Editing Sharpstown scandal

{{Short description|1971 Texas stock fraud scandal}}
[[Image:Gus Mutscher, Preston Smith, Lyndon Johnson, and Ben Barnes.jpg|thumb|(From left to right) House Speaker [[Gus Franklin Mutscher|Gus F. Mutscher]] (D), Governor [[Preston Smith (governor)|Preston Smith]] (D), former president [[Lyndon B. Johnson]] (D), and Lieutenant Governor [[Ben Barnes (Texas politician)|Ben Barnes]] (D), at "Gus Mutscher Day" in [[Brenham, Texas]], August 17, 1970. Within two years, the political careers of Mutscher, Smith, Barnes, and numerous other state officials would be ended by the Sharpstown scandal. President Johnson was not involved.]]

The '''Sharpstown scandal''' was a [[Pump and dump|stock fraud]] scandal in the state of [[Texas]] in 1971 and 1972 involving the highest levels of the state government. The name came from the involvement of the [[Sharpstown, Houston|Sharpstown]] area of [[Houston]].

==Background==
The scandal revolved around Houston banker and insurance company manager [[Frank Sharp (land developer)|Frank Sharp]] and his companies, the Sharpstown State Bank and the National Bankers Life Insurance Corporation (NBL). Sharp granted $600,000 in loans from his bank to state officials who would, in turn, purchase stock in National Bankers Life, to be resold later at a huge profit, after Sharp artificially inflated the company's value. One of the victims of the scandal, [[Strake Jesuit College Preparatory]], lost $6,000,000 and a portion of the school's land following the advice of Sharp. The school bought the resold stock at $20–$26 a share.<ref>[https://web.archive.org/web/20070930084622/http://www.time.com/time/magazine/article/0,9171,904706,00.html The Founder], Time Magazine, February 15, 1971.</ref> Using the stock as encouragement, Sharp pushed for legislation that would benefit National Bankers Life, increasing the value of the company to its investors—the very people who would push the legislation through.

The scheme succeeded in generating profits for the investors on the order of a quarter of a million dollars, but the [[U.S. Securities and Exchange Commission]] (SEC) stepped in early in 1971, filing criminal and civil charges against former state attorney general [[Waggoner Carr]] (D), former state insurance commissioner [[John Osorio]], Frank Sharp, and a number of others. By the middle of 1971, anyone in the state government who might have been connected to Sharp was heavily pressured politically. Allegations of [[bribery]] to push the favorable bills through the government spread to House Speaker [[Gus Franklin Mutscher|Gus Mutscher Jr.]] (D), State Representative [https://lrl.texas.gov/legeleaders/members/memberdisplay.cfm?memberID=777 Thomas Clifton “Tommy” Shannon] (D), state [[United States Democratic Party|Democratic]] chairman and state banking board member [[Elmer Baum]], Lieutenant Governor [[Ben Barnes (Texas politician)|Ben Barnes]] (D), and even Governor [[Preston Smith (governor)|Preston Smith]] (D).

==Outcome==
[[Gus Mutscher]] was indicted by the SEC in late 1971, and subsequently tried in [[Abilene, Texas|Abilene]] in 1972. He was found guilty of [[Conspiracy (crime)|conspiracy]] for accepting a bribe from Sharp, and sentenced to five years’ probation. As a convicted felon, he was forced to resign his seat. Mutscher appealed the charges, and after the scandal had calmed down, the charges were overturned. He was then elected to [[County Judge#Texas|county judge]] of [[Washington County, Texas|Washington County]], and worked as a [[Political consulting|political consultant]] and [[Lobbying|lobbyist]] until his death in 2023. Sharp was also found guilty of violating federal banking and securities laws, and was sentenced to three years’ probation and a $5,000 fine. 

State Representative Tommy Shannon and Rush McGinty (one of Mutscher’s aides) were also convicted of accepting a bribe from Sharp, and sentenced to five years’ probation. 

Although none of the other elected officials were found guilty, the damage had already been done to the two Democratic politicians. 1972 was an election year, and everyone who was remotely connected to the scandal was defeated by more moderate Democrats, [[United States Republican Party|Republicans]], or other reform candidates.

Although not brought to trial, Governor [[Preston Smith (governor)|Preston Smith]] and Lieutenant Governor [[Ben Barnes (Texas politician)|Ben Barnes]] saw their political careers effectively ended. Smith, who called the special session to consider the NBL-favorable legislation and then sold his NBL stock for a $62,500 profit before vetoing the legislation,<ref>the year they threw the rascals out, pp. 59, 77; Charles Deaton, Shoal Creek Publishers, 1973.</ref> was defeated in the primaries by businessman [[Dolph Briscoe]] of [[Uvalde, Texas|Uvalde]].

Attorney General [[Crawford Martin]], who in 1967 issued a legal opinion that was said to have allowed a 2,200% increase in the bank’s capitalization, was defeated in the Democratic Primary for renomination by [[John Hill (Texas politician)|
John L. Hill]].<ref>the year they threw the rascals out, pp. 168–69.</ref>

The final impact of the stock fraud scandal on Texas politics occurred during the regular session of the legislature in 1973. The lawmakers, led by new House Speaker [[Price Daniel Jr.]] of [[Liberty, Texas|Liberty]], a political moderate and son of a former governor, supported by Attorney General Hill, Lieutenant Governor Hobby, and Governor Briscoe, passed a series of far-reaching reform laws. The legislation required state officials to disclose their sources of income, forced candidates to make public more details about their campaign finances, [[Texas Public Information Act|opened up most governmental records]] to citizen scrutiny, expanded the requirement for [[Texas Open Meetings Act|open meetings]] of governmental policy-making agencies, and imposed new disclosure regulations on paid lobbyists.<ref>{{cite news|url=http://www.tshaonline.org/handbook/online/articles/mqs01
|title=SHARPSTOWN STOCK-FRAUD SCANDAL.|work=[[The Handbook of Texas Online]] |first=Sam |last=Kinch}}</ref>

==The "Dirty Thirty"==
"Dirty Thirty" was the name given, by Dan Cain, House Committee Clerk, to thirty members of the 1971 [[Texas House of Representatives]] who grouped against Texas Speaker of the House [[Gus Mutscher]] and other Texas officials charged in the Sharpstown scandal. The coalition of thirty Democrats and Republicans, conservatives and liberals, has been given credit for keeping the Sharpstown stock fraud scandal alive as a political issue.<ref>{{cite news|url=http://www.tshaonline.org/handbook/online/articles/wmdsh
|title=DIRTY THIRTY.|work=[[The Handbook of Texas Online]] |first=John |last=Johnson}}</ref>

==References==
{{reflist}}

*{{cite book
 | last = Kinch Jr.
 | first = Sam
 | author2=Procter, Ben
 | title = Texas Under a Cloud: Story of the Texas Stock Fraud Scandal
 | publisher = Jenkins
 | year = 1972
 }}

==External links==
{{Portal|Texas}}
* {{Handbook of Texas|id=mqs01|name=Sharpstown Stock Fraud Scandal}}

{{DEFAULTSORT:Sharpstown Scandal}}
[[Category:Political scandals in Texas]]
[[Category:1970s in the United States]]
[[Category:Finance fraud]]