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Wall Street Crime And Punishment: Preston Tucker, The Auto Visionary Run Over By The SEC

Does crime pay? Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall that chronicles the bankers, brokers and financial ne’er-do-wells whose ambition and greed take them in the wrong direction.

05/07/2021 12:15

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall that chronicles the bankers, brokers and financial ne’er-do-wells whose ambition and greed take them in the wrong direction.

Roughly six decades before Elon Musk joined the executive team at Tesla Inc (NASDAQ:TSLA), another brash and self-confident innovator sought to shake up the automotive industry with bold new ideas.

But unlike everyone’s favorite dogecoin-touting entrepreneur, Preston Tucker never managed to complement his engineering genius with financial prowess. As a result, Tucker’s efforts were detoured due to quirky financial strategies resulting in a federal trial that destroyed his reputation and set the cause of independent automobile manufacturing back by nearly 60 years.

The Need For Speed: Preston Tucker was born on Sept. 21, 1903, on a peppermint farm outside of the village of Capac, Michigan. His father was a railroad engineer who died when he was 2 years old. Tucker was raised by his mother, who relocated with her son to the Detroit suburb of Lincoln Park and worked as a teacher.

From childhood, Tucker was obsessed with automobiles — he learned to drive when he was 11 and began purchasing used cars at 16 with the mission of refurbishing and reselling them at a profit. He attended high school at Detroit’s Cass Technical High School, but dropped out at the age of 16 to take a job as an office boy in the Cadillac Motor Company, a division of General Motors Company (NYSE:GM).

Tucker’s duties at Cadillac involving delivering paperwork throughout the company’s labyrinthine complex. Seeking to speed up his task without exhausting himself, he bought a pair of roller skates and began zipping through the property’s hallways.

Tucker’s skating was not well received by his co-workers, particularly the young female employees who would get a pinch on their backsides by the teenager on wheels, and his employment came to an abrupt end one afternoon when he skating around a hallway corner and crashed directly into his superior, who found himself flat on the floor with Tucker sprawled on top of him.

Tucker skated off Cadillac’s payroll and somehow wound up as an officer in the Lincoln Park Police Department. He later admitted he took the job because it enabled him to drive automobiles and motorcycles at great speeds without fear of being arrested.

Although he quickly established himself as an honest and hard-working officer who successfully collared several Canadian bootleggers smuggling booze into Prohibition-era Michigan, his penchant for ridiculous recklessness got the best of him — in trying to improve the efficiency of an aging police car, he opted to make a hole in the cooling system by firing his service revolver into the vehicle. That single shot fatally concluded Tucker’s law enforcement career.

Building A Better Vehicle: Tucker took a sales job for the Studebaker automobile line, where he found a hitherto untapped knack for salesmanship. During this time, he became friends with noted race car designer Harry Miller, and in 1935 the duo created Miller and Tucker Inc., with a focus on building racing cars.

When World War II broke out in Europe, Tucker believed American involvement would be inevitable, and he began to develop a new generation of combat vehicles to replace the bulky and cumbersome tanks that rolled across the World War I battlefields.

Tucker’s “Combat Car” was able to achieve speeds of up to 100 mph, but the Department of War rejected the vehicle with the explanation that the “vehicle is too fast for us to use in combat situations.”

However, the Combat Car included a gun turret that interested the military for air combat. Sensing an opportunity to find a fortune in the skies, he created the Tucker Aviation Corporation and sold stock certificates to raise financing for this new venture.

In addition to manufacturing the Tucker Turret at his Ypsilanti facility, Tucker designed a fighter aircraft called the Tucker XP-57, which led to a contract with the U.S. Army Air Corps (USAAC).

But bad luck struck again for Tucker. The young company experienced financial difficulties that delayed the development of the XP-57 prototype and the USAAC lost interest, allowing his contract to lapse. Tucker Aviation was purchased by shipbuilder Andrew Jackson Higgins in 1942, with the agreement to have Tucker on board as a vice president. But the men had a falling out and Tucker quit after one year.

As for the Tucker Turret, it was never installed on any American bomber and he was forced to sue the government after it commandeered his patents and refused to pay him royalties.

The Car Of The Future: During World War II, the production of automobiles for consumer usage was halted as all vehicular manufacturing switched to aiding the war effort. Tucker theorized there would be a pent-up demand for new cars once the war was over, and he formed the Tucker Corporation in 1943 to prepare for a postwar economy.

Tucker was correct in his prediction. The major automakers found themselves with unprecedented demand for new cars and no inventory to offer. Only 700 cars were sold to consumers by the end of 1945. Furthermore, the cars being sold were based on pre-war designs that seemed clunky and old-fashioned.

Tucker used the wartime interlude to create new concepts in automobile design. His innovations included a six-cylinder rear engine, disc brakes, a padded dashboard, four-wheel independent suspension, a third headlight in the center of the vehicle that could swivel with the steering wheel and a windshield that would automatically detach outwards during a crash, thus sparing the driver and passengers from being showered with broken glass.

Oddly, Tucker opted not to include seat belts, which he felt would send the message that being an auto driver or passenger was dangerous.

