Middle West Utilities Company & Samuel Insull

Topics: Fraud, Thomas Edison, Internal control Pages: 8 (3275 words) Published: April 23, 2012
Middle West Utilities Company and Samuel Insull
The fraud case of Middle West Utilities Company can almost entirely be contributed to one man: Samuel Insull. At the age of 22, Insull moved to America to work as a secretary to Thomas A. Edison through a recommendation from his employer, E.H. Johnson (Columbia University Press, 2010). The young secretary worked for the inventor for a decade during which time he played a large role in the creation of several of Edison’s early companies including Edison General Electric Company, known today as General Electric Company (Childs I, 1932). In the formation of this company, Insull was appointed vice-president in charge of manufacturing as a reward by Edison for all of the hard work he had put in over the years (Boman, 2001). After a short time in this position, and with Edison’s help, he was made the head of the Commonwealth Electric Company in Chicago (Childs I, 1932). Five years later, Insull formed the Middle West Utilities Company through a series of mergers and buy-outs (Columbia University Press, 2010).

Before the formation of Middle West Utilities Company, electricity was a “high-cost luxury” which only the very wealthy could afford (PBS.org, 2011). Through the acquisition of all of the competition in the area, Insull’s company monopolized the electricity market in Illinois as well as neighboring states (Britannica Biographies, 2010). Holding this power gave him and his company the ability to set the prices at what ever they wished (PBS.org, 2011). Samuel Insull broadened the market by selling to anyone and everyone he could (Hutchinson's Biography Database, 2003). Prices were set low enough to enable small businesses and households to obtain electricity, and what was once only seen as a luxury soon became commonplace (PBS.org, 2011). Insull battled it out with the city in order to buy the gas company in Chicago. After many bitter words and attempted black mailings, he was successful and his company now monopolized all of the energy in the Chicago area and beyond (Childs I, 1932). However, their newly purchased gas company was anything but up to date. The entire company needed to be modernized, and a great deal of hard labor was required. The Gas Workers’ Union was formed and it did not take long for workers to voice their demands: shorter hours and higher wages. The company declined to meet these demands and a strike was declared. Insull and his executives feared not being able to supply the large city with gas and the consequences which may have come with it. A temporary settlement was agreed upon however, the value was not disclosed to the public (Childs I, 1932). In 1925, Insull was as the peak of his power. Everything in his life was as one would want it to be. He was happily married with a son who had graduated from Yale who would, one day, take his place (Childs II, 1932). He had the mayor as well as the entire brigade of police on his side giving him control of the entire city (Childs II, 1932). He was not only the head of an extremely large company which monopolized electricity and gas in a huge metropolitan area, he was also head of the Illinois State Council of Defense (Childs II, 1932). Insull was once quoted saying, “You know, I can do what ever I want to in this state now (Childs II, 1932).” With all of his power and money, Insull invested a huge sum into The Chicago Civic Opera Company and was appointed president soon afterward (The New York Times, 1922). He built the largest, most luxurious opera house in the world, however, its deficit grew significantly each year (Childs II, 1932). Middle West Utilities Company had purchased enough interests an enormous number of small holding companies in order to have control over them, and money was simply moved back and forth among these entities in order to simulate profits (Traylor, 1935). One of these holding companies, known as Commonwealth Subsidiary Corporation, allowed Insull’s company to indirectly invest...
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