Middle West Utilities Company Samuel Insull - 3282 Words

Middle West Utilities Company and Samuel Insull The fraud case of Middle West Utilities Company can almost entirely be contributed to one man: Samuel Insull. At the age of 22, Insull moved to America to work as a secretary to Thomas A. Edison through a recommendation from his employer, E.H. Johnson (Columbia University Press, 2010). The young secretary worked for the inventor for a decade during which time he played a large role in the creation of several of Edison’s early companies including Edison General Electric Company, known today as General Electric Company (Childs I, 1932). In the formation of this company, Insull was appointed vice-president in charge of manufacturing as a reward by Edison for all of the hard work he had put in†¦show more content†¦Although it should have shown a loss since the first day of organization, the corporation manipulated accounts so grossly that a nearly quarter of a billion dollar deficit no longer existed on the books (Childs III , 1932). Long before his big downfall, Insull came up with a financial instrument known as an â€Å"open-ended mortgage† to help fund his projects (Wasik, 2006). This was an ever expanding line of credit backed by the corporation’s bonds. This large amount of available cash allowed Insull and his company make large investments in order to grow the already large company even larger. However, when the stock market crashed in 1929, those banks which had loaned him enormous amounts of cash suddenly demanded repayment of the borrowed funds (Wasik, 2006). However even after the crash, Insull continued to invest (Childs III, 1932). Had he halted his expansion, rather than deepening his debt, he may have been able to pay the loans back (Childs III, 1932). It is said that the final â€Å"nail in the coffin† was placed by a $110 million dollar loan Insull took to pay a premium for stock in several Chicago utility companies (Childs III, 1932). He pledged $440 million worth of his stocks in order to receive the loan and over the following two years stock prices fell (Childs III, 1932). The investment value fell below the value of the $110 million loan used to buy them, and nothing could be done to raise the money