The impractical cooperative which fails is bad enough, for it discourages many people from making a second attempt, but the false cooperative is a greater menace to the cooperative movement. The private promoter with his selfish interests rigs up a scheme to look like cooperation, but the actual purpose is to provide a channel whereby thousands of dollars will flow from the pockets of the working people into those of the promoter. Inasmuch as New York State has a law which forbids the use of the word cooperation by any concern which is not organized under the Cooperative Law, such promoters have to be uncommonly shrewd.

The Glynn System.

Early in 1920 a group of three or four private business men in Buffalo established a promoting corporation and then set out to organize a cooperative wholesale which was to be a separate concern from their promoting enterprise but was to be controlled by it. The promoters sold shares in the Buffalo Wholesale to individuals in fifteen or twenty cities and towns all the way across the central part of the State. They opened up six or seven stores and handled goods in large quantities through their wholesale plant.

The capital was solicited chiefly through labor unions. Elaborate promises were made to prospective shareholders: they were to have a local store in their neighborhood, dividends were to be paid regularly, goods could be bought at prices below those prevailing at the chain stores and the local group was to have local autonomy. As a matter of fact the ultimate control was always in the hands of the few promoters in Buffalo.

These men had two large sources of revenue from the many transactions carried on. They exacted from each member five dollars "for organizing expenses," and they took a commission on all the business handled through the wholesale.

By the spring of 1921 some of the members in one or two centers became suspicious, and began an investigation. They found that stores were in many cases grossly mismanaged. One manager had absconded with $600. Organizing or promoting expenses in some places were as high as thirty-three per cent. The weekly newspaper was discontinued for lack of funds. Some wholesale merchants finally refused to give further credit to the Buffalo headquarters and at the end of the first year of operation one of the office force confided to a friend that there was a ten thousand dollar deficit. When bankruptcy was finally declared in midsummer, the promoters were not to be found. The principal organizer, an ardent friend of labor for many years, had been completely duped by these promoters and was left penniless and alone to face hundreds of investors. Cooperation was put in disrepute for thousands of men and women in dozens of cities and towns throughout the State.

Cooperation cannot be developed downward from a central wholesale organization with a corps of organizers, nor will it grow when built upon mercenary motives. In this case organized labor in the state was partly to blame for not heeding the warning of a few groups of cooperators who were aware of the nature of the concern early in its history. But the ultimate blame lies with the individual men and women who joined the corporation without looking carefully into its organization.

The Cooperative Society of America.

In 1920 The Cooperative Society of America was doing a flourishing business in Chicago and vicinity. One of the leaders of the enterprise went to Europe in 1921 and convinced most of the leading cooperators of those countries that he was the greatest power in the cooperative movement in the United States. By the summer of 1921, the agents of the principal promoter of this scheme, Harrison Parker, were operating in New York City, and scores of salesmen were covering the various boroughs selling stock. Within two weeks all the agencies interested in protecting cooperation were organized to fight this fraud. The matter was placed in the hands of the Attorney General and a special deputy appointed to prosecute. The leading newspapers ran an expose of its operations. At this juncture, the Chicago headquarters suddenly went into the hands of a receiver and the New York office closed its doors.

Late in the year federal action was instituted against Harrison Parker in Chicago. The entire business of the so-called cooperative was disclosed to the courts. It was found that 81,000 people had invested fifteen millions in this gigantic fraud. Here in New York there were many hundreds, if not several thousands, of men and women who lost large sums of money in the ensuing bankruptcy. These people were taken in by the dramatic appeal to their selfish interests. The Chicago organization showed them photographs of the "massive buildings" in Chicago in which it was doing business, spoke glibly of its banking and insurance departments, and then promised them a share in the spoils if they would pay $75 for their certificates which were worth only $25 or $50 at their face value.

That so many people could be duped by these "get-rich-quick" methods is an indication of the amazing lack of cooperative understanding which prevails in the United States. It is a part of the purpose of this Bulletin to correct the misunderstanding which prevails because of the fraudulent use of the word cooperation. In the case of a suspected false cooperative, test it by the Rochdale principles. If it fails to measure up to them take the matter up directly with the State authorities or the Cooperative League of America.