by Dean Jobb
People in the oil industry were catching on, too. Francis Loomis, an official of Standard Oil of California, contacted Francis Matthews in early June, to find out more about Bayano’s operations and the contract with Standard Oil of New York. How, Loomis wondered, was the oil being shipped to market? What was the output of the wells? If Matthews was troubled to discover that Bayano’s operations were so little known within the oil industry, his mind was soon put to rest. Leo returned from New York a few weeks later with a supply contract; executives of Standard Oil of California might be in the dark, but Standard Oil of New York had agreed to buy Bayano’s entire output for $1.37 a barrel. By August he was showing off a $300,000 check from Standard Oil—the initial payment, he said, under the supply contract.
Leo had bought himself more time.
“BY THE WAY, JUDGE, as I understand it, you have no means outside your $12,000 salary?” He was careful to frame his words as a question to remove a bit of their sting. “Why,” he added, “you can’t even keep a car on that.” Not the kind of luxury cars Leo drove, anyway.
Harry Fisher was not sure where his host was going with this. They were enjoying an after-dinner smoke at the Koretz mansion on a May evening in 1923, and he did not know Leo well enough to feel comfortable discussing what he earned as a judge of the circuit court. Besides, he was supposed to be the one asking the questions. Fisher, a prominent figure in Chicago’s Jewish community, was working on a charity drive, and Leo had agreed to contribute $15,000. The donation “was considered small for one of Koretz’s supposed means,” the judge recalled, “and I was delegated to ask him for more.”
Fisher listened as Leo explained that he needed “somebody whose judgment he could absolutely rely upon to take an executive position with the Bayano company.” A well-respected judge, perhaps. It was the beginning of a long, sometimes bizarre recruitment drive. Enticing someone of Fisher’s stature and integrity into the Bayano fold promised to attract more investors; dropping the judge’s name could be as good for business as waving around checks from prominent bankers and Standard Oil.
Leo invited the Fishers to dinner again in July. This time he was more specific. He wanted Fisher to resign from the bench to become the syndicate’s in-house counsel. The salary was generous—$25,000 a year, double his judge’s salary. Fisher said he would need time to think it over, and had one condition: he would have to inspect the Panama facilities firsthand before he could agree to take the job.
“Of course,” Leo replied, “we’ll take a run down there together.”
It was a tempting offer, and not only because the money was so good. “I was more interested in the possibilities for the future,” Fisher recalled. At forty-one, he had been a judge since his election to Chicago’s municipal court in 1912. He was in his third year on the more prestigious circuit court, and a few months earlier an appeals court had upheld the most important ruling of his career—his dismissal of Mayor Thompson’s libel suit against the Daily Tribune. Fisher was being praised as a defender of “the fundamental right of the American citizen to cuss the government,” and the lucrative post with the Bayano Syndicate would allow him to leave the bench on a high note.
A round of negotiations followed. Leo offered a more generous salary and stock options. Fisher insisted on the inspection trip. That fall, Leo invited Fisher to join him in New York for a final meeting, at his suite at the St. Regis. Leo reckoned he was now worth $100 million and said he wanted to give away a good chunk of his fortune. Fisher’s job, if he still wanted it, would be to oversee these philanthropic efforts. Leo also mentioned that he was on the hunt for wealthy new investors and one prospect was Julius Rosenwald, president and chairman of the Chicago-based mail-order giant Sears, Roebuck and Company. Fisher got the impression that Leo was more interested in one-upping Rosenwald than in helping others. Rosenwald’s generosity was legendary; a supporter of the University of Chicago and founder of the city’s Museum of Science and Industry, he donated millions of dollars to fund Jewish war relief and to build schools for poor children in the South. Leo vowed he would “make Julius Rosenwald look like a piker when it came to philanthropies.”
If Leo said he was worth $100 million—billionaire status today—that was good enough for Fisher. His decision was made: as soon as he saw Bayano’s operations for himself, he would resign from the bench and help Leo give away his money.
