Commodore Nowhere Near the Edge or Commodore before Commodore
by Zube (zube@stat.colostate.edu)
Created:  Mar 1, 2007
Updated:  Mar 25, 2007
http://www.stat.colostate.edu/~zube/commodore2.txt

In _On the Edge, The Spectacular Rise and Fall of Commodore_ by Brian
Bagnall, arguably the most interesting page is page ix.  In six short 
paragraphs, he covers all of Commodore history from Jack Tramiel as 
Idek Tramielski in Germany in 1947 through "savage competition with 
Texas Instruments" in 1973.

The two most interesting sentences are:

"The company quickly grew until a scandal rocked the Canadian financial
scene, with Commodore at the center.  After an embarrassing public inquiry,
Commodore was finished; or so it seemed."

That's all you get from Mr. Bagnall.  It wasn't enough for me.

The last word on the subject seems to be:

_Report of The Royal Commission Appointed to Inquire Into The Failure of 
Atlantic Acceptance Corporation Limited_ 

by The Hon. S. H. S. Hughes, dated Sept 12, 1969 from the Province of
Ontario Canada.  This four volume, nearly 3000 page report is anything
but light reading.  I did not read it all, as I had the report for only
a month in Feb/Mar of 2007, nor can I confirm that I understood much of
what I read.  The financial slight-of-hand detailed within the report
is fantastically complex, with Commodore's portion of the trick only
slightly less so.

All of the following bits (those with page numbers listed) are either 
paraphrased or quoted directly from that report.

Let's begin by tracing the formation of Commodore.

Jack Tramiel -- (p. 106-107)  In sworn evidence given by Tramiel to the
Commission on November 30, 1966, he was born on December 13, 1927 in
Lodz in Poland and spent the years from 1940 to 1945 in a German
concentration camp.  Other sources ... indicate that his name was
originally Kaufmann Idek Tramiel or Tramielski and that he was born on
September 13, 1927 or December 13, 1928.  He appears to have entered
the United States in 1947 and to have been in the United States Army
from 1948 to 1950 when he was a cook and for less than a year in 1951-2
when he was a typewriter repair man.  Between his tours of duty in the
army and for a time after his second tour he worked for a company called
Ace Typewriter Repair Company and between 1952 and 1954 drove a taxicab
in the city of New York ....  Tramiel says that he first met Manfred
Kapp in 1952 or 1953 when they were fellow-employees at the Ace Typewriter
Repair Company.

Manfred Kapp -- (p. 107)  Manfred Kapp told the Commission that he was
born in Luneburg in Germany on December 17, 1928 and was taken to 
France in 1933.  He also entered the United States in 1947 and worked
at the Ace Typewriter Company until 1950 when he spent two years in the
United States Army.  Kapp says that he first met Tramiel when he was on leave
from the army in New York in 1951.

(p. 107)  Whatever may be the truth of this chronology -- and it is dwelt
upon because the credibility of these two men must, in view of the evidence
they gave and the parts they played, be tested at every point -- it seems
to be common ground that Tramiel and Kapp formed a partnership for the 
sale of used and reconditioned typewriters in New York in or before 1954,
the first consignment of which ... was obtained from the United Nations
Organization.  With money acquired from the sale of these machines they
bought a business in the Bronx called the Singer Typewriter Company from
the premises of which they sold new and used typewriters and in due
course acquired a local dealership for an adding machine called "Everest."
Tramiel ... while on selling trips outside New York ... visited Toronto ....
Here he found interest among dealers in the Everest machine and returning
to New York persuaded the manufacturer to give himself and Kapp an
exclusive Canadian dealership.  By 1956 Tramiel had ... established
Everest Office Machines Limited at 2 Toronto Street.

