Prohibition - Thirteen Years That Changed America

by Edward Behr

  Daugherty, a later investigation showed, must have been aware of Fall’s scheme (the Justice Department was required to give its stamp of approval to deals of this importance), but nothing was ever proved. Only later did it become known that he had invested in Sinclair stock before it started booming as a result of the Navy deal. Daugherty was a difficult man to catch in flagrante, operating as he did behind his front man Jess Smith. He was also utterly ruthless with the small handful of liberal Republican politicians who tried to bring him down.

  Later, as investigation after investigation revealed the scandalous depths of the Harding administration, Daugherty would claim — a tactic later emulated by Senator McCarthy — that there was “abundant proof” that it was all part of “the hellish designs of the Communist International.” When Senators Burton K. Wheeler and Smith W. Brookhart did succeed in launching an investigation into his Justice Department activities, he told the New York Times (the interview was published on April 24, 1924) that

  . . . the two senators, who spent last summer in Russia with their friends, were part of an effort to capture, by deceit and design, as many members of the Senate as possible and to spread through Washington and the cloakrooms of Congress a poison gas as deadly as that which sapped and destroyed brave soldiers in the late war. The enemy is at the gate, he [Wheeler] aims at nothing short of the overthrow of the institutions which are your protection and mine against tyranny.

  Even by the lax standards of the 1920s, Daugherty’s conduct while attorney general was remarkable, not just for the extent of his corruption but for its eclecticism. No transaction was too trivial for him. In the Washington brownstone on H Street Daugherty shared with Smith, the Armour meat processing company regularly delivered sides of bacon and ham, while uniformed police officers paid for past and future favors with confiscated liquor. No one, at the time, seems to have been preoccupied by the discrepancy between Daugherty’s salary ($12,000 a year) and his household expenses ($50,000 at least, for he entertained heavily) — and Smith did not draw an official salary at all.

  Roxy Stinson, Jess Smith’s ex-wife, testifying before the Senate investigation on Daugherty, was later to be an unwilling but inexhaustible source of information. She told how Smith had boasted to her of the windfall Daugherty expected to collect from the proceeds of a pirated film of the Dempsey-Carpentier match. Smith had acquired the film on Daugherty’s behalf and expected to sell it all over America. She remembered Smith telling her that Daugherty’s friends had made $33 million in five days over the Sinclair Oil land deal. “Were you [i.e., Daugherty and Smith] in on it?” she asked him. “No,” said Smith, “that’s what we’re sore about.” But she also remembered how, shortly after the Sinclair Oil deal, Smith had shown up in Ohio where she lived, and proudly boasted that he had seventy-five $1,000 bills on him. She told of Daugherty and Smith’s innumerable expensive junkets to New York, paid for by Joe Weber, of Weber and Fields, a big theatrical entrepreneur, who provided them with lavish accommodation, theater tickets, “and all sorts of other favors.” It turned out that Weber wanted parole for his wife’s brother, currently in jail. But Daugherty wanted hard cash as well as a good time in New York, and she remembered Smith telling her: “I don’t know whether we’ll bother with him or not. He is awful cheap and wants something for nothing.”

  In this immediate postwar period, there was a great deal of litigation arising out of irregular wartime contracts and seizures made under the Enemy Appropriations Act. As attorney general, Daugherty was at the center of things: he could expedite, delay, and settle cases virtually at will. In some cases, documents simply disappeared. Captain H. L. Scaife, a former Justice Department investigator, told Senator Wheeler how he had resigned in disgust after discovering that his patient investigation into the Standard Aircraft Company affair had been mysteriously “lost.” The company had been paid millions of dollars during the war to provide fighter aircraft, but not a single plane had been made or delivered. It was later discovered that a representative for the Japanese Mitsui company, which had acquired the Standard Aircraft Company, had met with Jess Smith. Money had changed hands, and the proceedings just stopped.