THE SYNDICATE’S RAPID TRANSFORMATION from timber exporter to petroleum producer had Leo talking bigger than ever. A new corporation would be formed on January 1, 1924, and Francis Matthews was preparing to leave his law firm to join Leo as a trustee of the renamed Bayano River Trust Company. Money was pouring in, investors were assured—$2.5 million in the month of October alone. There were plans to lease an entire floor of one of the new downtown skyscrapers—the thirty-story, gleaming-white Wrigley Building on Michigan Avenue was mentioned—for Bayano’s headquarters. There would be a private office, its walls paneled in rich Panamanian hardwood, for the Oil King himself.
Leo recruited a team of executives to run it all, a small group of businessmen who would form the nucleus of the new, bigger Bayano Syndicate. “I want men of your conservative stamp and judgment,” he told them. And he wanted them to travel to Panama, to “get on the ground to help in organizing this thing.”
Perhaps Fisher’s insistence on seeing Bayano’s operations for himself had planted the idea in Leo’s mind. The group—minus Fisher, for reasons that were never explained—would depart in late November to tour Bayano’s impressive facilities. Leo handed them an additional assignment: they were to check out a million-acre tract bordering the syndicate’s holdings to see if it was worth the two-dollar-an-acre asking price.
Why was Leo encouraging his new management team to travel to Panama? The moment the expedition arrived, everything he had said and done since he forged his first mortgage almost twenty years earlier would be exposed as a lie. It was as if he were pushing his scheme to the brink of disaster.
“I knew when they got there they would find nothing, no oil and no oil wells,” he said later. Sometimes, though, it was difficult to separate the real world from the imaginary one he had been painstakingly creating for half his life—the world of rice and mahogany, of gushers and pipelines and tankers.
“It doesn’t seem possible, but I came almost to believe in the proposition myself,” he explained. “I talked Bayano, and planned Bayano, and dreamed Bayano, so that I actually believed the stuff. The idea grew and grew. Every day I spoke more of it until, finally, I was confident. It almost seemed that I had those thousands of acres and that oil down there in Panama.”
Had the master swindler been seduced by his own con?
Not quite.
He scraped together about $50,000 to cover dividend payments due on December 1, but he was trapped in an endless cycle of hustling to find more investors and more money.
“I knew the bubble would burst,” he confessed. “The losses had become so heavy that I saw there wasn’t a chance for me ever to get straight again. I knew it was the end.”
Leo was tired. He had turned forty-four that July, and lies and hustling were a young man’s game. The stress and the fast living were taking a toll on his health. His doctor, Milton Mandel, had been treating him for diabetes since 1919. The prognosis for a man in his forties was grim; a study of diabetes deaths in New York City over a thirty-year period ending in the mid-1920s found that half of all victims were between the ages of forty-five and sixty-four. A team of Canadian researchers, led by Dr. Frederick Banting, had announced the discovery in 1922 of insulin to control the disease; until the drug was widely available, though, all Mandel could do was prescribe strict adherence to a low-carbohydrate diet, to ease the symptoms—fatigue, hunger, thirst, and frequent urination—and slow the progress of the disease.
Leo had spent most of his adult life exploiting the greed and dreams of others. He was fed up with the insatiable appetite for money he had inspired in so many people. “I w
as disgusted,” he grumbled, unconsciously echoing Joseph Weil, the Yellow Kid, “with those seeming friends who wanted to get something for nothing.”
He was running out of options. Sending his Bayano executives south on a wild-goose chase would get them out of town and buy him time to plan his next move.
LEO TOLD THE MAN at the counter he wanted to withdraw $3,500—every penny he had in his account. One of the bank’s vice presidents soon got wind of the request. “Mr. Koretz,” he sputtered, “we do not want to lose your patronage. If you are in need of money we shall be glad to advance you any amount you ask for.” Leo declined the generous offer, pocketed his money, and left.
He had already asked the State Bank of Chicago to redeem almost $110,000 in Liberty Bonds and deposit the proceeds in his personal account. A brokerage account was closed as well, netting another $15,000. He sold off shares in a steel company for $17,000. The bank official so desperate to keep Leo’s patronage was right: The Oil King was in need of cash. Lots of it.
