NYSE’s Whitney Scandal

Though the exchange is highly respected, it’s seen scandal. Perhaps none have been as central as when NYSE president Richard Whitney was charged with embezzlement and sentenced to five to ten years in Sing Sing prison.

From 1930 to 1935, Whitney represented and managed the NYSE. Whitney, a hapless gambler, threw his money after everything from blue chips to penny stocks, incurring losses more often than not. In 1931, for example, his debt reached $2 million. Whitney borrowed from just about everyone he knew to offset those losses, then used the borrowed money to buy even more stock, even as the market collapsed around him.

When he could no longer count on friendly loans, Whitney turned to embezzlement, stealing from customers, the New York Yacht Club (of which he was the treasurer), and even close to $1 million from the NYSE’s own Gratuity Fund.

Whitney’s crimes were exposed after his term as NYSE president, when an audit uncovered his thieving ways. But something good came out of this stock market scandal: The SEC, then a brand-new government agency, set regulations to protect investors against crimes like his.