  Daugherty was equally diligent in speeding cases up, for a suitable fee. The $6 million assets of the American Metal Company, owned by the Metallgesellschaft und Metall Bank in Frankfurt, had been seized during the war. Daugherty and Fall, the secretary of the Interior, used John King, a middleman who often worked for Jess Smith, to bargain with German lawyers. $441,000 changed hands. King took a fee, with the bulk of the money going to Jess Smith. As Daugherty’s bagman, he is thought to have handed over some of it to the attorney general himself.

  As Senator Wheeler found out to his cost, proving Daugherty’s financial involvement in these scams was not easy. There was a simple reason why Jess Smith was so invaluable to Daugherty: Smith’s brother, Mai, owned the Midland National Bank of Ohio, and it was through this small bank that a lot of the money was laundered. The bank was capitalized at only $100,000, but received huge deposits regularly. When investigators finally succeeded in getting permission to look at the records, Mai Smith destroyed them, but not before Wheeler discovered that there were large fluctuating deposits there in Daugherty’s name.

  But Daugherty and Smith’s biggest money-earner came from Prohibition. Millions of dollars passed through Jess Smith’s hands provided by those shrewd enough, and wealthy enough, to buy immunity from prosecution. George Remus may not have been Smith’s biggest single contributor, but he was the most notorious — for the simple reason that when, finally, his huge cash payments failed to buy him the promised exemption, he decided to spill the beans.

  REMUS UNRAVELS

  Every bootlegger, Prohibition agent, nightclub owner, and affluent private customer in the Midwest knew about Remus, his parties, his ostentatious generosity, and his inexhaustible supply of high-quality liquor. He was convinced he was untouchable. All of the politicians and law enforcement agencies of the city of Cincinnati were in his pocket, and he had what he knew was a unique relationship with the “deputy Attorney General,” Jess Smith. But his luck was not to last, and when it went, like Job, he was assailed with every conceivable woe.

  There were a number of reasons for his downfall — his overconfidence and excessive greed, to begin with. In 1922, he was well on the way to establishing a whiskey monopoly. This was not to the liking of other bootleggers with underworld connections, and he may well have been the victim of a conspiracy to bring him down at all costs. His German origins, too, were almost certainly held against him in these hysterically anti-German years, though his immediate fall stemmed also from the ingenuity of the two people in the world he found he could not bribe — the Prohibition directors of Indiana and Kentucky. But most of all his nemesis came when Jess Smith, Daugherty’s front man and operative, fearful that he was about to be indicted at long last and unwilling to betray his mentor, committed suicide in December of 1923.

  When, a year later, Senator Wheeler finally persuaded the Senate to look into Daugherty’s record, Remus became one of the star witnesses of the investigative committee. His cross-examination explained why he had been so sure he would never come to grief, even if indicted. Remus told the committee how his lawyer, Elijah Zoline, introduced him to Smith and then “gracefully withdrew.”

  WHEELER: Did you know he was close to Daugherty?

  REMUS: Well, having practiced criminal law, we knew these matters. It was a matter of public record that he was pretty close to the Attorney General.

  WHEELER: What did he say?

  REMUS: He said that for a consideration he would obtain permits, if I would pay him so much for the permits per case.

  WHEELER: What did he say with reference to your being indicted in these matters, or prosecuted?

  REMUS: That there would never be any conviction — maybe a prosecution, but no ultimate conviction, that no one would ever have to go to the penitentiary.

  WHEELER: How much did you pay hi
m on this first occasion?

  REMUS: Fifty thousand dollars.

  WHEELER: And the money paid to Jess Smith was for protection, was it not?

  REMUS: Yes, he was to do what he could, to make connections as far as the withdrawal of these permits was concerned.

  WHEELER: Did the payment involve him getting the permits for you?

  REMUS: No, that was a different arrangement. The person withdrawing the liquor would pay $15 to $21 a case. A case contains three gallons. That you would consider overage expenses. That would be in addition to the $21 to $25 a case you would pay to the warehouseman.