Leo was withdrawing funds and cashing checks all over town. His secretary, Josephine Schroeder, reckoned the cash withdrawals in the weeks leading up to December 1923 totaled almost $300,000. Leo stuffed the money he was collecting into a briefcase and carried it back to the Drake. He asked the hotel staff to put it in their vault the first night. After that, to avoid suspicion, he took each day’s haul to his suite and stashed it in a closet.
“I knew it was all over,” he reflected later, “and I didn’t have the courage to face the smash.”
13
THE FLIGHT
SHE WAS AN attractive brunette—the kind of woman the newspaper guys liked to describe as “statuesque.” Five foot four, mid twenties, George Hargrave noted as he sized her up, and elegantly dressed in a sealskin winter coat that opened to reveal a black, lace-trimmed crepe dress. A private detective like Hargrave made his living by noticing such things, and it didn’t take Sherlock Holmes to figure out that this woman was rich as well as attractive. The “goodly retainer fee” she paid that day in late November and the fancy car waiting downstairs confirmed that. Hargrave was convinced she was using a fake name, but there was nothing mysterious about what she wanted done. It was the kind of assignment the Hargrave Detective Agency had taken on a thousand times.
“I want to know what women visit room 629 at the Drake,” she said, “and what happens while they are there.”
Hargrave posted men to keep an eye on the suite day and night. They were probably watching from the lobby or the hallway as Leo went inside to drop off some of the cash he was collecting from his bank accounts. The woman called every day for the next three days, and each time Hargrave provided the same progress report: “We told her that no women had gone into the place,” he recalled, “only men.”
“Men—I’m not interested in men,” she snapped during one call. “It’s the women I want to know about.”
A group of investors boarded a steamer for Panama in late November 1923, eager to inspect the Bayano Syndicate’s oil fields and timber holdings. Leo “said we would be surprised,” recalled Henry Klein, second from right.
THE BAYANO SYNDICATE’S NEW executive team gathered at the LaSalle Street Station. They would catch an overnight train to New York and have a day in the city before catching the Grace Line steamer Santa Luisa for Panama on November 29. The voyage would take about a week and would be a respite from the freezing-point temperatures and overcast skies they were leaving behind.
Three of the six men waiting to board the train had resigned from management posts at Wilson and Company, a meatpacking firm. Emil Kitzinger had quit his $25,000-a-year job to become purchasing agent for Bayano, at double the salary. Edwin Mayer, a twenty-five-year man with Wilson and manager of its by-products plant before he left, held $25,000 in Bayano stock and had been promised an executive post. “I didn’t know just what my official capacity was to be,” he would later admit. Wilson’s former chief accountant, Milton Smith, had been born, ironically, in Moravia, New York, boyhood home of one John D. Rockefeller. Henry Klein was there, and even though he had spent almost his entire career in the liquor business, he had been tapped to be Bayano’s head of engineering. Shandor Zinner, an accountant and until recently the secretary of the National Beverage Company, was Bayano’s new sales manager. Rounding out the inspection team was a clerk, thirty-two-year-old Harry Boysen.
There was another man on the platform. Leo had come to see them off and handed each man a money clip crafted in gold. The company would cover all expenses, he reminded them, so be sure to “live like kings.” He seemed glad they were finally going to see Bayano’s oil fields. “He told us he wanted us to see things for ourselves, since we were to be the working organization of the corporation,” Klein recalled. “He said we would be surprised.”
Klein took Leo aside for a quick chat. They were working on a couple of deals unrelated to Bayano, and Klein handed over two checks. One was for $35,000—Klein’s half of a $70,000 investment. He had signed the other check, but the amount was blank; he asked Leo to fill in the figure once he knew exactly how much money was needed.
AFTER BOARDING THE Santa Luisa, the Panama expedition received a cable from Leo.
BON VOYAGE, was all he wrote, signing off as THE BOSS.
The 4,900-ton ship, painted white for service in the tropics, cast off at ten o’clock in the morning under an overcast sky. The group set out, Edwin Mayer recalled, “fully confident that everything was as Koretz had represented it.” Leo had furnished them with maps of the Bayano area “so skillfully drawn that there seemed to be no difficulty ahead in finding the district.”
