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Julian Petroleum Scandal

The Julian Petroleum scandal was one of a number of get-rich-schemes that oil men perpetrated on Southern California residents in the 1920s. On the surface, Julian Petroleum was one of California's most prosperous oil companies, claiming to have discovered "the deepest well in Southern California" and producing millions of dollars in profits for its investors in a short time span. In reality, the company's profits were based upon two simultaneous illegal schemes of historic and destructive magnitude. The first was an elaborate Ponzi scheme in which the company introduced five million illegal shares into the marketplace. To control distribution of the worthless stock and keep prices high, Texas shyster Sheridan C Lewis, general manager of Julian Petroleum, transferred a large block of stock to A C Wagy and Company, which catered to small investors and served 4,000 customers, the largest clientele of any local brokerage. President Albert C Wagy, the uncle of Frank Benchley's wife, accepted the bribes, but then double-crossed Lewis by weakening the stock price to make a bigger profit. Lewis responded by secretly buying the Wagy investment firm, which made manipulation of the market easier. The second scheme created a handful of investment pools which purchased massive amounts of Julian stock in order to inflate prices and to attract new investors, all the while allowing its members to collect illegal usurious rates of interest. The most prominent of those pools was known as the Million Dollar Club, which comprised many pillars of society in the Los Angeles community, including movie magnates Cecil B DeMille and Louis B Mayer. When the bubble burst on March 5, 1927, thousands of investors lost their life's savings. Los Angeles residents were stunned when Lewis, Wagy, and Julian officials were found not guilty by a jury, then angered when it was discovered that the district attorney and jurors had been bribed. One investor, who had lost all of his savings, shot and killed the head of the Million Dollar Club, banker Motley H Flint. In a well publicized case, shareholders, hoping to recoup their lost money, filed a $12 million lawsuit on October 8, 1929, against the Los Angeles Stock Exchange and forty-six brokers, including Wallace Wagy and Frank Benchley (only $374,000 was recovered). No one directly participating in the Julian collapse ever went to jail. The LASE, which had looked the other way during the oil stock sales, made face-saving procedural changes, then moved from oil into bank speculation which led to the stock market crash in October 1929. - NRHP