The recent volatility in the price of GameStop and other stocks has been characterized—rightly or wrongly—as an unprecedented populist revolt by small-time traders against big hedge funds. While the offensive by users of the Reddit forum WallStreetBets against the short positions of institutional traders made for a dramatic two weeks on Wall Street, the episode wasn’t the first, or even the most remarkable, David vs. Goliath battle to animate the stock exchange. Nearly a century before, in 1923, a Southern businessman named Clarence Saunders tried to orchestrate an epic short squeeze on well-pedigreed traders all by himself. The gambit was both spectacular and disastrous, ending when the New York Stock Exchange sided with short sellers and changed the rules on him. In a short span, Saunders—who would come to be known as “the boob from Tennessee”—went from being feted as the conqueror of Wall Street to being bankrupt and unemployed.
Saunders has largely been forgotten, but as described in Clarence Saunders and the Founding of Piggly Wiggly: The Rise and Fall of a Memphis Maverick by Mike Freeman, he was one of the great entrepreneurs of the 20th century. Short and stocky, with neatly parted hair, blue eyes, bushy eyebrows, and an impish smile, he came from a poor family in western Virginia. He cycled through a series of menial jobs until 1916, when, at the age of 35, he set up America’s first self-service grocery store in Memphis, Tennessee. He called it Piggy Wiggly, but no one really knows why. When asked how he came to choose the name, he would often answer: “So people like you can ask me that question.”
Piggly Wiggly changed the grocery business. Previously, customers couldn’t just go to a grocery store and get what they wanted. Instead, they had to give a shopping list to a clerk, who would fetch all the items while the customer waited at a counter. Saunders had worked as a grocery clerk and found this system both costly and inefficient. In a Piggly Wiggly, customers could roam through the store themselves and fill their own baskets with groceries. Many of the supermarket features that are common today—checkout registers, price tags, and fully stocked shelves—began with Piggly Wiggly.
Within months of opening his first store, Saunders was already boasting that “it shall be said by all men [that] the Piggly Wigglies shall multiply and replenish the earth with more and cleaner things to eat.” Piggly Wiggly didn’t quite conquer the earth, but by 1922 it owned or franchised more than 1,200 stores throughout the United States, each painted in brown, blue, and yellow. A salesman by nature, Saunders knew that he could attract more customers with a spectacle, so his stores featured beauty contests, brass bands, and employees handing out flowers and balloons. Unsurprisingly, when a new Piggly Wiggly opened in a city, people flocked to it.
As Piggly Wiggly expanded, Saunders became rich. And when it came to spending his money, Saunders had opulent tastes. Among his purchases was a 160-acre plot of land outside Memphis, where he started building a mansion that was to include a waterfall, a bowling alley, and an 18-hole golf course with one hole located on its own island. Saunders named the house “Cla-Le-Clare” after his children, but everyone in Memphis just called it the Pink Palace because of its pink marble facade.
The success of Piggly Wiggly caught the eye of Wall Street, and in February 1922 the New York Stock Exchange listed its stock for trading. With steady revenues and rising profits, Piggly Wiggly became a reliable security to own. But in the fall of 1922, several independent franchises in New York, Connecticut, and New Jersey went bankrupt. Although this was no fault of Saunders’ or his company’s, some big Wall Street traders sensed that the stock might be vulnerable and that they could make a tidy profit by selling it short—that is, by borrowing shares to sell high, rebuying them when the stock dropped, and pocketing the difference when they returned them.
When Saunders learned about these short sellers, he was livid. (John Brooks tells the story of Saunders’ battle with the short sellers in his book Business Adventures: Twelve Classic Tales From the World of Wall Street. In recounting this episode, I’ve drawn from that book as well as contemporaneous newspaper and magazine accounts.) Wall Street was swooping down on Piggly Wiggly “like an eagle on a chicken,” Saunders thought. He decided that he would “break Wall Street” by buying Piggly Wiggly stock and driving the price back up. It didn’t deter him that, aside from his existing holdings of Piggly Wiggly stock, he had never before traded a single share of any stock on the New York Stock Exchange. He took out a loan for $10 million (about $150 million today) and went on a buying spree. Within a week, he had scooped up more than 100,000 of the 200,000 outstanding shares of Piggly Wiggly. In late 1922, newspapers reported that Saunders and four armed guards had arrived in New York on a private train from Memphis, carrying suitcases stuffed with a million dollars. The New York Daily News warned Wall Street to “put locks on [its] safes” because “Clarence is here with the open and avowed purpose of teaching New York the financial game.” By March 1923, Saunders controlled more than 198,000 shares, or 99 percent of all Piggly Wiggly stock.
