay $26 million in fines as part of a settlement with then-U.S. attorney Rudy Giuliani. Slowly, GE built itself back into profitability under the management of Si Cathcart and his successor Mike Carpenter.
Unfortunately for Kidder, Peabody & Co., the internal problems were not over. Joseph Jett was a bond trader on GE’s government bond desk. His job was to skin a profit from price differences in plain vanilla government bonds and zero-coupon bonds. Jett’s job involved stripping and/or reconstituting bonds in order to take advantage of arbitrage. Jett had discovered a glitch in Kidder’s computer system; it would record profits on a forward reconstitution daily, even if the trades would be worthless upon settlement.
Kidder, Peabody & Co.’s system was designed to tally profits while allowing time for trades to settle. By moving his trades forward again and again, Joseph Jett was able to keep profits building while delaying the final transaction that would necessarily cause a loss equal to the false profits. An upgrade of the system on the same faulty grounds allowed him to enter more false trades, which kept them floating longer. GE noticed Kidder’s portfolio was becoming extremely heavy and over-extended in bonds. GE told Kidder to reduce its stake, whereupon Jett’s scam was revealed.
Around $350 million in false trades were made and $8 million in performance bonuses on false trades were paid to Jett. Jett’s bonuses made him the prime target of a SEC investigation. Interestingly, Jett denied concealing the trades and put the blame on Kidder, Peabody & Co. management, stating that the company knowingly engaged in fraud in an attempt to wrest control of Kidder, Peabody & Co. back from GE. His most serious charges were overturned on appeal. Kidder, Peabody & Co. untangled from GE when the parent company sold the investment bank to Paine Webber, presumably out of anger at having to deal with two high profile trading scandals during the short time they owned it.
To read more about stock scams, see The Biggest Stock Scams Of All Time.
This question was answered by Andrew Beattie.
Ben Mezrich talks about Ugly Americans
In an effort to showcase the dangers of alternating current (AC) and discredit Nicola Tesla, Thomas Edison held public demonstrations in which he electrocuted animals—dogs, cats, horses, and even an elephant—in front of an audience.
The bitter rivalry between Thomas Edison and Nicola Tesla is now the stuff of legend, and it all came to a head during the War of the Currents. On the one side, Edison felt that direct current (DC) was the wave of the future. On the other side, Tesla believed that alternating current (AC) was more efficient for transmitting power over longer distances. Edison launched a massive public campaign to discredit AC, while Tesla partnered with financial mogul George Westinghouse in an attempt to convince power companies to switch over to AC using Tesla’s patented AC induction motor.
By this point, the two inventors were old acquaintances, although there was nothing friendly about their relationship. When Tesla moved from France to New York in 1884, the penniless immigrant got a job at the Edison Machine Works as an engineer. Within a year, he was already solving technical problems for the company, and Edison approached him with the task of redesigning the DC generators for the entire company. He famously offered Tesla $50,000 if he could make the generators more efficient, and a few months later, Tesla came back with an improved design. But when he asked for his money, Edison laughed and said, “When you become a full-fledged American, you will appreciate an American joke.” Since Tesla had redesigned the generators while working for Edison, he had no claim to the patent, and essentially got nothing out of the agreement (although Edison offered him a raise of $10 per week. Tesla resigned on the spot).
A few years later, Tesla built his AC induction motor, and the War of the Currents began. Edison’s main campaign strategy was to prove that AC, which used much higher voltages than DC, was simply too dangerous to use in homes. And to prove that, he went to ruthless extremes. Most famously, he organized demonstrations executing stray dogs and cats, and later cows and horses. One of the first demonstrations took place in 1888, with the electrocution of a large dog named Dash. Edison first sent 1,000 volts of DC through the dog to prove that he would be—if not unharmed—still alive. Then, he hooked the dog up to 300 volts of AC and smoked the pup into oblivion.
And he was just getting warmed up. In 1903, Edison created his largest demonstration yet: He sent 6,600 volts of AC through a circus elephant named Topsy while 1,500 people stood by and watched. The execution was filmed and later released under the name Electrocuting an Elephant.
The real test came in 1890 though, and it was no ordinary animal: The victim was a convicted murderer named William Kemmler. Edison campaigned for the opportunity to create a “more humane” method of capital punishment and, still in the midst of the War of the Currents, he opted to create the electric chair with AC. After all, what better way to prove the dangers of AC than by killing a man with it? And he couldn’t have asked for a more visceral demonstration: The first charge burned through Kemmler’s insides for a whole 17 seconds, after which he was still gasping for breath. The second charge lasted four minutes, and Kemmler burst into flame before finally dying.
Topsy the Elephant
Brooklyn, New York
As the 19th century turned into the 20th, one of the biggest attractions at Coney Island’s “Luna Park” was its private herd of elephants, which roamed freely. A favorite was Topsy, a three-ton tusker whose great strength had been put to use building the attractions that made Coney Island so much fun.
