Before Madoff: A WASP Forerunner

Bernie Madoff has been causing angst in some Jewish communities, where there is a fear that his scamming will revive old stereotypes. Amid the aftershocks of the scandal arising from his alleged Ponzi scheme, it's worth remembering that ethnicity has no monopoly on shady dealings. The WASPs have had their own Bernie Madoff, only worse. His name was Richard Whitney, and his story has some eerie parallels for today.

Whitney embodied WASP privilege. He was educated at Groton and Harvard, where he was a member of the school's most exclusive club, Porcellian. On Wall Street, he was the chief broker for J.P. Morgan, the premier investment bank. He kept polo ponies. He looked the part—tall and handsome, his hair graying at the temples, his Porcellian pig's head—the club's status signature—dangling from a gold watch chain. During the 1930s, he was president of the New York Stock Exchange, and calls for government regulation were heard after the Crash of '29, Whitney repeatedly testified before Congress. His argument against regulation was simple: the stock exchange did not need to be regulated because it was run by gentlemen, and gentlemen could be trusted.

Whitney was a gentleman, of a kind, but he was a poor investor. He lost millions backing an apple-based liquor called Jersey Lightning, which he thought would do well after Prohibition. Strapped for cash he began borrowing from friends and family members who trusted him. Then he began borrowing, that is to say embezzling, from various trusts and funds of which he was a trustee—the Harvard Club of New York, the New York Yacht Club, the St. Paul's School endowment and the New York Stock Exchange pension fund.

He got away with it for years—until, in 1938, he was caught by a routine investigation run by a new agency called the Securities and Exchange Commission (SEC), whose creation Whitney had steadfastly fought. (The SEC pressured the NYSE to send member firms questionnaires, requiring disclosure of their assets and liabilities. Seeing what looked like distress selling by Whitney's firm, the stock exchange discovered that he was falsifying his books. Whitney asked the new president of the NYSE, Charles Gay, not to turn him in, because, as he explained, "After all, I am the stock exchange to millions of people." But Gay refused, and turned him in.

Whitney was sentenced to five to 10 years in Sing Sing prison; thousands turned out at Grand Central Station to see him led off in handcuffs. During his time inside, the rector of Groton brought him his old baseball glove so he could play on the prison team.