by Dean Jobb
That was when it all began. He “took a chance,” Leo admitted many years later, and made his first “dip into dishonesty.” One day in 1905 a friend came to his law office with money to invest. “I took it and, well,” he said, “I gave him a fake mortgage for it.”
The client thought the money had been lent to someone who was buying property and the buyer would pay back the principal and interest over time, in the same way a bank would make a mortgage loan. But this mortgage was secured against a property that did not exist, and Leo forged a signature for the fictitious buyer. He used some of the proceeds to cover principal and interest payments on the mortgage as they fell due, but he pocketed the rest. When the money ran out, “I simply set to work and drew up another fake mortgage,” he explained, “and sold it to somebody else.” He drafted another, then another, then another—so many that when he was asked about them almost twenty years later, he could not even hazard a guess at the number. Each new mortgage was tied to nonexistent land or buildings and provided the money he needed to meet the payments due on earlier ones. Once the wheels were set in motion, Leo felt powerless to stop them.
“Each fake called for some more fakes to cover the first ones up,” he said. “I got deeper in the hole.” Soon he was in too deep to even think about going back. He was churning out phony mortgages, as he put it, “like street car transfers.”
BY 1905, LEO HAD another reason to make as much money as he could as quickly as he could. She was a teacher with jet-black hair and the doe eyes of a matinee star. Mae Isabel Mayer had grown up in the fashionable Kenwood–Hyde Park area of Chicago’s South Side, the sixth of seven children—she had five sisters—and she was as clever as she was beautiful. Regarded as a brilliant student at Hyde Park High School, she had a personality that, as one acquaintance put it, “radiated warmth.” Her German Jewish parents (the family was not related to Leo’s former boss, Levy Mayer) had moved to Chicago from Kentucky in the early 1880s, shortly before she was born. When she met a charming young lawyer named Leo Koretz, her future seemed assured.
Leo and Mae announced their engagement in the fall of 1905. Her parents, Henry and Bertha Mayer, held a reception to celebrate at their Champlain Avenue home, and Rabbi Joseph Stolz of Isaiah Temple, a South Side synagogue, solemnized the marriage on January 30, 1906. He was twenty-six; she was twenty-three.
The Jewish enclaves of the South Side had been established after the Great Fire, and their residents were among the most prosperous in the city. The area became known as the Golden Ghetto, a wordplay that set its Americanized residents apart from the poorer eastern European Jews who filled the squalid tenements of the Maxwell Street ghetto in downtown Chicago. For Leo, marrying into the Golden Ghetto was a step up the social ladder. The son of Henry Koretz, an insurance agent from the North Side, was now the son-in-law of Henry Mayer, a dental supplies salesman with a red sandstone townhouse in one of the better areas of the city and enough money to employ an Irish maid. The newlyweds moved in with Mae’s parents but would need a place of their own soon so that they could start a family.
About the time of his marriage, Leo’s eyes began to bother him. His eyesight was bad enough—by now he saw the world through thick glasses—but something had flared up. Frequent headaches and eye trouble would torment him for the rest of his life. Doctors suspected Chicago’s smoky air was the cause of the trouble, and he was advised to get out of the city and spend time outdoors. A friend steered him to what seemed like the perfect cure: a job selling farmland in the clean air of the Arkansas countryside.
The prairie on Arkansas’s eastern border with Mississippi and Tennessee was regarded as “one of the last agricultural frontiers in America”—uncultivated, sparsely populated, the preserve of “the cattleman, the trapper and the outlaw.” That changed in the early 1900s when a local farmer named William Fuller returned from a hunting trip to Louisiana, where rice was extensively grown, convinced that “we had a good rice country if we had the water.”
Rice must be planted and harvested in dry soil but grown in waterlogged fields, and Fuller pioneered the systems of wells, pumping stations, and levees needed for controlled flooding. Rice also had an image problem in the United States—many Americans were “prejudiced against it as a food, and think of it as a cheap boarding-house dish to be used as a last resort,” noted a 1911 agricultural report—but high yields and good prices convinced other farmers to follow Fuller’s lead. Rice production in eastern Arkansas jumped from a mere 310 bushels in 1899 to more than 1.25 million in 1909.