(p. 108)  .... by 1958 [the Toronto businesses] were showing signs of 
faltering.  In the meantime Tramiel had been in England and had there
met one Markus, who was the agent for the Everest machine in Great Britain.
Since the Canadian market for used typewriters of a kind not particularly
well adapted to local needs was fading, and the demand for new portable
typewriters was not being readily met, Tramiel was interested in Markus's
suggestion that a manufacturer in Czechoslovakia was engaged in exporting
portable typewriters to this country and had so far failed to find a reliable 
distributor.  From this conversation and with Markus's help the Czech 
machines began to come in to the premises at 2 Toronto Street where a new
company, incorporated on October 10, 1958 under the name of Commodore
Portable Typewriter Limited, had been brought into existence.  

(p. 108) The business of Commodore Portable Typewriter might well be
judged to have reached satisfactory proportions when substantial orders
of the Czech typewriter were placed by Toronto's two largest department
stores, the T. Eaton Co. Limited and the Robert Simpson Co. Limited ....
But shortage of working capital was a familiar problem.  The company had
been financing its inventory by factoring its accounts receivable with a
lender by the name of Inter-Provincial Commercial Discount Corporation
Limited which was providing funds at a cost of 2% a month against accounts
payable in 90 days.

["factoring" appears to be somewhat akin to a payday loan for companies.  
The company "sells" its future income (receivables) at a discount for 
short term cash.]

Looking for better terms .... Tramiel applied to Douglas R. Annett of
Annett & Co. for some assistance and a solution of the financing problems.
....  Shortly thereafter, and again at the Annette office, Tramiel met
C.P. (Campbell Powell) Morgan.

**************

This is a good place to stop and jump forward to the financial collapse 
of Atlantic Acceptance.

(p. 1) Atlantic Acceptance Corporation Limited of Oakville ... with over
130 acceptance and small loans offices in every province of Canada except
Quebec, and with stated assets of over $150,000,000, was the sixth largest
sales finance company in Canada, and fourth among those not wholly-owned
by corporations in the United States.

(p. 1) On the Monday [June 14, 1965], Atlantic Acceptance issued in
payment a cheque [for $5,000,000] which was refused by the bank on
which it was drawn because there were insufficient funds for deposit.
For a Canadian company of this size doing business in the field of
finance in times of unexampled affluence, in respect of which no sign
of instability had been previously detected, and which had then debt
outstanding in excess of $130,000,000 owing to lenders which included
institutions regarded as the most shrewd and experienced investors in
North America, suddenly to default on a routine obligation was an event
which astonished the financial world.  From it flowed the collapse of
Atlantic Acceptance and all its subsidiaries, the bankruptcy of many
companies dependent on it, the ruin of many lives and the searching
re-examination of financial practices and legislation of long standing.

(p. 34) Atlantic Acceptance Corporation Limited was the creation of 
C.P. Morgan.

**************

So, in 1959 we have Commodore looking for better financing terms and
by 1965 Atlantic Acceptance collapses.

The next step is to tie the two companies together.

(p. 106)  The sixth annual report of Atlantic Acceptance Corporation for
the year ended December 31, 1958 was dated March 26, 1959 and contained ...
an expression of its president's intention to acquire an interest in
a factoring company.  Some three weeks previously he [C.P. Morgan] had
already created the vehicle which Atlantic was to acquire and he had
called it Commodore Sales Acceptance Limited, thus suggesting the name
of the first company to be financed with Atlantic money against the
pledge of its [Commodore's] accounts receivable ....

Here is where the slight-of-hand begins.  Since I don't want this document
to be 3000 pages and since both my expertise and interest in financial
minutiae is limited, I'll hit the high points.

(p. 115) Tramiel is questioned in the presence of counsel:

Q:  What the company did, Commodore Sales Acceptance, that company loaned
$25,000 to Commodore Public Typewriters and Commodore Public Typewriters
loaned the $25,000 back to Commodore Sales Acceptance, which made up
part of the $100,000 raised by Commodore Sales Acceptance?  
Is that correct?

A: Yes.

