Empire of Deception

by Dean Jobb

  A reporter watched him work. Mentor was tall with light brown hair and, Evening American readers would be told later in the day, had inherited “his father’s engaging personality and winning smile.” His light brown suit, camel’s hair vest, and dark brown tie suggested he had Leo’s eye for clothes as well. The reporter asked for a comment.

  “Thumbs down on all interviews,” he said, flashing one of those winning smiles. “Mother, you know.” He turned his attention to another customer, a woman in search of the perfect necktie. “This,” Mentor said, wrapping one around his fingers to display it, “is just the thing for a gentleman of refinement.”

  WHEN HENRY KLEIN AND the other would-be Bayano executives landed in Brooklyn in mid-December, the veteran reporter Sherman Duffy of the Evening American was among the reporters there to meet them. Edwin Mayer acted as spokesman. “We had heard about oil lands. We had heard about banks. We had heard about all sorts of valuable holdings Koretz controlled along the Bayano River,” he said. “All that we found in Panama was the river, and Koretz had no claim on that.”

  Then Klein stepped up to the plate. “We talked to everybody and investigated every angle,” he told Duffy. “It is a gigantic hoax. That is all. There isn’t any oil, any land, anything. They don’t even know anything about Koretz.” The Panama excursion, they were convinced, had been a ploy to get them out of the way while Leo planned his escape.

  There was one subject no one was eager to discuss: how much money they had invested. Klein would not confirm a rumor that he had given Leo a blank check, but the nudges and smiles his companions exchanged when they overheard the question convinced Duffy the story was true. “I don’t want to talk about it,” was all Klein would say. “A man that has been kicked doesn’t like to talk about his injuries.”

  The inspection team became objects of derision. Duffy’s report focused on how men convinced they had snagged “big paying jobs” had been forced “to hustle among their friends” for train fare back to Chicago. KORETZ DUPES FOUND A RIVER blared a headline in the Herald and Examiner. ARGONAUTS OF OIL RETURN, mocked another in the Daily News, BUT WITHOUT GOLDEN FLEECE.

  By the time four of the five reached Chicago the following day, they were in no mood to take a further drubbing in the papers. Cameras snapped and questions flew as the men turned their backs to collect their baggage and greet their wives. “Haven’t you fellows had enough?” Klein pleaded. “What more is there to say?”

  “I have a lot of good pictures in my sachel,” Emil Kitzinger joked to the photographers. “There are some excellent views of alligator swamps.” Shandor Zinner, too, tried to lighten the mood. “Our offices are under our hats at present,” he quipped. They were summoned to the state’s attorney’s office, where Sbarbaro said he needed statements from them to confirm “that Koretz’ promotion was a fraud in its entirety.”

  Everyone who had sunk money into Bayano—not just the Panama adventurers—was ridiculed for their blind faith in Leo. Francis Matthews bore the brunt of the criticism. “You’d think that legal experience at least would have suggested investigation of a project which nicked him to the tune of $40,000,” scoffed the Hearst columnist Herbert Kaufman. Even Henry Platt, a member of Matthews’s law firm, did him no favors. It was “incredible,” Platt told reporters, that Leo had not been discovered sooner. “Just one small conversation by one of the victims with one real oil man,” he said, “would have turned the trick—for any real oil man would have recognized the story as a myth.”

  Cartoonists were unforgiving. The Daily News splashed a front-page depiction of Chicago’s skyline dotted with oil derricks and a stream of “Easy Money” flowing from a well labeled “Get-Rich-Quick Oil Co.” A dapper-dressed man exclaimed “Another Gusher!” as he collected the money in a sack. The cartoon was captioned, “One of the richest oil fields of them all.” The Evening American published a comic strip under the headline, “BUBBLE, BUBBLE, TOIL AND TROUBLE”—WHEN THE BUBBLE BURSTS. One panel depicted a flute-playing Leo as the Pied Piper leading a parade of eager followers. Even the highbrow Evening Post found it hard to resist having a laugh at the expense of the Bayano victims. Leo, it said, was the city’s “leading financial laxative … he works while you sleep.”

  Laughter often erupted at Harry Parkin’s bankruptcy hearing as witnesses struggled to explain why they had been so foolish. Lawyers and reporters shook their heads in disbelief as Samuel Richman explained that he never sought proof that the syndicate existed. “I did not think it strange that there was no big business organization here, because I thought the books of account were in Panama,” he insisted. They were incredulous when Henry Klein described handing over the blank check; Leo, it turned out, had cashed it for $36,500.

  Klein, desperate to downplay his losses, declared that he had never put a cent into Bayano—the bubble had burst before he had the chance. “I loaned a little money to Koretz,” he testified.

  “How much?” a lawyer asked.

  “Well … in the neighborhood of $200,000.” What Klein considered a little money would be more than $2.5 million today.

