Top Hoodlum

by Anthony M. DeStefano

  Well, as will be explained later in this book, while Costello liked to perpetuate the story that he never carried a weapon after that first gun arrest, records uncovered indicate that during the Prohibition years he did walk around with a gun. He even was tempted to use it and came close to doing so at least once.

  Once freed, Costello needed to find a steady source of income—legitimate income. That didn’t mean he disassociated himself from his friends on the street: his brother Edward, Dudley Geigerman, and his growing number of Jewish friends like Meyer Lansky who had their own ways of making money. He had his Italian gangster associates as well and got arrested in May 1919 with one Vincent Rao on a charge of robbery. The case involved what was described as an alleged pickpocket incident in which Costello, Rao, and another man were observed by a police officer removing $100 from the victim’s pants pocket. The case led to a grand larceny charge but was later dismissed at the request of the Queens District Attorney’s Office. Clearly, Costello had to break away from these kinds of petty crimes and the rackets of East Harlem. He had to come up with some serious business opportunities. For that, Costello teamed up with a Jewish businessman named Henry Horowitz, who had a novelty company in Manhattan.

  Novelties could be many things in the trade but generally referred to Kewpie dolls, razor blades, and similar small items. Costello’s contribution to the company, which was formed with an initial investment of $3,000, was to come up with an idea for marketing punchboards, which at the time were popular ways for people to gamble, much like the modern-day lottery. Essentially, punchboards were pieces of cardboard within which were drilled holes containing slips of paper. For a nickel, a customer in a luncheonette, candy store or bar would get a chance to use a stylus to pull a single slip of paper out of one of the holes. A lucky patron might find a slip indicating a prize like a Kewpie doll or something else of nominal value.

  The punchboard operation with Horowitz appeared to be Costello’s first foray into gambling as a business, although it is entirely possible he tried his hand at the Italian lottery in East Harlem. The punchboard business was lucrative: newspapers advertised that a punchboard salesman in the 1920s could net $105 from one sale to a location. Proceeds from the games were split between the owner of the business that used the punchboard and the many companies that sold them. The games were quite the rage in some areas but were frowned upon by local governments, educators, and the police as being nothing more than illegal lotteries. Newspapers were filled with stories about how police arrested business owners who they said ran punchboard games. In some cases, the games were found to be part of ingenious scams. Cops in Queens discovered that punchboards were used in one store in Astoria that bore the name of a fictitious charity claiming to be giving some of the proceeds to help Jewish orphans. Police also heard complaints from teachers that their students were spending their money, and learning bad habits, by playing punchboards in candy stores.

  Costello didn’t stay in the punchboard business very long with Horowtiz. Still, George Wolf remembered that the company was grossing over $100,000 in sales in less than a year. Nevertheless, despite Costello’s attention to details of the business, it had to file for bankruptcy. The company was being stiffed by its vendors, many of whom were identified in bankruptcy proceedings as being “all East Side gangsters,” noted Wolf.

  It is likely that if Costello and his company were dealing with other gangsters that the bankruptcy was a “bust out,” a common tactic in which a broke company hides its assets. While the money is hidden, the company finds itself deeper in the financial hole when it can’t collect on its own receivables and runs to the protection of the bankruptcy court. The $100,000 in sales the Horowitz firm grossed would have been the equivalent of $1.4 million today, accounting for inflation. But that money was nothing compared to what Costello would be able to make in his next racket, one that would make him far richer than the likes of old kings and queens who ruled 108th Street in Little Italy.

  CHAPTER THREE

  THE BOOM OF PROHIBITION

  ITALIANS, JEWS, AND OTHER NEW IMMIGRANTS who were living in places like New York City in the early twentieth century weren’t only looked down upon because of their generally lower economic status and neighborhood crime problems. A significant swath of native-born Americans viewed the immigrants’ drinking habits as another problem they brought with them, which threatened the fabric of American society. Germans in particular, with their fondness for beer, became an object of intense criticism of those who were against the evil of alcohol.