All this buying inevitably pushed the stock price up. Having fallen as low as $39, it rose to nearly $60 by the end of 1922, and it kept going. It soon dawned on Wall Street that Saunders was trying to corner the market so that he could squeeze the short sellers, who would be forced to buy high and therefore take a big loss. Since Saunders owned nearly all Piggly Wiggly stock, the short sellers would have to buy from him and he could name his price. At the time, there were no federal securities laws against market manipulation, and corners were not unheard-of. Just two years earlier, Wall Street had seen a corner in the stock of a car company. But corners usually involved financiers with close ties to Wall Street, like Cornelius Vanderbilt, J.P. Morgan, or Jay Gould. Saunders couldn’t have been more different from those men. As John Brooks noted, Saunders was “a newcomer to Wall Street, a country boy setting out defiantly, amid the cheers of a good part of rural America, to lay the slick manipulators of New York by the heels.”
Those “slick manipulators” took notice. The short sellers had been counting on Piggly Wiggly’s price to drop, at which point they would cover their positions by buying shares at the lower price. But now they were seeing the price increase. Some of the short sellers complained to the New York Stock Exchange about Saunders’ ploy. In the absence of the U.S. Securities and Exchange Commission (which wouldn’t be created for another decade), the New York Stock Exchange set its own rules for how stocks could be traded, and its governing committees were filled with Wall Street insiders. Once they learned that a country bumpkin was trying to corner the Piggly Wiggly market, they launched an investigation.
Around the same time that Saunders was fending off inquiries from the New York Stock Exchange, he faced another problem. On paper, his shares were worth much more than the $10 million he had borrowed. But if he started selling his stock on the exchange to realize his profits, the price of the stock would drop, loosening his grip on the short sellers. He came up with a neat solution: He would sell some shares directly to the public at a fixed price, evading the stock exchange altogether. He took out full-page advertisements in newspapers throughout the country offering to sell the stock privately at $55 a share. It was a “once in a lifetime” opportunity, the advertisements said. Without a hint of modesty, Saunders touted that “no organization has ever in the history of this country had such a remarkable growth as PIGGLY WIGGLY.” In case anyone missed the first advertisement, he placed another one that said “Opportunity! It Knocks!” The profit “in this stock is for the real investor,” the new advertisement promised, “and this profit is going to be big.”
On March 20, 1923, Saunders decided that his short squeeze was ready. While he had been buying Piggly Wiggly stock, he had also been allowing his brokers to lend those shares to short sellers. A lender can ask for his borrowed securities back at any time. That morning, Saunders called for the return of 42,000 shares that he had lent to short sellers. Under the rules of the New York Stock Exchange, the short sellers had 24 hours to comply. As short sellers scrambled to buy shares, the price of Piggly Wiggly rocketed from $75 to $124 in the first few hours of trading. Saunders had, it appeared, won a great victory over Wall Street. Like the hedge funds who had shorted GameStop, the traders short on Piggly Wiggly would have to buy shares at a price much higher than what they had sold them for. Throughout the country, Saunders was cheered on for slaying the short sellers. “After he whipped them and they cried ‘enough,’ Saunders today administered a spanking, a sort of reminder not to do it again,” one newspaper said. Another paper called him “the young Piggly Wiggly Napoleon” and said that his “victory will be greeted with applause by the masses” and “that this Southern ‘rube’ has shown himself smarter at the Wall Street game than the New York professionals.”
The victory was fleeting. Hours after Piggly Wiggly reached its peak price, the New York Stock Exchange indefinitely suspended all trading of the stock. Even before it was announced, the mere rumors of the suspension caused the price to nose-dive to $82.
