The bigger problem was that pesky Federal Bureau of Investigation. While many FBI agents felt that sports betting was simply red-blooded American fun, the problem was organized crime. It turned out that bookmaking was one of the mob’s most lucrative businesses; one estimate put U.S. betting at $20 billion in 1969, as much as one-third of which was pure profit for gangsters. Although there might not be anything wrong with betting a few bucks on the basketball game, the problem was, as one former FBI special agent put it, “it ends up feeding something else, like drugs, prostitution, loan sharking.”
In 1961 Attorney General Robert Kennedy urged Congress to pass a suite of laws aimed at “the bankrollers and kingpins of the rackets,” as part of a larger plan to go after organized crime by cutting off its finances. Several of these laws specifically targeted bookmaking. Shut down bookmaking, the logic went, and you cut off the mob’s largest and most profitable revenue stream; cut off those revenues and not only do you hurt organized crime across the board, you limit its ability to invest in growth markets such as importing illicit drugs. And though not every bookie was mobbed up, the FBI knew a lot of the bigger layoff bookies were. So that’s where the law focused.
But going after the bookies was tough. Bookmaking doesn’t leave lots of physical evidence like dead bodies or stolen loot. The actual crime occurs only when you accept a bet, which might be done in person but more likely happened over the phone. Then, for it to be a federal crime under the new laws, the bet had to be placed across state lines. Even then, the law said, gambling across state lines was illegal only if you were “in the business of gambling,” a vague term that was up to the courts to decide on a case-by-case basis. Merely placing an occasional bet with a faraway friend or two wasn’t good enough. All of these requirements made it tricky to gather enough evidence to get a conviction. Who could the FBI turn to for help?
Who else? The phone company. Wiretaps were ideal for taking down bookies, but they were hard to come by—legally, anyway. Yet the phone company had something almost as good: long-distance toll records. Phone bills, in other words. Toll records provided the FBI with what the military code breakers at the National Security Agency would call “traffic analysis,” answering the questions of who called whom, when, and for how long? Even if you don’t wiretap the bad guys there’s still a lot you can learn just from seeing the patterns of their phone calls.
Gil “the Brain” Beckley was a perfect example. “He was the number one layoff bookmaker in the U.S. and Canada. He was the guy,” recalls Edwin J. Sharp, a former FBI assistant director who worked the Beckley case in his early years at the Bureau. Beckley, reddish-haired and handsome, was liked and respected by his fellow layoff bookmakers. His nickname came from his lightning-quick ability to calculate odds in his head, and he was known to take in more than $250,000 of bets in a single day. The government had been tangling with Beckley since the late 1950s and wanted to take him down. Badly.
“Beckley lived in a plush Miami Beach apartment house, five or six stories up, well insulated. There was no way to get in and do anything,” Sharp says. “We were pretty well restricted to phone record checks.” But the phone records were a treasure trove. Over a period of months Sharp amassed a 3x5 index card file—some twenty thousand cards’ worth—of every long-distance number Beckley called. “We didn’t know the term then,” Sharp says, “but what we really needed was a computer database.” Painstakingly, Sharp and his colleagues built a detailed map of Beckley and his associates. By combining this with other intelligence they formed a solid picture of his bookmaking operation.
The threat posed by telephone toll records wasn’t news to the bookies, and they had developed several techniques to combat it. As early as 1950 bookies were using so-called cheese boxes to evade capture. The cheese box was a simple electronic circuit that bridged two telephone lines to form a two-person conference call. A bookie would get a pair of telephone lines installed someplace innocuous, such as an empty apartment, and install a cheese box there. The bookie would call one of the two telephone numbers and then just wait. At some point, one of his customers would call the other number and they would be connected. The beauty of this setup was that the customer never had the bookie’s direct telephone number. Moreover, if the police took the telephone numbers to the phone company to get an address they could raid, they’d end up looking like chumps, because all they’d find was an empty apartment with a pair of telephone lines and some simple electronics in the closet.