  Sentiment for Prohibition and the banning of the production, sale, and use of alcoholic beverages had always been significant in the United States and had gathered steam with the rise of temperance movements around the country. With the ascendancy of organizations like the Anti-Saloon League and the Women’s Christian Temperance Union, the idea that Prohibition could be enacted nationwide saw wide acceptance. In 1918, the required thirty-six states approved the Eighteenth Amendment to the U.S. Constitution, which in 125 words barred the importation, production, and sale—but not consumption—of alcoholic drinks. A year later, the Volstead Act was passed to implement the Amendment, taking effect on January 17, 1920.

  For Frank Costello and his brethren Prohibition, now viewed as one of the biggest failures in a government effort to change public behavior, would turn out to be the defining moment for them in their rise as criminals. Despite its intent of reducing crime and improving the quality of life, Prohibition was poorly enforced because not only did a substantial part of the public want to drink but for years there was no effective way for the federal government to enforce the ban. Saloons and breweries may have been forced to close, but people could still drink because liquor was so plentiful. Estimates of the number of speakeasies in Manhattan, which catered to the drinking life, ran as high as 30,000 and more. Restaurants still served patrons drinks. Even President Warren G. Harding moved his private supply of booze into the White House.

  The Mafia saw Prohibition as a business opportunity it couldn’t pass up, particularly in New York City. For a start, at the beginning of Prohibition there were millions of bottles of liquor and wine stored in government warehouses. The product was supposed to be under government supervision and released for limited purposes such as “medicinal” use. Sacramental wine was approved for religious services. Mobsters were able to circumvent those government controls by outright theft from the warehouses or use of bribery and fraudulent documents to compromise government officials who had the job of supervising release of the stockpiles.

  One very ingenious, but very corrupt, attorney by the name of George Remus of Chicago saw an opportunity to exploit the government alcohol warehouse and did so, at least he claimed, by making substantial payoffs to an intimate friend of former U.S. Attorney General Harry M. Daugherty, the very man sitting atop the law enforcement effort to enforce Prohibition. As Remus would tell Congressional investigators in 1924, in early 1921, he hit upon the idea of buying up ten distilleries in the Midwest and at the same time organized a chain of wholesale drugstores. The businesses were ostensibly able to make withdrawals of liquor for medicinal purposes from the government warehouses, as did the liquor wholesale distilleries. Under what he called a “gentlemen’s agreement” with Jess Smith, a friend of Daugherty, Remus said he paid Smith protection money to be assured of getting the permits necessary to withdraw the medicinal liquor from the warehouses. The payment was substantial, over $ 2.8 million, and it secured the release of what Remus estimated was well over 800,000 gallons of whiskey, with some sacramental wines thrown in as well.

  The Remus scheme was astonishing and showed how easy the government permit system could be compromised to get around Prohibition. (It perhaps was the inspiration for a drugstore liquor scam alluded to in The Great Gatsby.) Remus said he ironed out the corrupt deal with Smith during a meeting at the Hotel Commodore in Manhattan in early 1921 and for a year and a half was making cash payments to keep the booze flowing. T
he flood of liquor, according to Remus, got into the bootleg trade in New York, Pennsylvania, Illinois, and Ohio and it is a safe bet that some of the stuff got into the hands of Alphonse Capone, Frankie Yale, and Costello. Remus said Smith, who had died by the time of the Congressional hearing, assured him that he didn’t have to worry about going to prison for the scheme.

  “There never would be any conviction, maybe a prosecution but no ultimate conviction—that no one would have to go to the penitentiary,” was how Remus remembered Smith explaining things.

  Remus did wind up in the penitentiary for violating the Prohibition law. Smith had died well before the scandal became known. There was never any evidence that Daugherty was aware of what was going on, or that Smith tried to influence his official actions. While Remus was convicted of bootlegging offenses, he kept recanting and then denying his recantation of his claim that he paid off Smith, so in the end it is hard to say where the truth lay on his bribery claims.

  But there were certainly payoffs flying around the Atlanta federal prison where Remus and Emanuel Kessler, one of Costello’s bootleg partners in New York, were incarcerated. In April 1924, the warden of the prison was convicted of conspiring with none other than the penitentiary chaplain to take payoffs from the so-called “Savannah crowd” of inmates, which included Kessler and Remus. The payments were to assure that the inmates got certain privileges and “soft jobs” like working in the prison library while incarcerated.

