Foreword: Buying certificates on whiskey stocks still aging in a warehouse for future use by a liquor dealer seeking an assured supply or by an investor seeking a large profit “at the end of the day” has been a tempting prospect since the mid-1800s. It also has provided ample opportunity for fraud. Below is a discussion of pre-Prohibition warehouse receipt sales and brief accounts of three pre-Prohibition whiskey men who cheated, the first two relatively obscure figures but the third among America’s most celebrated “Bourbon Barons.”
Will Headley was from a respected Kentucky distilling family. His father, John, in collaboration with Robert Crigler, created a bourbon called “Woodland Straight Kentucky Whiskey.” After John’s death, Will at the age of about 34 succeed to his father’s share in the company. He was named treasurer, apparently a particularly good choice. Will was trained as a bookkeeper and had a reputation for integrity. He was also known as a good family man and people sympathized when his wife died in 1893 leaving him with a young family.
Then things began to unravel. As treasurer, Headley was the only officer at the Woodland Distillery authorized to issue warehouse receipts and he was cheating. In February 1894, a wind storm damaged roofs of the company’s bonded warehouses, leaving many barrels inside uncovered. Apparently fearing discovery of his misdeeds, Headley shortly after told his family he was leaving on a business trip. Before departing he visited a local bank and withdrew $900 in company funds. Several days later his oldest daughter received a letter from her father indicating he had fled to Mexico and admitting having sold fraudulent warehouse receipts and kept the money.
The ensuing investigation discovered that Headley had issued receipts for 1,800 barrels of bourbon, allegedly produced in 1892 and stored in the warehouses. Woodland Distillery, however, had produced only 600 barrels that year. The losses from just one year of fraudulent receipts totaled more than $30,000, equivalent today to some $660,000. In total, Headley ultimately was discovered to have stolen more than the equivalent today of $1.1 million.
What could have caused Will Headley to have executed such a massive theft? He was not known as a gambler or heavy drinker, character flaws that might have made his behavior more understandable. My judgment that it was love, likely an adulterous affair, that had led to Headley's crime. The fraud had begun more than a year before his wife’s death, to my mind an indication of Will’s earlier need for funds to bankroll a “back street” love affair. When located in Mexico years later he was married to an American woman, likely his former paramour, and had a small child. He died south of the border in 1913 at the age of 59. No evidence exists that Headley ever returned to the U.S., initiated contact with the children he had abandoned, or made any restitution.
In October 1903 Fred Hipsh wrote the editor of the Wine & Spirits Bulletin announcing that he had bought the “Old York Distillery” in Louisville, Kentucky and “will conduct the business as heretofore under the same name and style.” Shown here a label for “Elkridge Special Whiskey” which is purported to be a blend of old straight whiskies from the Old York Distillery. My research, however, has failed to find any such distillery in Louisville or anywhere else in America.
The appearance of owning a Kentucky distillery had its benefits. As was common in those days of loose security regulations, it allowed the sale of bond certificates for whiskey supposed to be stored in the Old York warehouse in Louisville. In 1904 a Los Angeles saloonkeeper bought certificates for twenty barrels of that whiskey, paying $101 (more than $2,200 today) to a man who said he represented Hipsh. When the certificates were found to be fraudulent, the salesman was arrested. Living in New York, Hipsh somehow escaped being implicated.
Fast forward to 1908. Despite the situation had that occurred on the West Coast, Hipsh continued to peddle certificates related to whiskey reputedly in his Kentucky warehouse. He hired an agent named Alexander Ruberti to hawk them. Ruberti sold some to a fellow Italian, Joseph Fiorello, who paid for them with promissory notes that Ruberti sent on to Hipsh. It later was indicated that Fiorello was could neither read nor write English. He was not, however,stupid. When he learned that the certificates apparently were fraudulent, he contacted Hipsh, canceling his contract and demanding his notes back.
By that time, however, Hipsh had passed the promissory notes on to a third party who sued — not Hipsh or Ruberti — but Fiorello. Hipsh was summoned into a New York Circuit Court before a judge and jury, not as a defendant, but to testify to whether Ruberti, indeed, was his agent. The jury declared that Fiorello “had the undoubted right to rescind the contract for fraud.” Yet the same panel found Hipsh “innocent in the transaction.” Ruberti was blamed but somehow not found liable. The State Supreme Court later confirmed the verdict. The individual holding Fiorello’s notes was left out in the cold.
Although Headley and Hipish apparently got away with their frauds, Col. Edmund L. Taylor, later considered the leading spokesman for the Kentucky bourbon industry, a confidant of Presidents and cabinet secretaries, was not so fortunate. In 1873 a severe financial downturn in Europe and America cast many previously successful distillers into serious financial trouble, Taylor among them. In June 1877 The Louisville Courier-Journal reported in June 1877 that he owed $150,000 (equivalent to $3.75 million today) to a liquor dealer named George Stagg and his partner. “Examination of the books shows that receipts have been given for 7,014 barrels of whiskey, whereas his actual stock does not exceed 4,722 barrels.” the newspaper reported. With more than a hint of fraud involved, Taylor’s total debt approached $11 million in current dollars.
Shown here, Stagg saw Taylor’s financial plight as an opportunity. Up to this time Stagg had been considered a gifted salesman, a pitchman for Kentucky whiskey but not a real player in the industry. He and a partner forgave Taylor’s debt and paid off the other creditors. As a result they gained ownership of the colonel’s two distilleries, located adjacent to each other on the Kentucky River at Leestown. One, shown here, was known as the OFC (Old Fire Copper) Distillery and the other the Carlisle Distillery.
Stagg recognized that keeping Taylor and especially his name associated with the enterprises was important. He established the E. H. Taylor, Jr. Company in 1879, with himself as president and Taylor as vice president. Stagg had 3,448 of 5,000 shares in the company; he gave Taylor, who was overseeing the distilling, just one. Out of the financial panic that had brought down the icon of Kentucky bourbon, Stagg had vaulted himself into the forefront of the state’s whiskey industry. In time Colonel Taylor would recoup his reputation and wealth but no one involved in Kentucky whiskey ever forgot his earlier indiscretion.
Although the U.S. has adopted laws that largely ban the kind of chicanery around liquor futures and warehouse receipts, the practice of such frauds is alive and well in the sale of Scotch whisky “futures.” Those are being hustled by telephone scammers promising large profits on liquor being held by someone somewhere in Scotland — and finding unwary investors.
Note: Longer vignettes on each of the whiskey men treated here may be found elsewhere on this website: Will Headley, February 18, 2020; Fred Hipsh, April 3, 2019; Col. Edmund Taylor, January 10, 2015; and George Stagg, April 30, 2016.
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