Here is a 1925 letter from Mr Frank McClellan of Troy, New York. He’s not a happy guy.
In his letter, addressed to the Service Department, he tells the Gearhart Knitting Machine company about his experiences with both the Auto Knitter Company and the Gearhart Knitting Machine company. He comes out swinging against the Auto Knitter Company and rooting for the Gearhart Knitting Machine Company, and describing the way in which the Auto Knitter company has gotten itself into big trouble with the Fed’s by comitting Mail Fraud.
It is interesting reading, since it exposes what started the ball rolling to bring down the entire industry due to the problems caused by a few. In this case, the owners of the Auto Knitter company were arrainged and released on $10,000 bail each. This company was charged by the Government in selling machines and promoting the idea of selling socks produced by the customers, when in fact it had no intention of accepting otherwise perfect socks. Here is the text of the Government’s charge:
The Government charges that the Company was interested only in the sale of the machines, from which it realized its profit; that it actually lost money on what sox were sold for its customers and that it did its best, once the machines where sold, to discourage the buyers from knitting for the market, by delaying and rejecting shipments of the sox. It broadcast its literature through the mails and advertised in magazines, the Government says, painting glowing pictures of the profits that would accrue to those buying the machines.
It looks like the Auto Knitter Company’s corruption was extensive. It sold $6,000,000 worth of machines over 10 years, and apparently had no intention of honoring its sock agreement. $6,000,000 is a lot of customers. At $60.00 to $80.00 each, this would add up to over 80,000 defrauded customers.
The Gearhart Knitting Machine Company was obviously watching these events unfold among its competitors, and no doubt happy on one hand that the competition was unraveling, and worried on the other hand that speculation may spread across the entire industry. Both things happened.
Here is the letter. It is long and involved. From what I can tell from other references, the letter is quite accurate.