(p. 125) Tramiel testified that it was as early as March 1960 when
Morgan told him that he wanted to buy at $6 per share for Atlantic the
shares acquired by Helen Tramiel and Estelle Kapp.  Tramiel's explicit
statement on oath to this effect is difficult to reconcile with his
expressed lack of knowledge of any of the other details of the transaction.

(p. 134) Tramiel and Kapp ... recovered their company's investment and 
not less than $23,875 and perhaps as much as $25,000 in profit.

(p. 290) The progress of this company [Commodore] from its incorporation
in October of 1958 ... has been astonishingly rapid. 

(p. 294) When the story has been told it will be seen that even this
equivocal record of financial achievement is largely the product of 
illusion, and of illusion produced by a ruthless lack of scruple in raising
money from the public ...."

(p. 303) A start may be made with the corporate records of the company,
and here it should be said that the minute books of Commodore Business
Machines, and particularly of the period during which it was known
as Commodore Portable Typewriter Limited, bear traces of altered dates
and other corrections of the record, and cannot be regarded as entirely
reliable.

(p. 316) It is therefore evident that Don Mills was an equal partnership 
between Morgan, Tramiel and Kapp, but it was by no means evident at
the time, and its true identity then, as will be seen, was carefully
concealed.

(p. 346) It has been seen that C. P. Morgan secured for himself and his
associates with money advanced by Atlantic, some 85% of the 300,000 shares
of Commodore Business Machines set aside for a public offering.

(p. 372) The reluctance of Tramiel and Kapp to acquiesce in any
interpretation of the facts which would attribute knowledge [of this
particular slight-of-hand] ... is not excusable.  The disappearance of
the last page of the option agreement, which must have contained the
signatures of the parties, was only too characteristic of the
atmosphere prevailing at the time, but is more difficult to explain.
No draftsman, in the normal course, would construct an agreement in
which the signatures of the parties alone were isolated on a separate
page, unless perhaps by design.  It is scarcely conceivable that any
lawyer, however lacking in appreciation of the ethical standards
required by his profession, would have thought the device effective.
If the final pages of existing copies of the agreement were
deliberately removed and destroyed, such action, one would think, would
be that of a layman, and an uninstructed layman at that; since the only
persons who could benefit from the ineffectiveness of the written
agreement in 1965 were the Tramiels, Kapps and Silbermans it is more
than likely that Tramiel, Kapp or their agents were responsible for
this crude deformity of the records.

(p. 407)  In this conflict of evidence, given by guilty men, I reject
that of Tramiel and accept that of Morgan ....  As usual, both Morgan
and Tramiel had their own private interests firmly in view, and 
ignored their public responsibilities. 

(p. 410)  ... the various changes of ownership which eventually brought
Humber Typewriters under the direct ownership of Commodore Business
Machines, and which involved purchases of one Tramiel and Kapp company
by another with unjustifiable increases in price, were as difficult for him
[Tramiel] to explain as they were easy at the time to transact ....

(p. 478) Certainly Morgan's tutelage had been a source of profit; in
somewhat less than five crowded years they [Tramiel and Kapp] had risen
from being, with their families, joint owners of a company with a
capital investment of $200 to a position in the summer of 1963 where
they were able to dispose of half a million dollars worth of the common
stock of Commodore Business Machines, valued at $3.50 per share ...."

(p. 961) The history of Pro Musica, from the time of its first
borrowings of Atlantic funds, throughout the period of its joint
management with Perlsound Distributors by employees of Commodore
Business Machines under the direction of Tramiel and Kapp, provides a
remarkable example of the close association of Morgan, Walton, Wagman,
Tramiel and Kapp in the employment of Atlantic funds for their personal
advantage.  .... their stake in the latter company [Commodore Business
Machines] was of vital importance to their personal enrichment, and
that they were prepared to go to any lengths to promote its interests
at the expense of Atlantic Acceptance Corporation and its subsidiary
companies.  .... concealment of the losses in these subsidiaries was
essential for the preservation of Atlantic Acceptance as a continuing
source of funds ....