  WHEELER: Did Smith get any of that?

  REMUS: Yes, he got about — we figured at the time he and I talked — about $1.50 to $2.50 a case.

  WHEELER: Are payments of that kind included in this $250,000 to $300,000 that you paid him (for protection)?

  REMUS: Oh, no, Senator.

  WHEELER: That was in addition?

  REMUS: Yes.

  Remus told the committee of meetings with Smith in hotels in New York, Washington, Cincinnati, Indianapolis, and Columbus, Ohio (the dates, times, and places had been carefully logged), each meeting invariably concluding with cash payments, or checks made out to “pay cash.” On one occasion, in Indianapolis, he saw Smith and Daugherty together but Daugherty was never directly involved in the transactions. Wheeler asked Remus whether there was any friendship between the two men, or was it “a pure-cold-blooded proposition.” “Not a bit of sentiment attached to it,” Remus replied. Again and again, the Senate investigators returned to the subject of Remus’s promised immunity.

  WHEELER: Did you discuss with him anything with reference to your indictment? [Remus was currently in jail.]

  REMUS: Yes. The Department of Justice would put up a vigorous battle, but ultimately I would never see the penitentiary.

  WHEELER: And that vigorous prosecution was going to be done just as a blind? Was that it?

  REMUS: I am sorry to say that is not true, Senator.

  WHEELER: But that is what he told you?

  REMUS: Yes. He said that while there might be a conviction before the jury, the matter would go to the Court of Appeals and the case would be reversed.

  WHEELER: Did Jess Smith not say to you that it did not make any difference if the Court of Appeals did confirm it, he could get you out of it?

  Remus: Yes.

  WHEELER: When did he say this?

  REMUS: A short time after my conviction — May 1922.

  WHEELER: Even after the conviction?

  REMUS: Absolutely.

  WHEELER: He told you you would never serve a day, that he would see to it that you got out of it?

  REMUS: Absolutely.

  WHEELER: Where was this?

  REMUS: At the Washington Hotel.

  WHEELER: Did you pay him any money at this time?

  REMUS: About twenty or thirty thousand dollars.

  WHEELER: The way he would get this suspension of sentence or anything would be through the Attorney General?

  REMUS: Yes. He said he was assured there would be no ultimate sending away of Remus or his men to a penitentiary.

  WHEELER: And who did he say assured him of that?

  REMUS: The general.

  WHEELER: He called him the general, did he?

  REMUS: Yes, sir.

  WHEELER: How many times did he tell you that?

  REMUS: should say twice or three times.

  WHEELER: Did he tell you that if the Supreme Court affirmed that decision you would still be granted a pardon, or that you would never have to serve a day in jail?

  REMUS: Yes, he said that. On account of his friendship with the general, he said he would do everything he could to see that the matter would be reversed.

  The indictment that Jess Smith promised would be quashed was the work of the two “untouchables”: Burt Morgan, the Prohibition director of Indiana, and Sam Collins, Prohibition director of Kentucky. Luck was on their side. In 1921, a regular Death Valley Farm customer, Nathan J. Goldman, was flagged down in Indiana with cases of whiskey in his car. In court, he pleaded guilty, and received a $500 fine and a ninety-day jail sentence. In the time-honored bootlegging tradition, he had refused to say where he had obtained his liquor, but Morgan was certain it had come from Death Valley Farm, which he had heard about, though he knew nothing of its whereabouts. Since it was in another state, the chances of involving Remus seemed slim.

  But Morgan went to see Goldman in jail and proposed his immediate release in return for his cooperation. Goldman accepted. He even agreed to take Morgan by car to Death Valley Farm to show him where it was. They drove there, turned around, and went back to Indiana. Unlike Cincinnati, Indiana really was a dry state, and its agents, under the “untouchable” Morgan, were less ready to be paid off, but Morgan knew he would have a hard time getting the cooperation of his Cincinnati colleagues.