Rice production created a land boom as speculators snapped up acreage. Land in Illinois and other midwestern states was expensive, and farmers were eager to move to where it was still cheap; “many tillers of the soil in this state,” a Chicago paper noted, “sold their $130-an-acre property and went south to cultivate land which cost one-sixth that amount.” One land company chartered a train twice a month to bring in prospective buyers, free of charge, to inspect its holdings.
Leo spent six months in the tiny Arkansas town of Wheatley, halfway between Little Rock and Memphis, selling farmland. He was an odd choice for the job, a bespectacled city boy with a law degree who knew next to nothing about farming, hired to convince weathered “tillers of the soil” to pull up stakes and start over. He was out of his depth, but he found someone to give him a crash course in rice farming: Henry K. Smith, a farmer and president of a Wheatley bank, lauded as “one of the first to realize the unlimited possibilities of raising rice” in the region. Smith showed him around and, as Leo recalled it, “taught me farm values.” The selling part—that was something he was good at. If he could sweet-talk investors into putting money into fictitious mortgages, if he could win over the clever folks who judged high school debating contests, he could sell farmland to farmers.
He and Smith hit it off, and when Leo returned to Wheatley for a second sales stint, he proposed that they sell shares in Smith’s farm. They became partners and bought up surrounding land under the corporate name Little Prairie Farms. Leo bought and incorporated two more farms, Prairie Blossom in Wheatley and Letchworth in Des Arc, about twenty miles away. He was president of all three companies and estimated his holdings stood at about three thousand acres, making him a big player in an area with an estimated forty thousand acres in rice production by 1910. Land values were going through the roof. Farms worth $10 an acre in 1905 were fetching $100 an acre five years later, but that was a conservative figure; by another account, the per-acre price ballooned as much as 1,000 percent in the first few years of the rice boom.
Leo continued to visit Arkansas every few months but spent most of his time back in Chicago, running his law office and tending his stable of bogus mortgages. Soon he was selling shares in rice farms to his Chicago friends and convincing others to take mortgages—more fake ones—on the properties. The “majority” of the rice farm mortgages, he admitted, “did not exist.” To make the documents look official, he kept two embossing seals in his office. One bore the inscription “Circuit Clerk Seal Prairie County, Ark”; the other stamped mortgages and related legal documents with the name of Richard Hazard, a fictitious notary public.
Years later, investigators trying to make sense of Leo’s operations in Arkansas were confronted with a “tangle” of land titles, mortgages, and other documents. He had mortgaged, “in some cases many times over,” they discovered, “practically every foot of his rice belt holdings.”
Then in 1907, just as Leo’s rice farm investments were paying off, he was introduced to a businessman named David Nieto and to a scheme to develop the timberlands of Panama’s Bayano River.
5
THE DUPE
THE BAYANO RIVER—now called the Chepo—traces a lazy arc for about 130 miles from its headwaters in the mountains that separate the Atlantic and Pacific Oceans. It empties into the Pacific at the narrowest point along the umbilical cord of isthmus that binds North and South America, making the valley an early contender as the route for the Panama C
anal. But surveyors and engineers concluded that the terrain was too rugged and the cost and construction challenges would be too great. When the canal opened in 1914, its Pacific terminus was about thirty miles west of the point where the Bayano’s slow-moving, muddy waters meet the ocean.
In the early twentieth century, eastern Panama was “one of the wildest, least-known corners of the entire world,” the historian David McCullough noted in his account of the herculean effort to build the canal. While the American-controlled Canal Zone drew a thin line of civilization across the isthmus, few outsiders had braved the oppressive heat to venture into the jungles and mountains, an untamed kingdom ruled by alligators, poisonous snakes, and disease-carrying mosquitoes. More was known about the surface of the moon than about the resources that might lie beneath Panama’s lush, green exterior. A feature article in the February 1922 issue of National Geographic described the country as a “far-away, mysterious place” that “most people think of as so remote that they can never hope to go there.” The Bayano region—named for King Bayano, an African slave who led a sixteenth-century revolt against Spanish rule—was even more remote and that much more mysterious.
