Empire of Deception

by Dean Jobb

  On Election Day, November 2, Chicago was spared the violence that had marred the primaries. Republican Warren Harding won the presidency by a landslide, and Thompson-Lundin candidates rode on his coattails. The state’s attorney race was a rout: Crowe defeated his Democratic challenger by more than two hundred thousand votes.

  WITHIN DAYS OF HIS election, Crowe had a chance to make good on his crime-fighting promises. A jury had been squeamish about imposing the death sentence on Carl Wanderer, a war veteran who confessed to murdering his pregnant wife in June 1920. At first he claimed that a robber had shot her as they returned home from a movie and that he had killed the assailant in self-defense. Then he admitted he had staged the whole thing; he had lured a homeless man to his doorstep with the promise of a job before shooting them both. “I was just tired of her,” he explained to police. But when Wanderer recanted and accused the police of beating him until he confessed, the jury found him guilty of the lesser offense of manslaughter and sent him to prison for twenty-five years.

  The presiding judge called the verdict a “regrettable error.” To the prosecutor, Ropes O’Brien, denied another notch on his belt, it was “an asinine finding.” Crowe, the new state’s attorney, called the prison term “entirely unbefitting the atrocity of the crime.” He ordered Wanderer to stand trial again, this time for the murder of the homeless man. The second jury brushed aside doubts about the confession and sentenced Wanderer to hang. Crowe pulled out a victory cigar when newsmen asked him to comment. “Justice has been done,” he said, “and a great error has been corrected.”

  The Hanging Judge was now the Hanging Prosecutor and becoming one of America’s leading advocates for capital punishment. “It is the finality of the death penalty which instils fear into the heart of every murderer,” he argued in the pages of a respected national journal, the Forum, “and it is this fear of punishment which protects society.” The country needed Old Testament, eye-for-an-eye justice to protect its citizens, the kind he was determined to deliver to the law-abiding people of Cook County. “I believe society should have no hesitancy,” he wrote, “in springing the trap every time the noose can be put around a murderer’s neck.”

  After Carl Wanderer came Harvey Church, a young man so obsessed with owning an expensive Packard Twin Six that he murdered two car salesmen to get one. He used a knife, a baseball bat, and his bare hands to dispatch his victims. Crowe orchestrated a crime-scene tour that scared and sickened Church into confessing. He was convicted in December 1921 and sentenced to hang. Crowe’s statement to the press was published on Christmas Eve. “Cook County is extremely fortunate,” he said, “in having twelve men who, despite the sentiment of Christmas, had the courage to find Harvey W. Church guilty of murder and fix his penalty at death.”

  Crowe and his wife, Candida, on a campaign platform in 1920 with his Republican allies Charles Barrett, left, and Chicago Mayor William “Big Bill” Thompson.

  When the new state’s attorney appeared in public or in the courtroom, opposing counsel could not break the habit of referring to him as Judge Crowe. His combative style and tough talk soon earned him yet another nickname: Fighting Bob.

  IN 1921, AT THE height of its power, the Thompson-Lundin political machine imploded. The Daily Tribune went on a mission to expose corruption at city hall and was so successful that Big Bill filed a libel suit seeking an unprecedented $10 million for damage to the city’s reputation. The suit—“the most remarkable attempt to suppress free speech in the history of the American press,” in the Tribune’s opinion—was thrown out of court, leaving the city and its mayor sullied. A bigger blow was the indictment of one of the mayor’s closest allies, Governor Lennington Small, on charges of embezzling some $2 million in public funds in his former post as state treasurer. The Tribune was jubilant. “The end of the Lundin-Thompson tyranny,” the paper declared, “looms in sight.”

  Crowe observed the mayor’s troubles with a tactician’s eye, waiting for the moment to strike. It came that fall, when Thompson’s handpicked chief of police, Charles Fitzmorris, made a startling admission: his officers were so corrupt it was almost impossible to enforce Prohibition in Chicago. “Reports and rumors reaching me,” he announced, “indicate that 50 percent of the men on the Chicago police force are involved seriously in the illegal sale or transportation of liquor.” Fitzmorris transferred hundreds of officers in an effort to disrupt the illicit activities, but this was not enough for Crowe. He assembled his own force of sheriff’s deputies and police officers to crack down on bootleggers and speakeasies, and invited newsmen and photographers along to publicize the raids. By the time Thompson ordered Fitzmorris to launch his own attack on the illegal liquor trade, the state’s attorney had stolen his thunder.