  But the tone of the bankruptcy hearing often turned ugly as lawyers for the receiver, Chicago Title and Trust, searched for cash, jewels, furniture, and automobiles—anything of value—that would narrow the wide gap between Leo’s assets and his massive liabilities. His relatives had been lionized in the press for returning their last-minute refunds, but it was soon discovered that some recipients felt entitled to keep their payments. Mae’s sister Etta Speyer and their seventy-two-year-old mother, Bertha Mayer, refused to turn over the $75,000 he had left to them. They hired a lawyer to press their case.

  “We will never give up the money until a court order demands it,” Speyer told a Hearst reporter who showed up at her Hyde Park apartment. Her father and husband had died a dozen years earlier, Speyer explained, and Leo had handled the estates. “It was every cent we had in the world.” The $75,000, she said, pausing to wipe away a tear, was money Leo owed to them. “These are the moneys mother and I have been living on.”

  The receiver and state’s attorney disagreed. Chicago Title and Trust took legal action to recover the money; Crowe threatened to have Speyer and her mother—and anyone else who refused to return money received from Leo—indicted on charges of receiving stolen property. Despite the threats, other relatives were having second thoughts. The cash doled out before he disappeared, it could be argued, was a refund of their Bayano investments. Emil Koretz told the bankruptcy hearing his family had relinquished its $175,000 refund under pressure from the state’s attorney. Leo’s brother-in-law Leon Klein joined the refrain, telling Parkin he had felt “intimidated” into turning over his $25,000 share to Crowe.

  Chicago Title and Trust demanded a grand jury investigation to determine if the Koretz and Mayer families were hiding additional refunds. A report in the Evening American suggesting relatives and friends had been refunded as much as $800,000—more than double the amount reported to the state’s attorney—added to the suspicion. Crowe refused to intervene, announcing that Bertha Mayer and Etta Speyer would not be prosecuted for receiving stolen property. There was “nothing criminal” in their refusal to hand over their $75,000, he said, and whether they were entitled to keep it was a matter for the civil courts.

  Even Mae became a target. Samuel Cohen, Leo’s former lawyer, dragged her back into the headlines when he speculated that Mae had been left with more than a cache of expensive jewelry. “Knowing Leo Koretz as I did, I cannot doubt that Mrs. Koretz was provided for,” he told Parkin. “It would be unlike him to go away without doing so.” Mae, it appeared, might not be destitute after all. Attitudes hardened. Her cooperation with the receiver and her prompt return of the jewelry were forgotten. Parkin mused about recalling her to the witness stand for further questioning. A judge later rejected Mae’s bid to recover one of the Rolls-Royces—the touring car that had been a gift from her husband—and artwork seized from her home. Both limousines were sold and fetch
ed a total of $11,500 for creditors.

  ESTIMATES OF HOW MUCH money had been stolen ballooned as quickly as the output of Bayano’s make-believe oil fields. When the news broke in mid-December, the figure was pegged at between $3 million and $5 million. Within a day it was revised to $7 million, and on December 16 the lawyer for the receiver, Maurice Berkson, told the Daily Tribune that losses could reach $10 million. The following day the state’s attorney’s office, in a telegram asking New York prosecutors for assistance, revealed an official estimate of up to $20 million. The telegram, leaked to reporters, alleged that Leo had pocketed up to $10 million in Chicago and a similar amount from investors in New York and Denver and on the Pacific coast. In the weeks that followed, many press reports cited the $10 million figure, as either the total amount stolen or the losses of Chicago investors alone.

  How much of this money was left after almost two decades of bogus dividends and Leo’s free-spending ways was another question. Even after doling out some $400,000 to his relatives and a few close friends, Leo was believed to have fled with a substantial sum. Sam Cohen was convinced his good friend had made off with at least $1 million; an arrest bulletin issued by police shortly before Christmas put the figure at $2 million.

  The press did its best to embarrass as many victims as possible, publishing the names and addresses of almost one hundred suspected investors within hours of their discovery on a typewritten list in Leo’s offices. Rumors swirled that many more investors had been stung, but there was little incentive for victims to admit their folly. Filing a bankruptcy claim seemed futile, given the meager assets left behind. Many victims “swallowed their losses and said nothing,” the New York Times reported, preferring the loss of money to the loss of their business and professional reputations.

  After a week of interviewing victims and reviewing documents seized from Leo’s offices, John Sbarbaro acknowledged the true scale of the fraud might never be known. Investigators could not find a complete record of the people who had invested in the complex Bayano, Arkansas, and fake-mortgage scams—a “sucker list,” the press called it. The black books Leo used to record transactions were missing, and if a master list of investors existed, it had been carried off or destroyed. Crowe’s prosecution team suspected one of the two hundred or so keys found among Leo’s effects might unlock a safe-deposit box containing more records, but it was impossible to match every key to a lock.

  “You can name your own figure,” Sbarbaro told the Daily Tribune. “Personally, I think $15,000,000 would be very conservative. It may run double that.” Sbarbaro had access to every piece of evidence the state’s attorney’s office had been able to find; if his worst-case scenario was on the mark, the swindle had netted as much as $400 million in today’s dollars.

