Business & Finance: Retreat

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"Parallel Action." The Government sought to prove that the "conspiracy" was achieved by "parallel action" among the defendants, i.e., that their "spreads" (Wall Streetese for markups) went up or down at the same time in the same way. The Government could show such parallel fluctuations only part of the time—and the spreads of securities floated by many non-defendants fluctuated the same way.

The Government then got down to a key part of its case: to prove that the syndicate system bound the bankers in a conspiracy. The U.S. Supreme Court has uniformly ruled that a conspiracy is less likely to exist if the trade practice under attack has been evolved to fill a functional economic need. As proof that the syndicate method was a deliberate conspiracy rather than just a gradual development, the Government said that it had been invented by the defendants in 1915. Last week came the Government's big chance to prove this vital point.

"In the Dark." On the stand for the third week as a Government witness was Harold L. Stuart, 70, head of Chicago's huge Halsey, Stuart investment banking house and a longtime friend of Cyrus Eaton, Fair-Dealing financier blamed by many Wall Streeters for stirring the Government into action in the first place. Stuart was there as an expert, and Medina was glad to see him. He welcomed him as "a real live witness who can tell me about this investment-banking business . . . instead of staying in the dark, as I stayed for over a year."

But Stuart, instead of being a star Government witness, proved just the opposite. The defendants, said he, had not created the syndicate method of floating bonds in 1915. On the contrary, his own firm had used it for at least a dozen years before that. Assistant Attorney General Victor H. Kramer was dismayed; he withdrew the Government statement that the defendants had created the syndicate system.

Then Kramer tried to weasel his way out of the hole. If he could not prove conspiracy on dozens of securities issues, Kramer hoped Judge Medina would decide against the bankers if the U.S. could show that the "defendants . . . have engaged in price-fixing for a single, particular security issue."

About-Face. It was a complete about-face, and heavyset, rasping Defense Attorney Arthur H. Dean did not let Kramer get away with it. Dean quoted chapter & verse from a Government statement of 14 months ago: "There will be no amendment to change our course of action . . ." The Government had said flatly that the case would stand or fall on the overall conspiracy charge. Medina seemed amazed at the new turn of events. "This is the first time," said he, ". . . that the Government [has indicated] that if it lost completely on . . . the overall conspiracy charged, they would still be entitled to a decree on an issue not charged . . . It is a pretty slippery position." Medina forthwith adjourned the trial for a week, to let Kramer make up his mind whether he wanted to amend the complaint.

No matter what he did, the Government case, in the words of the defense, had clearly been "knocked a blow in the head."