  Crowe broke ranks with Thompson and Lundin in 1922. He openly accused the mayor of meddling in the work of his office, of opposing “my efforts to close hell-holes of prostitution and vice.” It was a messy divorce. Thompson began to refer to Crowe as “Bobby,” as if he were scolding a wayward child, and called him a little rat. Crowe called Thompson a skunk and began probing corruption in the city’s school system. By August, several school board officials faced charges of theft and fraud. A full-blown scandal broke in January 1923 when Crowe indicted Lundin and more than a dozen others on charges of defrauding the board of at least $1 million through graft and kickbacks. Lundin was accused of pressuring school trustees to purchase supplies at inflated prices—a $133 potato peeler was just one example—and his own company had provided windows and doors for school buildings. With his political fixer exposed as corrupt and the mayoral election only months away, Thompson’s political career appeared to be over. He announced he would not seek a third term.

  Lundin and his codefendants stood trial in June but were acquitted, thanks largely to the formidable skills of the great defense lawyer Clarence Darrow, who dismissed the state’s case as “suspicion and cobwebs.” The verdict was a setback for Crowe, but the lengthy trial had exposed the extent of the corruption at city hall. With Thompson gone, Crowe could pursue his own political ambitions. Chicago elected a new mayor, Democrat William Dever, and Crowe looked like the Republicans’ best hope to reclaim that prize in the next election, in 1927. Crowe’s longtime ally, Charles Barrett, controlled the Board of Review, the body that set and adjusted property taxes, and this made him a political force. It was “difficult to refuse a favor,” one observer noted, “asked by a man who might double your tax bill, or halve it at will.” Crowe and Barrett, now the party’s undisputed bosses on the West Side, became the most powerful Republicans in the city and would prove as corrupt as the Thompson-Lundin regime before them, conducting their own raids on the public treasury to reward followers with jobs and contracts.

  A crime-fighting reputation and a timely prosecution had put the mayor’s office within Crowe’s grasp. After that, who knew? If he continued to play his cards right, he might be the party’s best bet for governor.

  The first step was winning reelection as state’s attorney in the fall of 1924. But Chicago’s criminals refused to cooperate. The number of murders in the city rose from fewer than 200 in 1921 to 1923’s grim tally of 270. Crowe responded with a string of prosecutions he claimed would “call a halt to killing in this city.” He took some killers off the streets but seemed powerless to stop a new wave of violence as well-organized gangs—including one led by a couple of transplanted New Yorkers, Johnny Torrio and Al Capone—fought for control of Chicago’s liquor trade. Turf wars broke out. Beer shipments were hijacked. Crooks killed other crooks. There were ten gangland slayings in the fall of 1923, and they were only the beginning. The killers were rarely identified or charged. Crowe’s promise to halt the bloodshed rang hollow.

  The state’s attorney turned his attention to easier targets. In June 1923 he launched a grand jury investigation into bucket shops. At least three dozen of the fly-by-night operations were active in the city, flogging worthless or watered-down shares to unsuspecting investors. Hi
s office oversaw well-publicized raids on several outfits and filed charges of operating a confidence game. Crowe’s second-in-command, the prosecutor George Gorman, claimed the crackdown was driving the fraudsters out of town. Some had “caught fast trains back to New York,” he told the papers, “where most of them came from only a few months ago.”

  Shareholders in the Bayano oil bonanza who heard the news must have shaken their heads, amazed at the gullibility of people who trusted their money to unscrupulous promoters.

