Preston Tucker - SEC Trial and Demise of The Tucker Corporation (1949-1950)

SEC Trial and Demise of The Tucker Corporation (1949-1950)

In 1949, Tucker surrendered his corporate records to the U.S. Securities and Exchange Commission. United States Attorney Otto Kerner, Jr. began a grand jury investigation in February 1949. On March 3, 1949, a federal judge handed control of the Tucker Corporation over to Aaron J. Colnon and John H. Schatz. Soon thereafter on June 10, 1949, Tucker and six other Tucker Corporation executives were indicted on 25 counts of mail fraud, five counts of violations of SEC regulations and one count of conspiracy to defraud. The indictment included 46-year-old Tucker, Harold A. Karsten, 58, "alias Abe Karatz"; Floyd D. Cerf, 61 (whose firm had handled the stock offering); Robert Pierce, 63; Fred Rockelman, 64; Mitchell W. Dulian, 50, Tucker sales manager; Otis Radford, 42, Tucker Corporation comptroller; and Cliff Knoble, 42, Tucker advertising manager. Tucker publicly called the charges "silly and ridiculous" and hailed the indictment as "an opportunity to explain our side of the story". Tucker and his colleagues' defense was handled by a team of attorneys led by William T. Kirby.

Another publication, Collier's magazine, ran an article critical of Tucker on June 25, 1949, which included leaked details of the SEC report (which was never released publicly). This article was reprinted in Readers Digest as well, expanding the scope of the negative press concerning Preston Tucker.

The trial began on October 4, 1949, presided over by Judge Walter J. LaBuy. Tucker Corporation's factory was closed on the very same day. At that point, only 37 Tucker '48s had been built. A corps of 300 loyal employees returned to the factory (some without pay) and finished assembly of another 13 cars for a total production of 50 cars (not including the prototype).

At trial, the government contended that Tucker never intended to produce a car. Throughout the trial, the SEC report on Tucker was classified as "secret" and Tucker's attorneys were never allowed to view or read it, but it was leaked to the press nevertheless.

As the trial proceeded, the government and SEC brought several witnesses (mostly former Tucker employees) to highlight the rudimentary methods used by Tucker to develop the car; the early suspensions were installed three times before they worked, and early parts were taken from junkyards to build the prototype. Answering back in Tucker's defense, designer Alex Tremulis testified that it was common industry practice to use old car parts for prototype builds, and pointed out this had been done when he was involved with developing the 1942 Oldsmobile under General Motors.

Tucker Vice President Lee Treese testified that Tucker's metal stamping and parts fabrication operations were 90% ready to mass produce the car by June 1948 and that outside interference had slowed the final preparations for production. This back and forth between the prosecution and the defense continued until November 8, 1949, when the judge demanded the SEC prosecutors "get down to the meat of the case and start proving the conspiracy charge."

Defense attorney Kirby directed attention to automaker Kaiser-Frazer, pointing out that early models of their government-funded new car model had been made of wood and that when this project failed, Kirby stated in court documents that "Kaiser-Frazer didn't get indicted, and they got 44 million dollars in loans from the government, didn't they?" All told Kaiser-Frazer had received nearly $200 million in government grants, but did not produce the car they promised.

After a break for Christmas, the trial resumed in January 1950. The government's star witness, Daniel J. Ehlenz, a former Tucker dealership owner and distributor from St. Paul, Minnesota, testified that he had lost $28,000 in his investment in the Tucker Corporation. However, on cross-examination, the defense used this witness to their advantage when Ehlenz testified that he still drove his Tucker '48 given to him by Tucker and that the car had 35,000 miles (56,000 km) on it and still cruised smoothly at 90 miles per hour (140 km/h). The tide turned in Tucker's favor when the government called its final witness, SEC accountant Joseph Turnbull, who testified that Tucker had taken in over $28 million dollars and spent less than one-seventh of it on research and development of the car. He stated that Tucker had taken over $500,000 of the investors' money for himself, but never delivered a production car. Kirby rebutted Turnbull's claims on cross-examination, asking for proof of the allegations of financial mismanagement from Tucker's seized financial records. Turnbull was unable to offer such evidence. In closing his witness testimony, Kirby asked Turnbull, "You are not here suggesting these figures are figures of monies taken fraudulently, are you?" Turnbull's answer was, "Not exactly, no."

After this final SEC witness, Tucker's defense attorneys surprised everyone by refusing to call any witnesses to the stand. Defense attorney Daniel Glasser told the court, "It is impossible to present a defense when there has been no offense". In his closing arguments, Kirby became tearful and emotionally told the jury to "stop picking at the turkey," and stated that Tucker "either intended to cheat and that's all they intended to do or they tried in good faith to produce a car. The two are irreconcilable." He then invited the members of the jury to take a ride in one of the eight Tucker '48's parked in front of the courthouse before they made their decision.

On January 22, 1950, after 28 hours of deliberations, the jury returned a verdict of "not guilty" on all counts for all accused. Tucker had prevailed at the trial, but the Tucker Corporation, now without a factory, buried in debt, and faced with numerous lawsuits from Tucker dealers angry about the production delays, was no more.