In July 1946, Tucker obtained a now-defunct aircraft engine manufacturing facility in Chicago from the federal government, albeit with the caveat that he needed to raise $15 million in capital by March 1947 to keep the property. In December 1946, he secured coverage of his proposed vehicle in Science Illustrated, which piqued the public’s interest. The illustrations provided for the article featured a shining creation with a long, streamlined design that contributed to its original name, the Tucker Torpedo.

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Permeating Problems: Tucker unveiled the prototype of his automobile in summer 1947 to investors, dealers and reporters. By now, the car was dubbed the Tucker 48, although Tucker jokingly referred to it as the “Tin Goose,” a riff on the notorious “Spruce Goose” aircraft built by Howard Hughes.

In the rush to get the prototype ready, the gearbox was not equipped with a rear gear. Reporters got wind of this error and much of their coverage fixated on the Tucker 48’s inability to go into reverse. But Tucker’s gift of salesmanship helped mitigate that bad press, and later in 1947, he coordinated a public relations bonanza by showcasing the Tucker 48 at a New York City art gallery.

But Tucker’s string of bad luck continued to haunt him. He nearly lost his Chicago facility for failing to obtain the required $15 million within a year’s timeframe. A prefabricated house manufacturer tried to obtain the property, but Tucker’s lawyers successfully fended it off.

Tucker also had problems obtaining contracts from steel mills, which delayed production. He blamed this situation on the major automakers trying to sabotage his start-up. He also claimed the major automakers tried to infiltrate his operations with spies.

To obtain the funds needed to bring the Tucker 48 to life, Tucker went through the traditional route of selling shares in his company, raising $20 million.

But he also employed some unconventional options including selling dealership rights in the U.S. and overseas and selling auto accessories including radios and seat covers, which raised an additional $5 million, even though he was offering the 1940s auto world equivalent of vaporware.

With this financing in place, Tucker amassed a 1,900-person workforce and his manufacturing team was able to produce 37 vehicles. And, then, disaster struck.

Tucker On Trial: The U.S. Securities and Exchange Commission (SEC) was suspicious of the start-up’s fundraising efforts and had begun a probe at the time Tucker was unveiling his prototype.

In February 1949, U.S. Attorney Otto Kerner Jr. launched a grand jury investigation of the company’s operations. Four months later, Tucker and six executives in his company were indicted on 25 counts of mail fraud, five counts of violating SEC rules and a single count of conspiracy to defraud.

The trial began in October 1949 and ran through January 1950. During the trial, the prosecutor attempted to depict Tucker as a con artist who never intended to start an automaking business, but only sought to raise money from unsuspecting investors for his own gain. The results of the SEC’s investigation into Tucker Corporation were not entered into evidence, although portions of the report unfavorable to Tucker were leaked to several newspapers, thus damning him in the court of public opinion.

As the trial dragged on, the employees at Tucker’s manufacturing facility in Chicago continued to work on building the Tucker 48, turning out 13 additional vehicles. Some of the workers gladly labored without being paid, as they genuinely believed in the vehicle’s design and their employer’s integrity. Tucker’s defense team brought his vehicles outside the courtroom to prove he was sincere about creating cars.

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Exoneration And Legacy: The jury in Tucker’s trial deliberated for 28 hours before returning a “not guilty” ruling. But the verdict was a pyrrhic victory — Tucker’s business went bankrupt, he was burdened with insurmountable debts, would-be Tucker dealers were suing him for refunds and his health was failing from lung cancer.

Tucker relocated to Brazil to begin work on a sports car dubbed the Carioca, but the project never got off the drawing board. Physically and financially broken, Tucker returned home to Michigan and died on Dec. 26, 1956.

Today, the negative press coverage that Tucker received in his lifetime is forgotten and his problematic approach to the financial aspects of his operations is not held against him.

Instead, he is recognized as one of the great minds in vehicular design. In 1999, he was inducted into the Automotive Hall of Fame, which cited him as “a gifted entrepreneur and technological visionary who challenged the automotive establishment.”

Of the 51 Tucker 48s that were manufactured, 47 are known to have survived and are considered to be among the most sought-after collectibles among car aficionados — the last model to go up for auction sold in 2008 for more than $1 million.

Tucker’s Chicago factory did not survive. The property was torn down and is now divided between a shopping center and the headquarters complex of Tootsie Roll Industries, Inc. (NYSE:TR).

Otto Kerner Jr., who brought Tucker to trial, was later elected governor of Illinois and was appointed a judge on the U.S. Court of Appeals. In 1967, he chaired a presidential task force investigating race relations that became known as the Kerner Commission. In 1974, he resigned from the bench after being convicted of mail fraud, the same charge he tried to hang on Tucker.

As a historic figure, Tucker faded from public consideration in the years after his death.

In 1988, Oscar-winning director Francis Ford Coppola sought to immortalize him with the film “Tucker: The Man and His Dream,” starring Jeff Bridges in the title role. But even in death, Tucker’s bad luck prevailed — the film, not unlike its subject, was hailed its ingenious presentation but was a commercial failure.

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(Preston Tucker in 1947. Photo courtesy of the Tucker Historical Collection and Library.)