The Kirtland Safety Society (KSS) was a quasi-bank organized in 1836 (and reorganized on January 2, 1837) by leaders and followers of the Church of Christ (precursor to The Church of Jesus Christ of Latter-day Saints). According to KSS's 1837 "Articles of Agreement", it was intended to serve the banking needs of the growing Mormon community in Kirtland, Ohio. Its preamble stated it was:
However, by November 1837, KSS failed and its business closed. In the aftermath, Mormon leader Joseph Smith was fined for running an illegal bank, many bankrupted Mormons left the church because they believed Smith had established the bank in order to enrich himself and the Mormon leadership, and Smith and his associates fled to Missouri to avoid being lynched by a mob.
Hyde returned to the Ohio legislature in February with a petition, joined by several non-Mormons, for a bank based on far less capital stock. This time Hyde secured legislative sponsors, and the request was added as an amendment to another bill. However, the bill was defeated by the Ohio legislature. Grandison Newell, a professed antagonist to the LDS church in general and its "prophet" in particular, instigated several lawsuits against the Mormons in Ohio. Newell was close to three legislators who had taken the LDS charter requests under consideration and used his influence to dissuade them.
Although this rejection has been attributed to both political and religious differences, this Ohio legislature was much more restrictive in issuing bank charters than the previous legislative body. The legislature was now dominated by the hard money wing of the Democratic party, the "Jacksonian Democrats". Due to their influence, the legislature refused all applications for bank charters but one during 1836 and 1837, in part because of endemic nationwide problems with land speculation, wildcat banking and counterfeiting.
Under the advice of non-Mormon legal counsel, the Kirtland Safety Society Anti-Banking Company (KSSABC) was formed under revised articles on January 2 1837 as a joint stock company to serve as a quasi-banking institution. Quasi-banks operated as banks (sometimes in conjunction with other business activities) although they had no formal bank charter. These corporate institutions were not uncommon in Ohio at the time as banking regulations were limited. Whigs went so far as to encourage businesses to operate as quasi-banks. Even after the national bank failure in 1837, there was no widespread opposition to quasi-banks in Ohio until 1873.
"Anti" and "ing" were engraved before and after "Bank" --in smaller typeface-- on the printing plates Cowdery had previously purchased in Philadelphia. Subscribers and organizers of the KSSABC were members of the Kirtland community (merchants, farmers, etc.), many of whom became shareholders of the company. Sidney Rigdon served as the KSSABC' chairman and president, Warren Parrish as signatory, secretary and teller; Joseph Smith was cashier. Supporters hoped that they would eventually be able to secure a formal banking charter. In the interim, the KSSABC began issuing notes as a quasi-bank in early January 1837.
The proposed capitalization of the "anti-bank" greatly exceeded the resources that were available from its backers, as noted by historian, Robert Kent Fielding:
As it was projected, there was never the slightest chance that the Kirtland Safety Society anti-Bank-ing Company could succeed. Even though their economy was in jeopardy, it could scarcely have suffered such a devastating blow as that which they were themselves preparing to administer to it. ... The Safety Society proposed no modest project befitting its relative worth and ability to pay. Its organizers launched, instead, a gigantic company capitalized at four million dollars, when the entire capitalization of all the banks in the state of Ohio was only nine and one third million. Such presumption could not have escaped the notice of bankers who would have been led to examine its capital structure more closely. ... according to the articles of incorporation capital stock was to be paid in by subscription but that the amount of payments were left to the discretion of the company managers. Furthermore, total issuance of notes was not prescribed, nor was the relation of notes to capital and assets. The members, to be sure, pledged themselves to redeem the notes and bound themselves individually by their agreement under the penal sum of one hundred thousand dollars. But there was no transfer of property deeds, no power of attorney, no legal pains and penalties. To a banker, the articles fairly shouted: 'this is a wildcat, beware!'
