In 1931, Pearson was appointed by President Herbert Hoover to be the first civilian Governor of the United States Virgin Islands. His new government, inaugurated March 18, 1931, was given $763,000 to try and shore up the Islands' finances which were badly hurt by Prohibition. They were also given the task of replacing all military-government officials with new civilian ones, a task which they were required to complete within the first six months. As a show of support, President Hoover visited the Virgin Islands as a show of support for the new civilian administration.
Less than a year after taking office, friction developed between the Governor and Herbert D. Brown, the chief of the Bureau of Efficiency. Brown had previously endorsed Pearson for the position, but by June 1931, he had requested to Hoover and the Department of the Interior that Pearson be replaced. This dispute was in large part financial. Under the military government, Brown had operated a quasi-civilian government in St. Croix since 1928, using money allocated to that purpose by Congress. Under the civilian government, this budget reverted to the new Governor. While Pearson largely implemented Brown's existing programs, he was no longer given direct authority. Pearson was also criticized for cronyism, including creating positions in his government which were given to friends from Pennsylvania. On August 4, the Department of the Interior announced that Pearson would not be ousted from his position. Financial problems also plagued Pearson during his time as Governor as the US Government was providing $200,000 annually for aid. In November 1932, he proposed to Congress that the Islands be allowed to export rum again, but only to foreigners so as not to violate Prohibition. However, this became moot when the 21st Amendment was ratified the following year. Pearson continued to be unpopular with the locals, especially after passing a law which taxed all imported products from the United States at 5%. On October 19, 1933, the populace of the Virgin Islands voted in a popular referendum whether or not to ask President Franklin D. Roosevelt to withdraw him. Ninety-eight percent of those voting favored the removal of Pearson from office. In February 1934, Pearson declared personal bankruptcy, in large part due to debts incurred while working with his Chautauqua organization in Pennsylvania.
Investigations
In November 1934, a scandal erupted as Pearson's executive assistant, Paul C. Yates was fired by Secretary of the Interior Harold L. Ickes for "disloyalty" and "insubordination" and ordered him to return to Washington, D.C. for an investigation. Instead, Yates immediately resigned his position and traveled to Washington to meet with committees from both houses of Congress. He alleged to Congress that Ickes had been "outrageously deceived" by Pearson and that Pearson had been covering up scandals and mismanagement. Congress dispatched Ernest Gruening, the chief of the Bureau of Insular Affairs, Division of Territories and Island Possessions to the Islands to investigate. Gruening found no mismanagement in his investigation. Despite this, on February 28, 1935, Congress voted to start their own independent investigation, to be led by Millard Tydings, a Senator. The Senate hearings continued, but President Roosevelt appointed Lawrence William Cramer as the new Governor. In 1935 Pearson returned to the mainland to work for the new United States Housing Authority. On February 28, 1938, he suffered a stroke while on a business trip to California to urge passage of a law to permit public housing in that State. He died a month later.
