Top Hoodlum

by Anthony M. DeStefano

  For a start, Costello identified his occupation as that of a “betting commissioner,” someone who took wagers from bettors at a race track and placed the bets with a bookmaker. Costello claimed he had no other businesses and denied any connection with Alliance Distribution Company, a Manhattan liquor distribution company.

  “I have no bank account and have not had one in twelve to fifteen years,” Costello said. “I have no safe deposit box. My wife has no bank account or safe deposit box.”

  Costello said that his rent for his apartment at 241 Central Park West was $241 a month, something he could afford on an income of $16,000 a year. He was a man who dealt in cash, Costello explained. He admitted knowing co-defendant Al Howard for over fifteen years and had loaned him $5,000 to start up the Piping Rock nightclub and gambling establishment in Saratoga, New York. In return for the loan, Costello said he got 20 percent of the profits. Howard and he were also associated earlier in running the Brook Club, another casino in Saratoga. These comments by Costello in particular about his ties to the Piping Rock would become relevant fifteen years later when U.S. Senate investigators raked him over the coals about his businesses—both legal and illegal.

  Although the FBI reports had certain names redacted, it appears that Costello admitted to the agents that he knew either Montone or Cali and that one or both had worked at the Piping Rock and had been around Broadway over the years. One memo in particular, addressed to Hoover and written by a high-ranked FBI official, spelled out what the agency believed it knew about Costello’s ties to the theft: Montone had contacted Costello at a Turkish bath right after the heist. It was the Montone connection that raised suspicions about Costello with the FBI. In his own statement, Costello admitted seeing Montone after he fled to New York and meeting the thief in the Turkish bath of the Biltmore Hotel. Seated in the steam room, Costello remembered Montone asking for some money, so he gave him $30—a twenty-dollar bill and a ten-dollar bill. For Costello, such generosity was part of his character and why he found himself in such a mess.

  “I want to tell you something,” Costello finally told the agents. “Here is the position I am in. I am here all my life and I know everybody and I’m inclined to help almost everybody if possible with no interest, personal, financial, or otherwise. When they are in trouble, sick, or need rent and I got it, I help them, and I believe it is my reputation. This is my only interest in this whole situation and I have nothing else to say.”

  The meetings, the loan to Montone, the insinuation that Costello had fronted some of the money for the heist, were all bits of circumstantial evidence which the FBI pondered. Costello was a known slot machine profiteer and gambler, that much was certain. But did he play a role in the Bell jewelry theft? Records show some in the FBI thought the evidence against Costello was slim. But as would often be the case in his life, officials wanted to pursue Costello at all costs, even if the chances of conviction were 50-50. One memo to Hoover from his staff admitted that one official believed the case against Costello was “very weak,” but the grand jury insisted upon indicting him.

  On May 31, Costello, Howard (Contento’s alias), Stern, and a fellow name Pasquale Tesoriere were arraigned in New York on federal charges stemming from the Bell jewel theft. They were charged with conspiring with Montone and Cali to transport the stolen jewels over state lines. Scaffa was charged earlier with the conspiracy and later would be hit with perjury.

  “They are honest men. They have never welshed,” said Moses Polakoff, the attorney for Costello, as he asked for a low bail. “The fact that a man is engaged in bookmaking at the track, if he plies the vocation honestly, is not to be held against him.”

  Prosecutor F.W.H. Adams said the defendants were gamblers and singled out Costello as being someone with no legitimate source of income. In fact, everybody in the case didn’t know how to make an honest dollar, added Adams. Nevertheless, Costello and Contento had bail amounts set at $7,500 and $10,000 respectively while Stern and Tesoriere had to stay in a federal jail facility.