  No matter how much liquor passed through wholesale and drugstore operations like that operated by Remus, public demand for alcohol would soon supplant the warehouse stores that were being tapped. People wanted their drink, and this is where Costello and others saw their opportunities and took full advantage of the situation. As recalled by Luciano in his biography The Last Testament of Lucky Luciano, he and Costello’s crew got involved in bootlegging after one of their group, Joe Doto, met Philadelphia smuggler Waxey Gordon and did a deal to take $10,000 in whiskey. There was one problem: Doto, known also as Joe Adonis, didn’t have the money and looked to Costello, Luciano, and others for some $35,000 in funding. The group cemented the deal with Gordon in Philadelphia and never looked back.

  Bootlegging became an industry for the nascent Mafiosi who had only known more modest rackets and had the prospect of making them richer than they could have imagined. The hardcore killers like Alphonse Capone of Chicago and Frankie Yale of Brooklyn, Jewish gangsters like Gordon and Dutch Schultz, became major bootleg entrepreneurs. But others became involved as well, with various criminal groups becoming experts at importing and transporting rum, whiskey, wine, champagne, and beer to a seemingly insatiable marketplace.

  However, Frank Costello navigated the bootlegging business in a way that even his rivals had to admire. He cheated when he had to but his strength was that he knew how to vertically organize his smuggling business and did so by thinking big and outside the box. The novelty business, which generated so much cash for Costello with the punchboards wouldn’t be enough to sustain his bootlegging operation. For funding, he is said to have turned to Arnold Rothstein, the master gambler widely credited with fixing the 1919 World Series, although he would later claim that he knew of the plan but took no part in it. Rothstein was the scion of a wealthy Jewish family—his father Abraham was an old racketeer—and is credited by some with being the real brains behind the way the Mafia consolidated its operations and took advantage of Prohibition.

  “Rothstein knew all there was to know about business practices, ethical and unethical. It was he who financed Frank when he got started, and showed him the way to success in business: how to organize, how to cut costs—and how to cut your rival’s throat if necessary,” said Wolf.

  Liquor companies in Britain, Canada, France, and other countries didn’t want to stay out of the lucrative U.S. market and welcomed the chance to sell to Americans. Backed by Rothstein’s money, Costello soon saw a way of setting up a pipeline to get their product to market. For that, he looked northward to two small sand spit islands off Canada, the French possessions of St. Pierre and Miquelon. Since they were French territories, the islands were outside the jurisdiction of Canada, which at the time was under British control and nominally cooperative with U.S. efforts to stop the smuggling of alcohol across the Canadian border. The French islands had different rules and for an enterprising smuggler like Costello that fit his plan perfectly.

  By December 1921, there were reports in the American newspapers about “parties of well-dressed, black-cigar smoking gentlemen” who went to the two French islands to purchase and arrange for the delivery of “whiskey and the like” to U.S. bootlegging rings. The financial enticements for local sailors and boat owners to run the gauntlet of government vessels was said to be attractive, so much so that there were “certain sailors who used to be impecunious, but have become free spenders and flashy dressers.” While some small craft had been caught, many more got their cargoes to buyers all the way from Canada to Florida.

  Costello was said to have been one of those out of towners who visited St. Pierre and Miquelon. He made one trip in a tramp steamer in 1921, dressed in a bulky sweater and other seafaring clothes, reportedly to see the mayor of St. Pierre. By this time, he had already talked about getting into business with Kessler. It was then that Costello made a deal to import liquor for two dollars a case, stuff he could eventually sell for a markup of a hundred times more in the U.S., said Wolf. St. Pierre and its sister island of Miquelon, because they were French, became in a unique position to become major transshipping points for liquor, including rum, to the U.S. Even some nearby provinces of Canada which were also laboring under their own Prohibition constraints became a market. Newfoundlanders were so hard up and eager to buy liquor on the islands that they bartered firewood, partridge, moose meat, lamb, mussels, or clams for the high-alcohol-content and coveted black rum produced in the other French island of Martinique in the Caribbean, wrote maritime historian J.P. Andrieux in Over the Side, a history of Canadian smuggling during Prohibition.