The next entry is easily the most complex of this document and still
doesn't begin to touch on the complexity of the financial dealings.
The last sentence is the money quote.

(p. 1595) The major variations referred to amounted to this:  Morgan's
participation in the affairs and, indeed, the substance of Commodore
Business Machines presented him with an opportunity, first, of
manipulating the market for its shares and second, doing the same with
those of Analog Controls Inc. after Commodore Business Machines sold
its controlling interest in that company.  Prior to the public issue,
Morgan, Tramiel and Kapp had amassed three-fifths of all the shares of
Commodore Business Machines at prices ranging from 1/5 of a cent to 72
1/2 cents a share, and Morgan used two Trio companies, Dallas Holdings
and Valley Farm and Enterprises, to corner 87% of the 300,000 shares
available for public distribution at a price of $2.30 per share; Aurora
Leasing lent the three men and the two companies upwards of $700,000 to
do so, and obtained the money by borrowing it from Commodore Sales
Acceptance.  The public issue was underwritten by another Toronto
stock-broking firm, Barrett, Goodfellow & Co., who became Morgan's
favourite brokers, and the offering was made at $2.50 per share; the
proceeds of the underwriting went to Commodore Sales Acceptance to pay
off Commodore Business Machines loans from that company, and to reduce
its borrowing from the Atlantic group which had reached a figure of
some $1,400,000.  No actual reduction in the indebtedness to Atlantic
occurred, since the loans by Commodore Sales Acceptance to Aurora
Leasing, with which the Trio and Morgan, Tramiel and Kapp, under the
name "Don Mills", had financed purchases of stock, had corresponding
increased.  This device of creating the illusion of repayment by merely
transferring the debt to other hands was to become a trademark of
Morgan's lending operations.

(p. 1606) .... with the assistance of Irving Gould, who replaced C.P.
Morgan as chairman of the board of Commodore Business Machines and
became its source of future financial support.  Thus Commodore Business
Machines, which had lived throughout on repeated transfusions of the
life-blood of Atlantic Acceptance, barely escaped, with diminished
resources, submersion in the welter of the finance company's fall.

Finally, near the end of the final chapter, we have a bit of wrapup.

(p. 1678) The answer to the problem presented by adventurers like C.P. Morgan
... Jack Tramiel ... and others of that ilk, is to make transgression more
costly by increasing the likelihood of detection, speedy trial and suitable
punishment.  As to what is suitable punishment it is not for me to say,
but it is worthy of note that parole authorities have found swindlers and
thieves more difficult to rehabilitate than offenders of a more
violent and spectacular type.

One last bit of interest concerns Irving Gould:

(p. 489) It must also be said, in the public interest, that on January
20, 1960, he [Irving Gould] pleaded guilty to a charge of perjury 
arising out of a knowingly false statement, made on oath to the Ontario
Securities Commission in the course of an investigation of a company called
Cabanga Investments Limited.

***************************************************************************

For the record, this document is a fine example of cherry-picking.  I
could see no other way given my time constraints and interest constraints, 
so feel free to blame me if you don't like the cherries.

The goal of this exercise was twofold:  

1) To understand a little more about Commodore and Jack Tramiel's role
in the Canadian financial scandal that Mr. Bagnall alludes to.

2) To understand what kind of a person Jack Tramiel is and to take that
understanding with me when I re-read _On the Edge_.  Jack Tramiel starts
with a mostly clean slate in the book, but that impression is a false one.
The Atlantic Acceptance report, while certainly not providing the whole 
truth, almost certainly provides a view that is much closer to the truth.

Of course, there is still a large time period between Irving Gould's
arrival at Commodore and 1973 that remains unexplored; for another
time or another strongly motivated history nut, perhaps.

***

My sincere thanks go out to the Interlibrary Loan people at CSU and to
The University of Calgary Law Library for providing me access to the
Atlantic Acceptance report.  ILL was the web before there was a web and
it will continue to be far more useful than the web in many areas for
a long time to come.