  12

  THE BUBBLE

  AT THE END of 1922, six months after Bayano’s biggest investors hosted the banquet in his honor at the Drake Hotel, Leo returned the favor with a New Year’s bash at his mansion. The invitation was a mock newspaper page that touted his latest project—a pipeline spanning the Isthmus of Panama, to carry Bayano crude to ocean terminals for shipment to the United States. The syndicate was jumping headlong into the oil business.

  “We were told that the big five”—Leo, Espinosa, Fischer, and the two Als, Watson and Bronson—“were paying for the pipe line, which was to cost $5,000,000,” Francis Matthews recalled. “With this line Koretz figured that the company would be earning about $100,000 a day.” That was $36.5 million a year, or close to $500 million today. Leo’s friends and family had hit the jackpot.

  Each day seemed to bring more good news. Production reached 150,000 barrels a day and continued to rise. The workforce in Panama ballooned to five thousand employees. The syndicate had ordered a fleet of a dozen tankers to carry its oil to market, Leo said, and he produced the shipyard contracts to prove it. Standard Oil wanted to buy them out for $20 million, he told his investors, but he had turned them down. The oil giant had sweetened its offer to $25 million for just one thousand shares of Bayano, he claimed, and once again he had sent them packing.

  He fed investors glowing reports on the syndicate’s progress. “When you wish the Bayano a million barrels of oil a month you are a little bit behind the times,” he assured Alex Fitzhugh of Des Moines, Iowa, in a June 1923 letter, “for out of 24 producing wells we are today getting a flush production of about a quarter million barrels per day.” Fitzhugh was ecstatic: “That is simply astounding,” he replied. “Here’s hoping she goes bigger and bigger.” Two months later, Dr. Milton Mandel and his sister, Sarah, who held a combined eleven thousand shares, were en route to a vacation in Hawaii when a telegram arrived at their San Francisco hotel:

  All our boats are in and unloaded. Some are already on the return to Panama. Additional barges have been sent for the surplus. Twenty-four wells are producing 10,000 barrels of oil daily each. Most of our deliveries are paid for. Dividend checks will be sent December 1.

  Much love.

  LEO

  Visitors to Leo’s offices in the Majestic Building could not help noticing a row of small bottles displayed on a table. Each one bore a label and a single word: OIL. The dark brown liquid inside, it turned out, was whiskey.

  WHEN A MR. STEWART from the Fifth Avenue silversmiths Brand-Chatillon phoned in May 1923, seeking credit information on a guest who had just left the store, the cashier at the St. Regis Hotel was pleased to oblige. Yes, Basil Curran said, he had known this particular guest for many years. The man always stayed at the St. Regis when he was in New York and was prompt in paying his bills, which often ran as high as $5,000. Curran knew a few things about the guest’s business affairs, too, from their chats over the years and from conversations he had overheard.

  He “was interested in oil enterprises in Panama” and a millionaire many times over, Curran told Stewart, with a net worth of between $15 million and $20 million. Another guest, a Chicago banker, had vouched for the man, assuring Curran “he could borrow any amount of money he wished in Chicago on his own signature.” One bank, in fact, had lent him $75,000—in today’s terms, almost $1 million—without asking for collateral.

  “I told Mr. Stewart that Mr. Koretz was a man of excellent financial standing,” Curran recalled, “and that he was good for any credit he might want.”

  By mid-1923, Leo was visiting New York about once a month, and his home-away-from-home was a two-bedroom suite with sitting room at the St. Regis, an oasis of Old World elegance four blocks south of Central Park. Opened in 1904 at a cost of $6 million, it was built to the luxurious standards of John Jacob Astor IV and stood at the corner of Fifth Avenue and East Fifty-Fifth Street, a neighborhood of mansions, town houses, and upscale shops once known as Millionaires’ Row. The eighteen-story hotel catered to those “who were rich, and who were or wanted to be fashionable,” noted one study of New York’s architecture—people who preferred to stay in a Parisian-style limestone tower and to be immersed in a world of Italian marble, English oak, gleaming brass, bronze grillwork, and Flemish tapestries. Resident families, including the piano-making Steinways and an heir to the Guggenheim fortune, moved in with servants in tow. After a tour in 1906, the Russian writer and revolutionary Maxim Gorky told a reporter that “neither the Grand Dukes, nor even the Czar, have anything like this.” The upstart Drake Hotel in Chicago paled in comparison.