But Topsy had a temper. She killed three men in three years, the last a drunk trainer who had fed her a lit cigarette. Topsy had to go. But how? The authorities fed her carrots laced with cyanide. She wolfed them down without effect. Topsy was one tough elephant.
Thompson & Dundy, who owned Luna Park, decided to turn Topsy into a moral issue — and to make a profit at the same time. They announced that man-killer Topsy would be publicly hanged for her crimes. The ASPCA protested: Hanging was cruel and inhuman punishment. After all, hadn’t New York State just replaced the gallows with a modern electric chair?
All right, said Thompson and Dundy. Coney Island has a powerful electrical plant — we’ll FRY Topsy! But to pull it off, they needed top-shelf technical support. And that’s where Thomas Edison came in.
Edison at the time was engaged in his own free-for-all, battling Nikola Tesla and George Westinghouse for control of America’s electric infrastructure. Edison had declared that his direct current system was safe, but that Tesla and Westinghouse’s alternating current was a deadly menace. To prove it, Edison had been publicly electrocuting dogs and cats for years. And it was Edison who had convinced New York to use Tesla and Westinghouse’s “deadly” AC for its electric chair.
Topsy offered an opportunity that Edison couldn’t resist. What better way to demonstrate the horrible consequences of alternating current than to roast a full-grown elephant?
Edison sent over a crack team of technicians — and a film crew. Topsy was led to a special platform, the cameras were set rolling, the switch was thrown. It took only ten seconds. Edison later showed the film to audiences across the country to prove his point.
In the end, it made no difference. AC beat out DC, but both Edison and Westinghouse prospered (Tesla did not). In fact, Westinghouse was awarded the Edison Medal for “meritorious achievements in the development of the alternating current system.”
That wasn’t much consolation to Topsy, who was dead, nor to Luna Park, which was eventually destroyed in a horrible fire. Today, nothing remains of either except for Edison’s film. If you ask the folks at the Coney Island Museum, they’ll show it to you.
Topsy the Elephant
Coney Island Museum
- 1208 Surf Ave., Brooklyn, NY
- At the Coney Island Museum.
- Sa-Su 12 noon – 5 pm. (Call to verify)
- 99 cents, plus 1 cent to operate Edison’s film.
In 1903, Thomas Edison attached electrodes to Topsy the elephant and executed her via DC power. Part of this scientific process was filming this to prove that DC power was “more humane” and “less dangerous” than AC power.
The film still exists and is available on YouTube. Instead of adding the video right to the post, as I normally do, I’m only going to add a link to the video. That way you can choose to watch it, or not. There are certain things you can’t “unsee”, so if you are a hardcore animal lover, I’d suggest not clicking the link. If you are curious, by all means, go watch it.
Here’s a summary of what you’ll see if you are having a hard time making up your mind.
“The scene opens with keeper leading Topsy to the place of execution. After copper plates or electrodes were fastened to her feet, 6,600 volts of electricity were turned on. The elephant is seen to become rigid, throwing her trunk in the air, and then is completely enveloped in smoke from the burning electrodes. The current is cut off and she falls forward to the ground dead.” (www.imdb.com)
An elephant who gave her life that others might die
NOT for her a mute inglorious posterity. A century after her death, her legacy to science, and to America, has received the recognition it deserves. A memorial to Topsy the elephant has been erected near the site of her execution.
In these more enlightened times, she might well have got off on grounds of provocation. Topsy was a ten-foot-high, twenty-foot-long Indian elephant. She had been employed by a circus, but ended up helping with the construction of the theme park at Coney Island. She was said to have killed three men, but her last victim, at least, brought on his demise by feeding her a lighted cigarette. Nevertheless, Topsy was condemned to death. The idea of an elephantine hanging was opposed by animal-rights activists (though another homicidal elephant, Murderous Mary, was indeed hung in Erwin, Tennessee, in 1916).
Enter Thomas Edison, inventor of the light bulb. Edison was determined to prove that the alternating-current electrical system developed by George Westinghouse, his rival, was fatally dangerous. To that end, he had been electrocuting farm and domestic animals for years. The opportunity to fry an elephant was a godsend.
Around 1,500 spectators turned up on a cold January morning, lured by the novel combination of death, an elephant and electricity. Mercifully, Topsy died extremely quickly, and without a trumpet, which may have had something to do with the carrots laced with cyanide that she had been fed.
“It is a bit of a shameful moment in Coney Island’s history”, says Gavin Heck, the brains behind the memorial, unveiled last week among the antique bumper cars and distortion mirrors in the Coney Island Museum. Mr Heck has also commemorated Topsy at Coney Island parades, most recently with a float depicting her resurrection.
But that is not the end of her legacy. As part of Edison’s campaign to debunk his rival, he had lobbied New York to introduce electrocution—by alternating current—for human executions. In 1903, debate still raged whether the chair constituted cruel and unusual punishment, early uses of it having produced messy results. Big Topsy’s quick death helped to settle the argument. Electrocuting elephants is now considered inhumane; but it’s fine for humans in ten states.