The next day, smoking cigar after cigar in his Memphis office, Saunders frantically worked the phones and let it be known that short sellers could settle with him at $150 a share by the afternoon of March 22, at which point he would hike the price to $250. According to his calculations, more than 25,000 shorts remained uncovered. “A razor to my throat, figuratively speaking, is why I suddenly and without warning kicked the pegs from under Wall Street and its gang of gamblers and market manipulators,” he said at the time.
The short sellers called his bluff: Almost none of them accepted his deal, and they were vindicated on March 22 when the New York Stock Exchange permanently barred Piggly Wiggly from being traded on the exchange. There was, it explained, “such a concentration of holdings” as to “make impossible a free market for the stock.” The exchange also broke its own rules and extended the time for delivery of the short shares until the following week. This gave the short sellers the breathing room they needed. Some of them were even able to purchase the few Piggly Wiggly shares that Saunders didn’t own. It also turned out that there were many fewer short shares than Saunders thought—just 11,200, according to the stock exchange.
On March 23, Saunders finally relented and agreed to settle with the remaining short sellers for $100 a share. He had fallen from what seemed like an impregnable position, and he placed the blame squarely on the New York Stock Exchange. “Wall Street got licked and called its ‘mamma,’ ” he moaned, “and of course ‘mamma’ heard the cry of her petted child.”
Once the remaining shorts took the deal at the knocked-down price, Saunders earned a lot of money, but not nearly enough. He still owed about $5 million to his lenders. He also still had more than 100,000 shares of Piggly Wiggly that were depreciating in value, and he had no place to sell them. In desperation, Saunders again turned to newspaper advertisements to get rid of his stock. “My private fortune will be wiped out” unless the stock could be sold, he pleaded. Local businessmen in Memphis asked residents to buy any shares they could afford. Banners saying “Save Piggly Wiggly for Memphis” sprang up all over the city. Saunders even reached out to Henry Ford, one of the richest men in the country, for a bailout. None of these tactics panned out, and his lenders continued to press him for the money he owed. At one meeting in Memphis, Saunders got into a fistfight with one of his backers, exiting with a trail of blood on his cheek.
In August 1923, with payments due imminently on his loans, Saunders resigned as president of Piggly Wiggly and relinquished all his property—his stock, his cars, even the Pink Palace—to his creditors. Some of his shares were subsequently auctioned for $1. A year later, he filed for bankruptcy. Through it all, he railed against the New York Stock Exchange and the short sellers, calling them “welchers” and the “worst menace” in America. He was convinced that he had been cheated when the stock exchange bent its own rules to placate the short sellers. He swore to dedicate “my whole life from this day on” to reversing this injustice, and he threatened lawsuits against the stock exchange and the short sellers. The lawsuits went nowhere, and pretty soon Wall Street forgot all about Clarence Saunders. As one magazine would note in a profile of him in September 1923, “Men may come and men may go, but Wall Street goes on forever.”
To Saunders’ credit, he rebounded from this stinging defeat, as Mike Freeman describes in his biography. Soon after his bankruptcy, he started another grocery chain called “Clarence Saunders, Sole Owner of My Name Stores.” Despite the odd name, this chain was successful enough that it made Saunders a millionaire again. He built another mansion and even bought a professional football team in Memphis, which he called the Sole Owner Tigers. In 1929, the Tigers handily defeated the Green Bay Packers in an exhibition game a week after the Packers had won their first National Football League championship. The NFL even invited the Tigers to join, but Saunders said no. Unfortunately, his luck failed him again when the Depression swept away his new grocery chain and forced him into bankruptcy for a second time.
But Saunders never stopped trying to regain his fortune. At one point, he invested $1,500 with a man who claimed that he was a German secret service operative and knew of a treasure worth $3 million hidden by the German army in Haiti during World War I. It turned out to be a hoax. When he died in October 1953 at the age of 72, Saunders was experimenting with a chain of automated grocery stores that had vending machines instead of employees.
According to Saunders’ obituary by the Associated Press, in his later days he would often drive by the Pink Palace, which he had never actually lived in and which was owned by the city of Memphis (today, it’s a public museum). “If I never did anything else, there’s that,” he said wistfully. “It’ll be there as long as the pyramids stand.”
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