Cheese boxes didn’t solve the problem of long-distance toll records, however, because bookies still needed to make outgoing phone calls. Since the early 1950s bookies had been using every trick they could think of to make free and, more important, unrecorded long-distance telephone calls. One method was as simple as bribing telephone company operators and technicians to place calls for them so that the calls never appeared on their own telephone bills. Another approach took advantage of the fact that the phone company issued special telephone credit cards to its customers that allowed them to make phone calls while they were on the road. The bookies learned that it was possible to make up bogus credit card numbers, which both saved them money and guaranteed that records of the calls wouldn’t wind up on their phone bills. In other cases bookies would establish legitimate telephone credit cards under different names and addresses and actually pay the bills. This latter method might not save them any money, but it did manage to keep long-distance calls off their own personal toll records, thus frustrating the Ed Sharps of the FBI with their thousands of 3x5 cards.
Around 1960 the bookies discovered a higher-tech approach. A former telephone company engineer named Walter Shaw seems to have been the guy who introduced the mob to the black box, the simple electronic circuit that makes it look like the telephone was never answered and that Charlie Pyne and his buddies rediscovered in 1963. A black box gets installed on the receiving end of a call but it benefits the caller: if you call a number that has a black box on it, your phone call is free and no record of the call is ever made by the phone company. It was easy to combine a black box with a cheese box so that bookie-bettor conference calls could be free and also leave no record that they had taken place.
Government law enforcement agencies got their first inkling of this new technology in 1960. Investigators at the Treasury Department had been investigating a large cross-country gambling ring with the standard technique of using long-distance toll records to map out the bad guys. They had recently received a tip that there was “some type of instrument or device through which gamblers are able to make long distance telephone calls but circumvent the recording of these calls by telephone company equipment.” Not long afterward, the telephone toll records dried up; there was suddenly a “surprising decrease in their long distance telephone activities.” Exactly what you’d expect to see if bookies started deploying black boxes to hide evidence of their calls. The next year Walter Shaw was arrested in Miami after a bookie raid a week earlier turned up a number of black boxes in Mamaroneck, New York, which the New York assistant attorney general claimed Shaw had been selling to bookies for $1,500 a piece.
Unfortunately—for the bookies, that is—black boxes weren’t a panacea. A black box is a passive device for receiving calls. If you have a black box, then people calling you don’t have to pay for their calls, nor do they have to worry about leaving a record that the call took place. But having a black box doesn’t help you make calls; if you wanted to leave no trace of your outgoing phone calls a black box didn’t help you.
Enter the blue box. Blue boxes were active devices: they allowed you to call people—anybody—without leaving a record that the call was ever made. It’s not clear exactly when the bookies learned about blue boxes, or from whom, but the best guess appears to be about 1963 or 1964. One source was Louis MacKenzie, the electronics engineer who offered to fix AT&T’s network, for a price, in the early 1960s. MacKenzie, who later became a witness for the governmen
t in several blue box prosecutions, sold blue boxes to bookies in 1965 or perhaps earlier. But it is certainly possible that organized crime members learned about blue boxes from another source, for example, Walter Shaw, the former telephone company engineer who provided the mob with black boxes.
Regardless of exactly where they came from, or when, blue boxes are what led to Special Agent Heist knocking on Kenneth Hanna’s door on that Miami winter morning in 1966. About six months earlier, on July 19, 1965, AT&T contacted the Department of Justice’s Organized Crime Division. AT&T’s lawyer explained that the company had been investigating a toll fraud case and stumbled on something that the Justice Department might be interested in. Certain individuals had been “using devices to circumvent payment of telephone charges in the transmission of wagering information.” The wording had special meaning to the feds, for transmission of wagering information across state lines was a federal crime, one made so by a law introduced just a few years earlier by one of Attorney General Kennedy’s laws specifically targeting bookies and organized crime. The gambling network AT&T found certainly crossed state lines, spanning Boston, New Orleans, Las Vegas, Philadelphia, Miami, Washington, D.C., and Providence, Rhode Island.
The best part, though, was that AT&T had made tapes of the calls. “The Telephone Company investigation has resulted in obtaining various tapes and recordings, all in regard to gambling information,” read the FBI memo regarding the meeting with AT&T. The phone company “indicated their desire to turn these items over to the Organized Crime Division.”