  Aside from Costello, Scaffa was the next headline-making target of the FBI. In September he went to trial and was convicted of perjury before the grand jury. The trial judge indicated Scaffa didn’t play any role in the actual theft. His crime was that he lied about what had happened to the Bell jewels and falsely claimed he didn’t know how the stones got into the locker in Miami. Scaffa’s sentence wasn’t long; he got only six months. But the legal troubles prompted New York State on October 1, 1935, to revoke his private detective license. Once a highly sought-after gumshoe, Scaffa had lost his celebrity and was believed by some to be a liability and a man who could no longer be trusted. Scaffa was never the same man afterward and died from a heart attack six years later at the age of fifty-three. If he was the big gem retriever of his day and reputed to have recovered stones worth over $10 million, Scaffa didn’t die rich. His estate was valued at $30,000. There were rumors that he also left behind a black book containing the names and hangouts of many of the underworld’s thieves and fences.

  And what of Frank Costello? From the beginning, the FBI knew it had a slim case against him in the Bell jewelry caper. The case didn’t get any better as time passed. On June 4, 1937, a full two years after he was first arrested in the case, the indictment was withdrawn at the request of Manhattan U.S. Attorney Lamar Hardy. Whatever evidence the FBI had gathered against Costello was just too insignificant to provide a reasonable likelihood for conviction. Once again, when he faced a major legal problem, fortune was kind to Frank Costello and the charges went away.

  CHAPTER THIRTEEN

  “PUNKS, TIN HORNS, GANGSTERS AND PIMPS”

  ALTHOUGH FRANK COSTELLO CONTINUED to dodge the bullet when it came to prosecutions and had tried to keep a low profile, by the end of the Depression he was clearly a much more visible character in the underworld. To the FBI he was a known gambler and ex-bootlegger who they didn’t seem to know too much about. As far as Mayor Fiorello La Guardia was concerned, he was one of those “bums” and “punks” he was committed to drive out of his city.

  In the face of La Guardia’s juggernaut, Costello had made a tactical retreat when he moved his slot machine business to New Orleans and operated there with seeming immunity from the cops. However, as FBI files showed, Costello had significant gambling interests elsewhere in the country. There was his share of the profits from the Piping Rock and Brook Club in Saratoga Springs. He also had provided some money to his old friend Al Contento for the Embassy Club, a gambling establishment in Miami, although Costello would tell the FBI years later that he didn’t take any interest or ownership of the club.

  Back in New York, although La Guardia would crow that he had driven racketeers out of many industries, the fact was that Costello and others remained in control of the numbers rackets in New York City. FBI files reveal that Costello, along with Bugsy Siegel, Joe Adonis, and the ever-present Meyer Lansky were in charge of the numbers rackets. The numbers game had long been a staple of gambling in the city, and, in truth, the Mafia didn’t have total control. For instance, in areas of Harlem, Stephanie “Queenie” St. Clair, a cunning and brash black woman, had significant control over some of the numbers operations there. With the help of her enforcer, Ellsworth “Bumpy” Johnson, St. Clair held off attempts by white gangsters like Dutch Schultz to push her out of the business. St. Clair outlived many of her rivals, and when Schultz was gunned down in Newark in October 1935, she was quoted as saying, “as ye sow, so shall ye reap.”

  With his operations outside of New York, Costello built connections to numerous gambling and numbers interests in other cities. FBI files show informants telling of Costello being active in Philadelphia and Baltimore, New Jersey, Iowa, and Chicago. The bureau was relying on more than just underworld characters to provide it with information on Costello, Schultz, and the other racketeers. FBI records show that on October 20, 1935, three days before Schultz was mortally wounded, the agency received information from a man affiliated with the New Yo
rk Post newspaper—in what capacity remains unclear since the name was deleted—on a confidential basis. The source, who identified himself as “the informant” passed along a report to New York special agent in charge Rhea Whitley that identified Costello, Luciano, and Louis Buchalter as being “lieutenants” of someone who had control of the largest crowd in the underworld.