There was some oil play in Panama in the early 1920s, but the industry was a latecomer to the canal-induced gold rush. The republic appears to have granted its first oil concession in 1917, and by 1923 a handful of firms had exploration rights, including big names such as Gulf and Standard Oil of California. Some exploratory drilling was under way, but no one had found oil. Had Mayer or any other Bayano investor taken a few moments to thumb through the latest Chicago Daily News Almanac and Year-Book, they would have found a short entry for Panama. “The chief articles of export,” it noted, “are bananas, rubber, coffee and pearls.” No mention of oil. A little more digging would have turned up plenty of postcards that featured scenes on the Bayano River. There were photographs of big-game hunters posing on the riverbank with their trophies—giant alligators, their jaws propped open with sticks to show off rows of jagged teeth. One of the Bayano’s chief exports, it seemed, was images of dead alligators. The syndicate’s sprawling oil fields had escaped the notice of publishers of postcards and almanacs alike.
Before the ship cast off, Mayer huddled with his brother, who lived in New York, and worked out a coded signal. If the Panama oil fields were everything Leo said they were, Mayer would send back a one-word telegram: SHOOT. That was the cue for his brother to scrape together every penny he could and plow it into more stock.
BACK IN CHICAGO, Leo Kahnweiler, a diamond salesman, was pleased to see one of his best customers walk through the door on the first day of December, a Saturday. Leo had been buying jewelry from Lewy Brothers for years and could be counted on to spend thousands of dollars each time he visited. Kahnweiler invited him into a private room to inspect about a dozen bracelets arranged on a tray. Two caught Leo’s eye. One sparkled with 218 diamonds set amid sapphire centers and crossbars. The price tag said $7,000. The other featured a one-carat emerald-cut diamond and twelve smaller hexagonal ones and sold for $7,500. Leo looked them over but could not make up his mind. Could he take home both, he asked, to see which one his wife liked best? Of course, said Kahnweiler. Another salesman, Louis Agatstein, slipped the bracelets into envelopes while Kahnweiler wrote up a slip to record the transaction. If Mae did not like either bracelet, he said before he left, “he would return both of them,” Agatstein recalled; “it was entirely up to his wife.”
Kahnweiler and Agatstein had no idea that Leo had been doing the r
ounds of jewelry stores in Chicago and New York, buying expensive pieces and taking home others on approval. Thanks in part to the accommodating folks at Lewy Brothers, he was amassing a small fortune in jewels.
EMIL KORETZ TURNED UP at his brother’s suite at the Drake on Monday. Over dinner at a South Side hotel the previous evening, with most of the Koretz clan gathered around the table, Leo had made a surprising announcement: he had sold some of their stock at a good price. Emil, thin faced and nearly bald, had been instructed to drop by to pick up the proceeds. At the suite, Leo handed him a manila envelope.
“I have a little money here for you and the family,” he said. “Here is $175,000. Count it.”
Emil was speechless—“thunderstruck” was how he put it. “Just imagine how it feels to be handed $175,000 unexpectedly.” He peered through his wire-rimmed glasses and counted out 172 $1,000 bills and six $500s. “I’d never seen so much money before.” He was holding, in today’s terms, more than $2 million.
A note written on the outside of the envelope explained how Leo wanted the cash to be distributed. Emil and their mother were each to have $50,000. The remainder was for Julius, Ferdinand, and Ludwig, who would get $25,000 each.
“He hoped we would approve of the deal,” Emil recalled. Leo also told him that “if we wished the stock back he would be able to buy it for us at a profit later.” At some point during the day, Leo arranged for similar cash payments to members of his wife’s family. He summoned his brother-in-law Milton Simon, a business executive, and gave him $125,000. Mae’s mother, Bertha, was to receive $50,000, and there was $25,000 each for three of Mae’s sisters—Etta Speyer, Maude Klein, and Simon’s wife, Aimee.
There was one more thing, Leo told Emil. None of the money should be deposited in a bank account. “Put it in a safety-deposit vault,” he advised. “I’ll tell you why later.”