By the time Leo heard about the Bayano, Yankee canal builders and an army of workers had been toiling in Panama for three years. The canal would fulfill a centuries-old dream of a shorter, faster route for global trade. For Washington, it was a strategic necessity as well. The restless, take-charge man in the White House, President Theodore Roosevelt, could barely wait for the day US warships could slip through the passage and assert the country’s naval power wherever—and whenever—needed. Panama had been a province of neighboring Colombia, but Roosevelt had flexed his military muscle to get what he wanted. When Panamanian rebels overthrew the Colombian regime in 1903, a timely US blockade prevented Colombian troops from intervening. The newly independent Republic of Panama, roughly the size of South Carolina, promptly signed a treaty that allowed the United States to begin construction.
American businessmen, eager to exploit Central America’s riches—coffee, bananas, minerals, timber—had imperial designs of their own. When United Fruit Company, the region’s biggest player, was formed in 1899, it controlled large tracts in Honduras, Nicaragua, and Costa Rica. The Boston-based corporation was a force unto itself, employing fifteen thousand and operating a fleet of steamships and a rail network to carry bananas from plantation to market. It was becoming a force in Panama as well, with twenty-one thousand acres planted in bananas by 1903. “Whenever we see we can make a dollar,” the firm’s president, Andrew Preston, once noted, “we do it.”
David Nieto had his own plan to cash in on this tropical bonanza. Leo met him through Daniel Belasco, Leo’s law partner at the time. Nieto was a man of about forty, London born, who described himself as a merchant. He was Belasco’s second or third cousin and of Portuguese or West Indian extraction—Leo was never sure which cousin or which nationality. Nieto had been of service to the Republic of Panama during the revolt, or so he claimed, and his reward was title to timberland on the Bayano River. He had come to Chicago to convince railroad executives to buy the wood and use it for rail ties. But he needed some up-front cash, say $10,000, to cut and deliver the timber to market.
That was a lot of money—$10,000 in 1907 would be $250,000 today—but Leo was confident he could scrape it together. The deal sounded like a sure thing. “I fell—fell hard,” he would later say, “swallowed the bait, hook, line and sinker.”
He passed the hat and in no time convinced nine friends and colleagues to join him, each putting up $1,000.
“I thought I was going to make a lot of coin out of it myself and for my friends,” he recalled. Nieto, before he headed off to Panama, “assured us all of that.” Leo advanced him enough money to pay for his passage and to buy the saws and axes needed “to clear away that timber and make us all rich.”
Weeks passed. A cable arrived from Nieto, asking for more money. Leo sent it. More cables followed, each more urgent than the last, each requesting more money. “And when he became too insistent,” as Leo told the story, “I began to get suspicious.” It was time, he decided, for a trip to Panama, “to find out just what I had put my money into.”
Leo bought a ticket on one of the steamships that made regular runs between New York City and Panama’s Caribbean coast—vessels crowded with workers and supplies bound for the canal project. He arrived in early 1908, at the beginning of a four-month respite from the region’s torrential rains and oppressive heat. Landfall was at Colón, a vice-filled boomtown at the Atlantic terminus of the half-built canal. He disembarked and boarded a train for the two-and-a-half-hour ride across the isthmus to Panama City, the republic’s capital and largest city. From there, it was a thirty-mile cruise along the Pacific coast to the broad tidal flats at the mouth of the Bayano River.
The next stage of the journey, up the river itself and into the jungle, would not be as easy. Malaria, the scourge of the tropics, stalked newcomers; even in the Canal Zone, where improved sanitation kept the disease at bay, malaria killed more than two hundred workers that year. At least Leo had come in the dry season, when the mosquitoes were less active. There were other dangers. The primitive tribes of the upper Bayano valley harbored “a hatred for all strangers,” an American who studied Panama’s aboriginal inhabitants observed only a few years later, and “it would not be safe for anybody to penetrate into their forests without a strong escort and continual watchfulness. Many instances of murders, some confirmed and others only suspected, are on record.”