  Leo chalked up his frequent New York trips to the demands of his burgeoning oil business and spoke of opening a branch office in the city. Freed from family obligations and the demands of his investors, he explored New York’s nightlife and made new friends. He became close with Marcy Schoener and his wife, Mary, who lived at the Ansonia, a towering Beaux-Arts building on the Upper West Side. Schoener was a partner in his family’s tobacco-wholesaling business, and like everyone else who befriended Leo, he was eager to buy shares in Bayano.

  “He talked perpetually of the wonderful schemes he was interested in,” Schoener recalled. “Finally I asked him if he wouldn’t allow me to invest in them. He told me no stock was for sale.” Leo also got to know Mary Schoener’s sister, Millie, who was married to a professional golfer and lived in New Jersey. When Millie’s husband died in a car crash in early 1923, leaving her to raise three young children alone, he sent her consoling letters and promised to find her a job in his planned New York office.

  He was moving in other circles as well. Before the year was out, the former chauffeur for a wealthy Chicago family would tell of the many times he had driven Leo and female companions to train stations as they set off for getaways in New York; Yellowstone Park; Hot Springs, Arkansas; and other fashionable destinations. Leo had met his friend Anna Auerbach in Hot Springs in 1917, and it was easy to pass off a holiday at the resort town as a business trip to tour his nearby rice farms. Twice in the spring of 1923, the driver said, he saw off two couples—Leo and another man, escorting two women who were “the wives of wealthy husbands”—on trips out of town; the four returned, traveling separately, within a few days. No matter who accompanied him, the chauffeur said, Leo picked up the tab.

  ISAAC J. WILBRAHAM FIGURED he was set for life. Eda Bergman, a widow, thought her nest egg was in good hands. Josephine Schroeder thought her boss was doing her a favor. And Alfred Lundborg? He had to buy his single $2,000 share by installments.

  Wilbraham, a dining car steward on the Chicago, Burlington, and Quincy Railroad, was introduced to Leo in the summer of 1923 through his son, who was dating Leo’s niece. He was among the privileged few invited to the Drake suite, where he handed over his life savings, $20,000, in exchange for shares in an Arkansas rice farm. Wilbraham never saw the stock—he naively accepted a receipt written on a scrap of paper—and quit his $143-a-month job within a few months to live off the profits he was certain were headed his way.

  Bergman, who ran her late husband’s store, invested $12,000 between 1919 and 1923. Leo allowed Schroeder, his secretary, to purchase two Bayano shares for $3,000—well below the inflated prices the stock was fetching. “I thought he was just kind and generous to a girl who had been conscientious in her work,” she said later. Lundborg, Leo’s tailor, could scarcely believe his luck, either. “He was a very kind man and one day asked me if I wanted to invest some money,” he recalled. “I j
umped at the chance.”

  For years, Leo had been selective about whose money he would take. He preferred to deal with relatives and friends, or businessmen and professionals who were already well off and had money to invest. But by 1923 he was paying out so much money in sky-high dividends that he could no longer afford to be choosy. A tailor’s hard-earned dollars and a dining car steward’s life savings were too tempting to pass up.

  Then his reputation came under attack. He was hauled into court by the relatives of the late Daniel Stern, a magazine publisher, and accused of abusing his position as trustee of the man’s estate. The lawsuit claimed Leo had induced Stern, who had died in 1920, to disinherit his family and to direct that his $400,000 estate be used to build a home for the elderly. The case went to trial in 1923, but a jury ruled the will was valid. Within weeks of the verdict, the family leveled a new allegation: about $90,000 in war bonds was missing from Stern’s estate.

  Leo, who had sworn his investors to secrecy, faced another challenge. Word was getting around that he was building an oil company and offering huge dividends. A fawning letter arrived one day from an executive of a life insurance firm in Saint Louis, who had heard reports “of the rosy outlook and assured big future of your Panama organization.” Would Leo keep him in mind for an executive post?