  Another “untouchable,” Sam Collins, the Kentucky Prohibition director, was also on Remus’s track. His agents had, by chance, arrested two runners from a Chicago saloon after their cargo of whiskey spilled into the street after a car crash. They too agreed to cooperate, and admitted it had come from Death Valley Farm.

  Morgan and Collins got together. Since they had no jurisdiction outside their own states, they knew they would have to get the Cincinnati Bureau to issue a search warrant, and to do that they would have to trick their corrupt Cincinnati colleagues into cooperating with them. Once more, luck was on their side. Although Remus invariably insisted on cash payments so that his involvement could not be traced, he had made an exception for Goldman, who had paid for his consignment in part with a $250 check to Conners. By oversight, after Goldman’s arrest, it had not been canceled, so here was invaluable proof.

  Morgan and Collins, and their teams, came quietly and unannounced to Cincinnati and set up headquarters in the Sinton Hotel. They called their Cincinnati colleague, Robert E. Flora, and asked him to join them without telling him the reason for their presence. Only when Flora showed up was he told that the purpose of their visit was a raid on Death Valley Farm. After studying the evidence, he had no alternative but to issue a search warrant. Virtually under house arrest himself and unable to make a telephone call (Morgan and Collins were well aware that the Cincinnati Prohibition Bureau would tip Remus off if given the chance), Flora was compelled to go along with them on the raid.

  The raiders used unmarked cars that Sunday noon, and did not have to use force, as the men at the gate assumed they were customers. Once inside, they showed their search warrant, and quickly discovered the cellars, the bottling plant, and hundreds of gallons of whiskey.

  Conners and Gehrum had been to the races the day before, and did not show up at Death Valley Farm until late that Sunday afternoon. The search was still in progress. Conners pretended he was simply “looking for a friend,” and he and Gehrum left in a hurry. They immediately drove to the Remus mansion to tell him of the raid.

  With his extensive network of contacts, Remus had in fact heard rumors that a strange Prohibition agent was in town, but was not too concerned. Gehrum had told him there were hardly any stocks of liquor inside the farm. He had lied, it was later revealed, because he had some of his own customers lined up and wanted to make a profit on the side. Nevertheless, Remus sent a messenger down to the farm early on Sunday morning, to collect some money. The messenger was told to be sure and tell the men on duty to clear out all of the liquor, because there were strange men in town. The messenger forgot to relay the message.

  Remus’s first reaction, on hearing of the raid in progress, was to mount an armed expedition and rout the raiders with guns. A weeping Imogene begged him not to (“I know you’ll be killed! Then what will I do?”). Remus arranged bail for those on the farm who had been arrested. Three weeks later, Conners and Remus were themselves arraigned. In May of 1922, Remus, Conners, and eleven of his staff went on trial, and were found guilty. Remus received a two-year jail sentence, and the maximum $10,
000 fine. Conners and the others got sentences ranging from one year to eighteen months and fines ranging from $5,000 to $10,000. All appealed to a higher court and were allowed further bail until the next hearing.

  Remus was still not overly worried, convinced that the protection money he had spent would prevent any of them from ever going to jail. “When you have Washington fixed,” he told Anderson, “you don’t need to go below.” Even with Death Valley Farm closed, his five other halfway houses — in Reading and Hamilton, Pennsylvania; Glendale, California; Buffalo, New York; and New York City — were doing well. He carried on business almost as usual, if on a slightly smaller scale. But his extraordinary luck had deserted him, and with Smith’s suicide, he had lost his expensive link to Daugherty. The Supreme Court refused to consider his case, and in January of 1924, all appeals exhausted, Remus, Conners, and his eleven subordinates began their jail sentences in Atlanta.

  Remus was engaged in another major operation during the time he remained free on appeal: he had become part of a St. Louis and Indianapolis syndicate that had bought the Jack Daniel’s distillery. His partners, prominent local politicians and state officials, including a congressman and the St. Louis director of Internal Revenue, assured him that their stature and influence guaranteed them all full immunity.