From AT&T’s perspective it must have seemed a master stroke.What better way to crack down on telephone fraud while simultaneously cementing good relations with law enforcement than to hand over the heads of mobsters on a platter? As Bill Caming, AT&T’s attorney for privacy and fraud matters, describes it, AT&T “put a blue ribbon around it and handed it to law enforcement. They would be delighted because the work was all done and the glory lay ahead.”
Well, the work wasn’t all done; the feds had certain niggling details to attend to, such as launching an investigation and then prosecuting the bad guys. A grand jury was convened in Philadelphia, thought to be the center of the gambling ring. tarcase—“tapes and recordings,” the FBI’s code name for the investigation—was born.
It was about four months into tarcase, on November 24, 1965, when Jerry Doyle’s phone rang. Doyle, a former FBI agent, was a security officer for Southern Bell Telephone in Miami. The call was from the Internal Audit and Security Group at AT&T headquarters in New York City. The caller told Doyle that there were indications of a blue box in use on a telephone number in Miami and the company wanted Doyle to investigate it.
The telephone number in question belonged to Kenneth Hanna. The name was familiar to Doyle, who knew him to be a Miami-area bookmaker. So did the FBI. In fact, the FBI had been trying to connect Hanna with tarcase for some months.
Inside the telephone company switching office, Doyle had a blue box detector installed on Hanna’s telephone line. This was a device that listened for 2,600 Hz, the telltale tone emitted by a blue box to disconnect a telephone call. Each time it heard this tone it incremented a mechanical counter—a “peg counter”—to keep a running total of the number of times a blue box might have been used on Hanna’s line. The peg counter quickly registered plenty of hits, strongly indicating that Hanna’s line had a blue box on it. Doyle had the counter replaced with a tape recorder that was activated by 2,600 Hz. The recorder captured only the first thirty to forty-five seconds of each call, just enough to hear the blue box being used, to record what number was being dialed with it, and to get a few seconds of conversation, it was hoped enough to ID the people speaking. By limiting the recordings to just a minute or so at the start of the call, AT&T also hoped to avoid any later accusations that it had excessively violated its customers’ privacy rights; the phone company would be able to tell the courts that it had engaged in the absolute minimum amount of recording necessary to catch the bad guys.
Within a day the tape recordings provided Doyle with all the evidence he needed (“beyond a shadow of a doubt,” he would later testify) to prove that Hanna was indeed using a blue box. But for some reason—perhaps a desire to be extra thorough, perhaps a desire to help his former colleagues at the FBI, who knows?—Doyle left the tape recorder on Hanna’s line for about a month. In all, some nine hours of Hanna’s conversations were recorded, a minute at a time.
Toward the end of December, Doyle received a subpoena in the mail commanding him to turn over his tapes to the federal grand jury in Philadelphia. A few days later, Miami FBI special agent Bill Heist was handed the case—and the tapes. He spent hours listening to them. They contained everything he needed to go after Hanna and Hanna’s partner, a New York bookie named Nathan Modell. Not only did the tapes make it clear that Hanna was using a blue box, Hanna and Modell’s conversations captured on the tapes also made it clear that they were in the business of bookmaking and were transmitting wagering information across state lines. Even though the tapes had less than a minute of each conversation, the feds believed it to be more than enough to convict both of them for illegal gambling activities.
It was bad timing for Hanna and Modell but great timing for the feds because the FBI was just putting together a nationwide list of gamblers to raid that January. The Bureau planned to arrest bookies where there was evidence to do so and to execute search warrants to gather intelligence where there wasn’t; agents hoped they could get grand jury indictments after the searches. Hanna and Modell were added to their list, joining an honor roll of about a dozen others, a list that started with a planned search of the apartment of Gil Beckley, the government’s most wanted bookmaker.