  The claim by this mystery informant that Luciano and Costello were reporting to someone higher up the food chain of the mob is suspect for the simple reason that there didn’t seem to be anyone in the mob of greater status. There may have been those of near-equal status like Albert Anastasia and Vito Genovese. But there didn’t appear to be anyone above them. The man who was the informant may have been someone with particular entrée in his journalist duties—perhaps a newspaper columnist—to New York night life and the gangsters who inhabited it. That world was long the milieu that Damon Runyon loved to mine for characters, although the documents don’t give any indication that Runyon was the confidential informant, unlikely also since he worked for the rival Hearst newspapers. In fact, the informant claimed to have been present during conversations with Costello who told him about the way he set up slot machines in New Orleans with the help of Huey Long. Perhaps as an indication of the bloodshed to come, the informant said in the report that when he mentioned the names of Costello or Luciano in conversation that Schultz frowned and refused to talk about them. The New York Post source also indicated that the mob had a “representative on the staff of Dewey” and that there was strong sentiment for Dewey to get rid of Schultz from the city.

  Days after the report was passed along to the FBI, Schultz and two other associates were shot in the Palace Chophouse in Newark late in the evening on October 23, 1935. Schultz died the next day after lapsing into delirium. There was nothing more Dewey needed to do about Schultz. Meanwhile, the aggressive prosecutor, whom Schultz wanted to have killed, was free to continue going after Luciano and others.

  After convicting Luciano, Dewey focused his attention on Costello by going after the liquor distribution industry. After Prohibition ended, Costello, Kastel, and others tried to keep their hands in the business of alcohol. It seems that Dewey had focused on the distribution business as an offshoot of his probe into the dealings of James Joseph Hines, a Tammany Hall leader in East Harlem who Costello was close with—and whose political ties will be dealt with a little later in this book. Hines was one of those steady political operatives who over the years had gained immense power in the Democratic Party and had been the bane of La Guardia, helping to defeat the Little Flower when he tried to get reelected to Congress in 1932.

  The son of an East Harlem blacksmith who took care of the NYPD horses, Hines was described as a tall, thin-lipped man with a big physique, a jutting jaw, and cold blue eyes. Hines made a lot of money but never paid his taxes and in 1935 was forced to shell out for six years of back taxes. He also had a reputation for being on the take from gamblers like Schultz to the tune of $200,000 to protect their operations from arrest and prosecution. Hines was targeted by Dewey in 1937 as part of an investigation into labor racketeering, extortion, and restraint of trade in the bar and restaurant business. Hines wasn’t charged in that case but his name came up in a trial of some labor leaders when one frightened waiter testified how he was told by one labor tough that “Jimmy Hines and The Dutchman,” were behind an attempt to take over the waiters’ union.

  With evidence like that, Dewey focused on the restaurant business and liquor distribution. Owners of bars and restaurants had complained that low-level thugs in the employ of racketeers “persuaded” them, at the risk of bodily harm or worse, to buy liquor from certain businesses. The one company name that came up was that of Alliance Distributors, Inc., of 153 Fifth Avenue in Manhattan, a liquor distribution concern believed at the time to be one of the largest Scotch whiskey distributors in the nation of the King’s Ransom and House of Lords brands. Costello not only received his mail at the company office but also frequented the place. However, in a 1935 debriefing with the FBI, Costello told agents that while he did stop by Alliance on occasion that he had no connection to the firm and insisted to agents that “my homes is my office.” (In his 1951 testimony during a U.S. Senate hearing, Costello acknowledged that he had an agreement to get five shillings—about 20 pence—for every case of whiskey exported to the U.S. by Alliance. It was apparently a deal designed to get the liquor into bars and restaurants, but the arrangement fell through.)

  * * *

  While Dewey had success going after Luciano and others, his attempt to link Costello in a nefarious way to Alliance and the liquor racket was unsuccessful. A grand jury did indict in May 1939 an office manager at Alliance, a woman named Lilen Sanger, a thirty-year-old described as “stylishly gowned,” on charges she lied about Costello and his connection to the business. She was also accused of lying when asked about attending a New Year’s Eve party in Atlantic City where Costello was present. But at Sanger’s trial, witnesses said she was always in another room when Costello stopped by the office suite and that she was never shown his mail. Sanger also testified that while she attended the Atlantic City dinner that she didn’t know Costello was there and couldn’t recognize his photo when it was shown to her in court. The three-panel group of judges, skeptical of Dewey’s evidence, acquitted Sanger.

