On Feb. 1, 1971, the Securities and Exchange Commission (SEC) released a 47-page follow-up to the bombshell lawsuit filed two weeks earlier that exposed a stock fraud scheme involving a Houston banker and real estate developer, and politicians in the highest offices in the state of Texas.
Frank W. Sharp was one of those familiar Bayou City success stories but with a novel twist. He made his fortune not in oil but by building homes.
Sharp left the small East Texas town of his birth in the mid-1930s looking for work. Even in the Great Depression, there were jobs to be had in the Bayou City, and he found one as a carpenter’s helper.
When the ambitious young man felt he had learned enough about the construction of single-family residences, he borrowed $150 and began his home-building career. By the end of World War II, he had progressed to building several dwellings at a time in Texas City and Jacinto City.
Sharp anticipated the unprecedented demand for housing created by Houston’s post-war boom. In 1948, the magazine Better Homes and Gardens had this to say about his latest project: With the proposed investment of $32 million and projected population of 25,000, “Oak Forest (is) one of the largest privately financed, single-family home developments in the United States or world history.”
With the completion of Oak Forest in 1955, Sharp set his sights on an even bigger prize — the Sharpstown subdivision on the southwestern outskirts of the city. To eliminate the financial middlemen, he opened his own bank — Sharpstown State — and six years later a shopping center he christened Sharpstown Mall.
However, by the late 1960s, not everything was going according to Sharp’s grandiose plan. Federal bank examiners objected to his practice of making large loans with little or no collateral and told him in no uncertain terms that it had to stop. When the wheeler-dealer ignored their repeated warnings, the Federal Deposit Insurance Corporation stepped in and informed Sharp that he risked losing the safety net for his customers’ cash.
Instead of cleaning up his act, Frank Sharp concocted a scheme that would let him keep on doing business as usual. In terms of the objective, his idea was quite simple. He would bribe powerful officials in Austin to pass a law creating a new state agency to guarantee bank deposits and, thereby, circumvent the nosy FDIC.
Fifty years ago, politicians and their underlings were free to do pretty much what they pleased with no real fear of getting caught. A 2013 article in Texas Monthly described it this way: “Before Sharpstown, lawmakers could raise and spend campaign money with no meaningful disclosure. They were not required to file public reports about their income, holdings and liabilities. There was no open records law, little oversight of lobbyists and hardly any incentive to conduct the public’s business in the open.”
With the help of Gov. Preston Smith, who put Sharp’s self-serving proposal on the agenda of an upcoming special session of the legislature, and Speaker of the House Gus Mutscher, who engineered passage, the bill was passed. In return, Smith, Mutscher and five accomplices turned a collective profit of $300,000 on the quick sale of artificially inflated stock in Sharp’s insurance company.
Within the month, Gov. Smith got cold feet and vetoed the bill under pressure from legitimate bankers and state regulators. This was a betrayal pure and simple in the eyes of Frank Sharp, who did not hesitate to spill the beans to federal prosecutors.
In the only criminal trial stemming from the Sharpstown scandal, an Abilene jury found Speaker Mutscher and two close associates guilty of accepting a bribe. The judge assessed their punishment at five years probation, but even that slap on the wrist in addition to the conviction itself were overturned by the appeals court.
Looking back on the Democratic Party primary election of 1972, it defies the logic of hindsight to see so many tainted names on the ballot. But most vulnerable incumbents, who had been linked to the scandal, chose to run for reelection rather than retire.
They waited for the furor over Sharpstown to blow over, but that turned out to be a pipe dream. A major reason is that the coverage never abated. The Dallas Morning News, for example, published more than 450 articles on the hot topic in the 16 months between the filing of the SEC lawsuit and the Democratic primary. With other papers following the Big D daily’s example, the story just would not die.
Democrats went to the polls in the spring of 1972 determined to throw the rascals out. Preston Smith, named an unindicted co-conspirator in the bribery trial, finished a pitiful fourth behind Ben Barnes, the LBJ protégé, Frances “Sissy” Farenthold, the only female member of the Texas House, and eventual governor Dolph Briscoe, a Uvalde rancher whose chief qualification was that he was the biggest landowner in Texas.
The race for governor was no fluke as incumbents with little or no connection to Sharpstown were given the boot. Texas’ government had to start over almost from scratch.