On January 8, 1966, FBI agents executed raids in New York, Miami, New Orleans, Baltimore, and five other cities. As Special Agent Heist and four other FBI agents crashed through the door of the apartment in Miami, Hanna made a dash for the bathroom. He was arrested moments later standing over a just-flushed toilet, the most incriminating of his bookmaking papers presumably making their way through the sewer system to Biscayne Bay. Still, the FBI recovered a blue box and other bookmaking paraphernalia from his apartment. That same morning the FBI arrested Modell at his hotel room in New York City. Hanna was charged with 18 USC 1343, Fraud by Wire, and 18 USC 1084, Interstate Transmission of Wagering Information; Modell, who only received blue box calls from Hanna, was charged only with Interstate Transmission of Wagering Information.
The raids in the other cities went off without a hitch. According to newspaper reports, FBI agents “used a chauffeur-driven Cadillac to get into the swank island apartment of Gilbert Lee Beckley . . . the chauffeur carried a carton of whiskey and was flanked by two agents disguised as the donors. Beckley looked through the peephole, saw the chauffeur, and opened the door.” Although Beckley was not arrested, FBI agents obtained a wealth of gambling information. In the words of a Justice Department attorney in Miami, the operation was “most successful.”
Then, just a few months later, in April 1966—and before Hanna and Modell even had a chance to get to trial—the phone company handed over to the FBI still more evidence of bookie blue box fraud. The setup was similar to the Hanna case in that gamblers and bookies using blue boxes to make illegal telephone calls were all caught on tape by the telephone company. The recordings this time were courtesy of AT&T’s California subsidiary, Pacific Telephone, and they were of an alleged Los Angeles bookmaker named Al Bubis speaking with his associates throughout the country.
As in the Hanna case, Pacific Telephone had determined that Bubis was using a blue box. As Southern Bell had done with Hanna, Pacific Telephone installed a tape recorder on Bubis’s line. But Pacific Telephone went further than the telephone companies back east that were involved in tarcase. Instead of recording just the first thirty to forty-five seconds of each call, Pacific Telephone recorded the entire duration of all of Bubis’s calls,
both incoming and outgoing, from December 20, 1965, to March 24, 1966.
It was a gold mine for law enforcement: a chance to listen to three months’ worth of telephone calls between Bubis and some of the FBI’s most wanted bookies. Based on the Bubis tapes the FBI made simultaneous raids across the country on May 25, 1966. Sixteen alleged gamblers and bookmakers in nine different states were arrested; four more were sought as fugitives. As always, Gil “the Brain” Beckley was at the top of the list, and this time it was an arrest, not a search. Also arrested was Frank “Lefty” Rosenthal, a charismatic gambler whose career would later be reprised by Robert De Niro in the 1995 movie Casino. An FBI press release described the operation as a “crippling blow to the users of electronic devices designed to circumvent toll charges on long-distance telephone calls.”
The bookies were not going down without a fight. Mob attorney Ben Cohen represented both Hanna and Modell in the Florida case as well as Gil Beckley and Henry Loman in the first California case to reach trial. Cohen was the brother of Sam Cohen, one of the five founders of Miami’s notorious S & G Syndicate—the initials were said to stand for “stop and go,” a reference to the syndicate’s habit of suspending operations when things got too hot. At its peak, S & G ran a network of some two hundred bookies in the Miami area and raked in about $40 million a year.
Counsel Ben Cohen could switch instantly from smooth and charming to tough and intimidating. His balding head, horn-rimmed glasses, stout frame, expensive gabardine suits, and three-carat diamond pinky ring quickly became fixtures in Miami courthouses. The Senate’s Kefauver hearings on organized crime reported in 1951: “Individual bookmakers understood that they would be arrested from time to time; that their fines would be paid out of the profits so that S & G would participate in one-half of the fine if the bookie did not have it; and that after the fine was paid, the bookmaking operation could continue unmolested. The bookmakers were almost always represented by an attorney named Ben Cohen [. . .] There is concrete testimony on the record that Ben Cohen appeared on the scene of gambling raids almost immediately after the police, and the evidence indicates that S & G had information in advance about raids which were to be conducted.”
Exploding the Phone : The Untold Story of the Teenagers and Outlaws Who Hacked Ma Bell (9780802193759) Page 12