Time Machine: A Cedar Rapids Ponzi scheme (Part Two: Who is at the top when you finish rock bottom?)

(Second of two parts)

Verne Marshall, managing editor of The Evening Gazette and Republican, was called to testify in March 1930 about the Ponzi scheme being operated by a Cedar Rapids cigar store owner.

Marshall told jurors he'd grilled George Huckins, the store's co-owner, during an interview at the newspaper office in August 1929.

What kind of business are you actually running, Marshall asked him, knowing Huckins had been telling investors it as a cigar 'seconds' business that would offer returns of 26 percent and 52 percent.

After 'repeatedly evading queries as to whether he and his father were in the wholesale cigar business, Huckins finally shook his head and said 'No,'' Marshall testified, adding that Huckins then said, 'It might be any merchandising business; it might be canned corn.'

Huckins refused to specify what business he was actually in.

PONZI SCHEME

Huckins couldn't answer the question because the business didn't exist. Huckins and his father, Elmer, of Milwaukee, were pushing a Ponzi scheme where people invested in a mythical 'cigar seconds' business and were paid big dividends, taken from the money other people invested. The pyramid scheme worked for a while — until the stock market crashed in October 1929 and investors wanted their money back.

In further testimony at Huckins' trial, his partner in the cigar store, Charles Negus, admitted the only cigars in their store that were seconds had been bought from another store.

Huckins did not testiy.

A Linn County jury deliberated for more than 24 hours before returning a verdict of guilty of defrauding through the use of the mails.

Huckins, facing up to seven years at the Fort Madison penitentiary, appealed and won a new trial, which was moved to Jones County.

At that trial, in February 1932, Huckins' attorney, W.J. Barngrover, went after Marshall as the 'dictator of Linn County,' saying he wasn't afraid 'of your newspaper.'

That trial ended in a hung jury.

But Huckins and his father also faced federal charges of using the mails to defraud. Huckins was unable to post bond and was returned to the Jones County Jail.

His legal fight abruptly ended July 3, 1932, when a jailer delivering breakfast found that Huckins had died of a heart attack. He was 43.

THE ELDER HUCKINS

Meanwhile, the state dropped charges against Elmer, George's father, in favor of letting the feds prosecute him on mail fraud charges.

It took a while. Elmer was taken to Milwaukee in October 1932 and finally arraigned Sept. 11, 1934, on 13 counts of mail fraud and one count of conspiracy to use the mails to defraud.

The government alleged that Huckins had garnered more than $3 million from people in several states in a scheme that required they invest money in multiples of $150. The investors then were given notes from Huckins agreeing to pay $55 interest every 45 days for each $150 invested. (The 'dividends' came from money received from new investors.) When the scheme attracted the attention of federal authorities in 1929, the interest payments stopped.

'Investment wizard' Elmer Huckins was found guilty and sentenced to 15 years in prison at Leavenworth. On appeal, he was denied a new trial.

He died of heart disease and cancer on Sept. 14, 1938, in a federal hospital in Springfield, Mo.

'BAFFLING MYSTERY'

A month later, Gazette columnist Tait Cummins wrote about the Huckinses.

'With them to the grave apparently went the secret of one of the Middle West's most baffling mysteries: What was the Huckinses' scheme, and how much money did the notorious 26 and 53 percent interest racket cost its contributors or 'investors' prior to the collapse of 1929?' Cummins wrote.

Cummins reported that attorney R.S. Milner, who'd represented Elmer Huckins, was willing to finally provide more details.

The Huckinses were never in any business that involved high finance, Cummins report. The pair were simply doing the bidding of entities on the East Coast, the lawyer contended.

Cummins took the story back to 1925 when George saw an ad in a New York paper offering 26 percent interest to investors.

George wanted to know more about how that worked and contacted someone he thought was the head of the business and arranged a meeting in Chicago.

The man, who called himself Flaherty, listened to George talk about his Cedar Rapids cigar business, and then told George about the fortune he'd made in cigar 'seconds.' He said the enterprise was handled secretly so that the Department of Internal Revenue knew nothing about it.

'BALES OF MONEY'

Flaherty showed George deposit slips for millions of dollars at the Chase National Bank in New York. He then encouraged George to act as an agent for the business. On a predetermined schedule, George would take cash to Chicago, Philadelphia or New York.

'He would turn over the bales of money to Flaherty and return with the interest that was due on the notes Huckins had made,' Cummins reported. 'For every 26 percent due others, Huckins received his 26 percent. In some cases, Huckins had lavishly permitted his close friends to have the entire 52 percent, keeping nothing for his services.'

Then, in the spring of 1929, Flaherty warned George the feds were watching the 'cigar business.' He was going to lay low and wouldn't be paying any interest for a while. The Huckinses had no clue the swindle had ended.

'Later in the year, newspapers broke stories on the fabulous Huckins' scheme based on blue sky,' Cummins wrote.

The Huckinses were the only ones named in the indictments that would follow.

Elmer Huckins and attorney Barngrover went to New York in hopes of locating the elusive Flaherty. No one at Chase National Bank had heard of 'Flaherty' or knew anything about a deposit of $30 million.

After years of fighting to stay out of jail, the father and son still believed there was plenty of money somewhere to take care of their troubles. But all that waited was a jail cell.

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