  Costello was no longer a gangster with a low profile. But as the Alliance Distribution case showed, he seemed untouchable even for a tenacious prosecutor like Dewey. Unable to make cases against Costello, La Guardia and Dewey went after proxies, men close to Costello and with whom it was suspected he did business. Luciano was the most noteworthy target. Another was Frank Erickson, one of the city’s biggest bookies. Born in 1896, Erickson lost his parents early in life and grew up in an orphanage. Working as a bookmaker from an early age, Erickson became adept at the business of taking bets from people about the outcome of sporting events—or any event for that matter—at agreed upon odds. Bookies set the odds, receive the money, and pay off the winners.

  Erickson is credited with starting the first national wire service for gamblers, which allowed for synchronized betting around the country. Along with Costello, Erickson is also credited with setting up a system of laying off bets—spreading the risk among other bookies in case they had to make a large pay out—which became standard operating procedure in the business.

  Records of the La Guardia administration show that the Mayor and William Herlands, his commissioner of investigation, put Erickson in their sights in 1939 since he was “reputedly one of the largest bookmakers and betting commissioners in the country.” Erickson took betting action from around the country but primarily used his headquarters in Manhattan as a place to collect bets and pay off winners.

  La Guardia and Herlands knew from law enforcement intelligence that Erickson had financial ties to not only Costello, but also Joe Adonis and other “underworld characters” like J. Richard “Dixie” Davis, the renegade lawyer for Dutch Schultz who was himself ensnared in plenty of illegality. But what also made La Guardia’s blood boil was that Erickson had ties to a number of politicians and law enforcement officials, notably Brooklyn District Attorney William Geoghan, through friendship and gambling. Checks were found drawn by Erickson and payable to judges and police officers. Erickson also had a pistol permit, something Herlands thought was suspicious.

  La Guardia had a tendency to fly off the handle with gamblers and all manner of gangsters, and when he learned that Erickson had handled bets from a particular acting police lieutenant wanted cops to arrest the gambler on sight. Claiming he had nothing to hide, Erickson agreed to testify to Herlands and police commissioner Lewis J. Valentine over a three-day period in April 1939. The transcript went on for over 300 pages.

  Erickson acknowledged that he had been a gambler and bookmaker for over twenty years and had grown so big that his operation accepted bets on races at almost every track in the U.S. He also accepted wagers on hockey games, prize fights, and t
he World Series. As a way of trying to burnish his images with more respectability, Erickson said he was a “commission broker,” a title Costello also used.

  Asked about his underworld contacts, Erickson admitted to not only knowing Costello, but also Luciano, the elderly Johnny Torrio, Dixie Davis, and Joe Adonis. Since he had an office at 1480 Broadway in Manhattan, Erickson tried to show that he didn’t take any bets there, where it would be illegal, but rather in a “wire room” in New Jersey. However, Herlands found records that showed how central the New York City office was to Erickson, serving as a clearinghouse for his large interstate operation.

  But what really seemed to get Erickson into trouble was the way he handled his application for a New York City pistol permit, which he received in 1932, and allowed him to keep a revolver at his Tudor-style home at 105 Greenway South in Forest Hills, Queens. On the original application Erickson said he needed the gun to protect life and property, as well as that an “attempt had been made to kidnap applicant.” But during his testimony, Erickson said it was his brother-in-law who had been kidnapped. He also listed on the application that his occupation was “retired,” while he told Herlands that he was a bookmaker. Erickson also said he had never been arrested when in fact he had faced bookmaking charges at least five times, leading to dismissals or acquittals.

  The end result of the testimony was that Herlands told La Guardia that Erickson could face prosecution on a number of grounds: violation of the gambling laws, lying on his pistol permit application, and being a “disorderly person” because he had no visible profession. La Guardia agreed and if he couldn’t get a gambler like Costello he wanted to make sure his buddy Erickson was prosecuted.

  Easier said than done. Erickson was charged with perjury, but when the case got to court a technicality got in the way of the prosecution. The two notaries who had notarized two of Erickson’s permit applications couldn’t remember whether or not they had taken a formal oath from the gambler. This failure in the proof troubled Queens County Judge Thomas Downs.