Know “Watered Stock” from the One Who Practiced It

Daniel Drew was an American finance expert who became popular in the financial district of New York for the term “watered stock” which would refer to the issuance of false or counterfeit certificates of shares, or the unauthorized issuance of shares which would dilute ownership. It was supposed that the term came from Drew’s times with his cattle business when he would let his cattle drink water to create a temporary increase in their weight before they are sold. “Watered stock” was first used by Drew in the 1860s in his battle with Cornelius Vanderbilt in the ownership of Erie Railroad.

Drew was born on July 29, 1797 in Carmel, New York. He did not have a very good education. Drew drilled and enlisted with Army at fifteen after his father died. However, he was not deployed in the War of 1812 because he enlisted late.

When the war was over, he started one of the most successful cattle-driving businesses at that time. Drew started a steamboat business in 1834 when he was able to purchase a small share of a steamboat sailing on the Hudson River.

At this time, Drew explored stock trading. He founded a brokerage company in 1844 which he named Drew, Robinson & Co. Ten years later, Drew was on his own and dissolved his company because his partners died. He became a part of Erie Railroad’s board. He manipulated the Railroad’s stock prices. At the brink of bankruptcy, Drew and Vanderbilt rescued the company.

Drew also became a member of the board of New York and Harlem Railroad. He collaborated with Vanderbilt to prop up the finances of the company. This began the greatest struggles between Drew and Vanderbilt. Drew speculated with New York and Harlem Railroad stocks and sold them short but Vanderbilt and his associates bought each share Drew sold. In five months, the stocks were sold from $95 to $285. Drew lost about $500,000.

The years between 1866 and 1868 were the period of the so called Erie war. In a conspiracy with fellow directors Jay Gould and James Fisk, Drew kept Vanderbilt from gaining full control of Erie Railroad. He increased the company’s outstanding shares without the knowledge of Vanderbilt. On his part, Vanderbilt kept buying Erie shares. His loses were huge and the trio gained control of the Railroad.

Later, Gould and Fisk also betrayed Drew by manipulating the stock prices. Drew lost $1.5 million. Drew lost more in the so called Panic of 1873. He filed for bankruptcy in 1876 when his debts reached more than a million dollars.