On May 10 1837 in New York, every chartered bank stopped payment in specie (gold and silver coinage), leaving banks and local institutions like the KSS holding notes without adequate liquid assets. Within two months the failures in New York alone aggregated nearly $100,000,000 in value. "Out of eight hundred and fifty banks in the United States, three hundred and forty-three closed entirely, sixty-two failed partially, and the system of State banks received a shock from which it never fully recovered." Smaller, privately held financial institutions, like the KSS, also failed in droves. The Panic was followed by a five-year depression, characterized by ongoing failures of banks and financial institutions and record unemployment levels.
Smith transferred all of his holdings to Oliver Granger and J. Carter in June and resigned from the KSSABC in July. Parrish and Frederick G. Williams assumed management of the KSSABC until the institution closed its doors in November with about $100,000 in unresolved debt. Smith appointed Granger as his agent to clear up his Kirtland affairs, as Smith was named in seventeen lawsuits with claims totalling $30,206.44 over debts incurred in the failure of the KSSABC. According to LDS scholars, "Four of these suits were settled; three were voluntarily discontinued by the plaintiffs; and ten resulted in judgments against Joseph Smith and others. Of these ten judgments, three were satisfied in full, three were satisfied in part, and only four were wholly unsatisfied." The LDS church also raised and put up $38,000 in bail money for Smith at the Geauga County Court which was to be held to satisfy any judgment that might be rendered against Smith.
On July 28, Smith, Rigdon and Thomas B. Marsh headed to Upper Canada on church business and returned in late August. On September 27, Smith and Rigdon departed Kirtland for Missouri. They arrived about one month later, spent about two weeks in Missouri on Church business and returned to Kirtland on December 10. In their absence, in October, they were fined $1,000 for operating an illegal bank: other, larger quasi-banks had been operating in Ohio longer than KSSABC and were not being prosecuted.
Among KSSABC's misfortunes, Smith also accused Parrish of embezzling $25,000 from KSSABC. In June Smith sought, but was denied, a search warrant to confirm his suspicions against Parrish.
Smith warned the community against speculation and counterfeiting. Shortly after his resignation from the KSSABC in July he stated in the August 1837 Messenger and Advocate:
Shortly before his resignation, Smith also took out a $1,225 loan from a separate bank to help keep KSSABC solvent. Smith publicly denied claims that the KSSABC was created for the purpose of surreptitiously enriching the LDS leadership, but many disaffected members felt otherwise even though Smith risked losing as much or perhaps more than anyone else due to KSSABC's failure.
Regardless of the reasons for the KSSABC's failure, much of the blame was laid upon Smith. Half of The Quorum of Twelve Apostles accused Smith of improprieties in the banking scandal, and LDS Apostle Heber C. Kimball later said that the bank's failure was so shattering that afterwards "there were not twenty persons on earth that would declare that Joseph Smith was a prophet of God. Warren Parrish, a KSSABC officer who later left the LDS church, claimed that Smith had prophesied that KSSABC "shall become the greatest of all institutions on EARTH." 1837.) Wilford Woodruff's diary sheds light on this detail. Woodruff records that Smith had a revelation on the topic, but declined to share it, saying only that "if we would give heed to the commandments the Lord had given this morning all would be well." Then Woodruff expresses his own hopes that the KSSABC will "become the greatest of all institutions on EARTH.
On January 12 1838, faced with a warrant for his arrest on a charge of illegal banking, Smith and Rigdon fled to Clay County, Missouri just ahead of an armed group out to capture and hold him for trial. Smith and Rigdon were both acquainted with conflict and violent mobbing they experienced together in Pennsylvania and New York. According to Smith, they left "to escape mob violence, which was about to burst upon us under the color of legal process to cover the hellish designs of our enemies." Brigham Young left Kirtland for Missouri weeks earlier on December 22 to avoid the dissidents who were angry with Young and threatened him because of his persistent public defense of Smith's innocence. Most of those who remained committed to the church moved to join the main body of the LDS in Missouri.
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