“On the Bayano River, interior Panama—Indians supplying Panama soldiers,” undated stereographic image from a photograph taken in the early 1900s.
About the time of Leo’s visit, a photographer was also journeying up the Bayano. He ascended from the river mouth in a small motor launch, alternatively battling and riding the shifting tidal current. Alligators, he reported, were “huge and numerous”—some eighteen feet long—and the riverbanks crawled with snakes “of most unattractive aspect.” After twenty-four hours his party reached a military outpost. As villagers tied up their dugout canoes to trade bananas, he set up his camera and snapped a photo. It was published in the United States as a stereographic card, and in a note printed on the back of the image, the photographer doubted this land of alligators and snakes would ever amount to much. While the soil appeared fertile “and would without doubt produce crops of immense value if it could be worked by intelligent modern methods,” he observed, “the difficulties in the way of its development are so vast, the district will probably long remain as it is now, a tropical wilderness.”
Before Leo faced the snakes and alligators and ill-tempered natives, he had to find Nieto. He made inquiries around Panama City, but no one, it seemed, had heard of Nieto. Leo grew more suspicious and more worried. Then, by chance—and surely to the astonishment of both men—they met one day on the street. After what must have been an awkward conversation, Nieto agreed to take him to the property. But by the time they boarded a boat for the trip, Leo knew Nieto was lying. He had made more inquiries and had learned that Nieto was still trying to lease timberland in the region. Nieto took him to the Bayano and showed him land on the river.
Leo was unimpressed. There was no timber, “just a few quagmires and mudholes—worthless stuff,” he recalled. “And no $10,000.”
He was furious—“fighting mad,” as he put it. “I knew I was duped.” He confronted Nieto. It was a scam, Leo said, and he wanted the money back. No, Nieto insisted, the land was a good investment. He begged for more time and more money.
When Leo threatened to go to the authorities, Nieto became incensed. He had a threat of his own: Turn me in, Leo, and I’ll kill you.
Leo backed down. He never went to the authorities. He had been played for a sucker and stung for a lot of cash, but he was determined to find some way to repay his friends. “It was my fool mistake,” he scolded himself, “just my fool mistake.”
He boarded the R
oyal Mail Lines steamer Trent in Colón on February 11, 1908, for the return trip to the United States. He could not stop thinking about how naive and foolish he had been, how easily Nieto had ripped off people who had trusted him.
When he stepped onto a New York pier nine days later, the city was paralyzed by a wintry blast of rain and wet snow and shrouded in a thick fog that perfectly matched his mood. But an idea—“the big idea,” Leo would come to call it—had been planted in his mind.
6
THE BIG IDEA
LEO RETURNED FROM Panama bitter and $1,000 poorer. David Nieto’s scam had cost his fellow investors another $9,000. “It was a hard blow for Koretz,” said Francis Matthews, a lawyer and close friend who had worked with Leo at Moran, Mayer, and Meyer. Leo scraped together enough money to pay everyone back, and said he had learned a valuable lesson: from now on he would avoid “wild-cat” schemes and “stick to legitimate enterprises.”
His friends, of course, had no idea he was already a fraud artist in his own right and struggling to cover payments on a web of fake mortgages. Money seemed to be the least of his worries. In June 1908, only a few months after his return from Panama, he took Mae and her older sister, Etta Speyer, on a trip to California. They spent time in Los Angeles and stayed at the Hotel Del Monte, near the seaside town of Monterey. It was a posh resort where a millionaire railroad magnate showed up in his personal Pullman car to stay for the season and Presidents Rutherford B. Hayes and William McKinley came to escape the pressures of the White House.
Touring California and hobnobbing with the Del Monte crowd put a further strain on Leo’s finances. He had new responsibilities in his personal life, too. Mae had quit her teaching job, and their first child—a son, Mentor Henry—had been born in September 1907. They had moved out of her parents’ house and taken an apartment a few blocks away on South Michigan Avenue, an address that was still within the upscale Golden Ghetto.