  While Canadian tourists to the islands could easily fill up on liquor during port visits to St. Pierre, the process for Costello and his cohorts to get liquor back to the U.S. required a lot more planning ingenuity and money. In this, Costello seemed to excel as a businessman. He had a bit of help from the ineffective way the U.S. government was enforcing Prohibition.

  When Prohibition took effect in 1920, the federal government spread enforcement of the Volstead Act among a number of agencies. Notable were the IRS Bureau of Prohibition, the U.S. Department of Justice Bureau of Prohibition, and the U.S. Coast Guard. While that array of agencies may have sounded impressive, they were ill-equipped to fight the vast army of bootleggers who were ready, willing, and able to smuggle in liquor for an urban public that held the law in disdain. The Italian, Irish, and Jewish mobsters in Chicago and Detroit were able to evade the ill-equipped federal government to set up smuggling routes through Canada via the Great Lakes.

  Then there was Rum Row, a stretch of the East Coast that Costello and others working with him exploited so well. Ships laden with tens of thousands of bottles of liquor of all sorts would arrive at points outside the three-mile limit for U.S. territorial waters and thus protected from seizure by the Coast Guard. The booze the vessels contained was produced in places like England and the Caribbean, transshipped to the French islands adjacent to Canada and then sent by vessel to wait off places like Montauk Point, New York, or Atlantic City, New Jersey.

  To get the Rum Row product to market, Costello’s smuggling operation took vertical integration of bootlegging to an unheard-of level. After securing orders for liquor in St. Pierre and Miquelon, where up to 13 million bottles would be sold, Costello went about assembling a flotilla of vessels that could outrun the poorly equipped Coast Guard, meet the transport vessels sitting in territorial waters, and bring the merchandise on shore.

  “His fleet of ships included everything from tramp steamers to former luxury yachts as well
as flotillas of Jersey skiffs to make the run to the beaches,” recalled Wolf, referring to the small, fast flat-bottomed boats that can be powered by motor and could be inconspicuous.

  To communicate with the larger smuggling ships, Costello commissioned the creation of some ship-to-shore radio stations situated in obscure locations on Long Island. He also had what amounted to a small air force, seaplanes that could fly over Rum Row and detect Coast Guard activity. Those were all pretty ingenious uses of what was then new technology.

  But once the liquor was on shore, Costello and his associates, who now included his older brother Edward, had to get it to customers in New York City and points as far south as Philadelphia. To do that, Costello used convoys of trucks, which in the cut-throat world of bootlegging were susceptible to hijacking. Liquor loads were lost all the time in the business, and the roads from eastern Long Island to Manhattan were winding, dark, and prone to ambushes by competing gangsters. Costello lost his share of business to poaching by fellow gangsters, and to stop the hemorrhage he hired men like Meyer Lansky and Bugsy Siegel, two New York Jews he liked and trusted from the Lower East Side, to provide gunmen to protect the loads. Of course, the relationship he had with Lansky and Siegel would continue well beyond Prohibition as will be noted in detail later.

  By 1922, despite hijacking losses, it seemed that Costello’s bootlegging operation was thriving. He was making millions of dollars because the simple economics of the business allowed a substantial markup for liquor in the Prohibition era. Whiskey brought in from Canada could be cut with grain alcohol, given some color, and sold at an incredible markup. He paid back Rothstein’s initial investment—even loaning the gambler funds—and although he had the money now, Costello was careful in how he spent it. He helped his mother move out of East Harlem to a modest two-story home in Astoria on Halsey Street. Maria Saverio Aloise Costello’s husband Luigi or Louis had died on December 12, 1921, from bronchitis, a disease easily treated today but not so back then. He had also suffered from chronic heart failure. But Costello stayed close to his mother, who suffered from diabetes, and remained the doting younger child. For himself and Loretta, Costello moved to a pleasant home in Bayside, a residential part of Queens not far by car from his mother.