  There were tantalizing clues to the identities of victims who preferred to remain in the shadows. Marcy Schoener, Leo’s New York friend, told of a businessman in that city who sank $260,000 into Bayano stock but would not come forward, fearing the revelation would “ruin” him. LaSalle Street—Chicago’s version of Wall Street—was “in an uproar,” the Evening American claimed, as the fallout from the Bayano scam “hit right and left at bankers, insurance brokers, financiers, stock operators, commercial magnates and corporation officials.” There was a rumor, one Leo would later deny, that the prominent Jewish banker Oscar G. Foreman, chairman of two Loop banks, was among the victims. The state’s attorney’s office interviewed one bank president who lost $100,000 in the scam but refused to prosecute. The bank’s directors would oust him if they found out, he said, even though the president suspected a couple of the directors had been burned as well. The president of another unidentified Chicago bank told the Evening American he had lost $75,000, but he insisted it was a personal loss that would not affect his bank.

  Judge Harry Fisher’s revelation that Leo had named Julius Rosenwald as a prospective partner in Bayano fueled suspicions that the high-profile head of Sears, Roebuck was among those nursing their financial wounds in silence. Decades later, Ben Hecht claimed in his autobiography that Arthur Brisbane, a confidant of William Randolph Hearst and a marquee columnist for the Hearst papers, had been among the “heaviest investors” in Bayano. Brisbane, whose Today column on politics and current events ran on the front page of the Herald and Examiner, was a millionaire who hobnobbed with the likes of Henry Ford and speculated in real estate. If the Hearst executive Victor Polachek could fall prey to Leo’s charms, Brisbane may have as well.

  Only Leo Koretz knew how many people he had swindled. And he was nowhere to be found.

  The US Post Office advertised a $10,000 reward for Leo’s “apprehension and return” to Chicago to face charges of using the mail to defraud.

  18

  THE MANHUNT

  WHEN A PLANE landed unexpectedly at Key West in mid-December, a deputy US marshal named Lopez confronted two men onboard. One claimed to be a US senator from Pennsylvania; what he was, Lopez discovered, was drunk and in a hurry to get out of the country. Convinced the intoxicated man was Leo Koretz, Lopez wired the authorities in Chicago seeking the go-ahead to make an arrest. By the time a response reached Florida the following morning, asking that both men be detained, they were on their way to Cuba. Days later, Lopez was shown Leo’s photograph and swore it was the drunken man. Had Chicago officials not dragged their heels, he complained, “these birds would now be where they belong.”

  It was one of many possible sightings as investigators mounted an international search for Chicago’s fugitive swindler. Airfields in Chicago and Detroit were notified. Leo’s description was broadcast on radio stations across North America and as far afield as Europe. Liners and steamships that had recently sailed from New York were hailed, in case he was onboard. Crowe’s office fired off telegrams to police forces in dozens of US cities and to authorities in Canada and Central and South America, asking them to be on the lookout.

  Tips flooded into police stations and the state’s attorney’s office. The owner of an airfield in Tessville, only a couple of miles from a certain lakeside estate in Evanston, insisted that Leo had tried to buy a plane or charter a flight out of the country. There were reports he had tried to purchase a high-speed yacht and escape to Europe. A woman who identified herself only as Ruth phoned John Sbarbaro to announce that he had fled to Cuba. The same day, Sbarbaro’s colleague Stanley Klarkowski was arranging to meet a woman who was sure he was on his way to Morocco. An anonymous letter, neatly typewritten on the stationery of a hotel in Davenport, Iowa, asserted that he had been in Chicago as late as December 16—and, oddly, in attendance at a church service when his name was mentioned in the sermon. The letter was signed “One who has faith in Jesus Christ and Koretz.” An anonymous caller claimed he was still in Chicago and had disguised himself as a woman. Chief of Police Morgan Collins assigned two officers to check into the dubious report. “This case is too big,” he told a reporter, “to neglect any clue.”

  A week after Leo’s disappearance, the authorities were no closer to finding him. For Crowe, the timing could not have been worse. Nineteen twenty-four was an election year, and Republicans loyal to Crowe’s ally-turned-enemy, Mayor Thompson, were lining up possible candidates to run against him. Crowe fought back, touting his crime-fighting record. “I intend to keep my staff on its toes while I am state’s attorney,” he proclaimed, “and I hope to reduce crime to zero.” But some wondered aloud how Crowe and his team had failed to detect such a massive swindle. Had the state’s attorney been too busy hanging murderers, posing for photographers, and running for reelection? Crowe had mounted a crackdown on bucket shops back in June but had somehow overlooked Leo’s phony stock empire. “Something’s rotten in official Denmark,” the Hearst columnist Herbert Kaufman weighed in, “when a swindler can indefinitely operate on such an extensive scale without exposure or interference.” “Who was asleep?” demanded an editorial in the Evening Post. How had Leo been able to get away with it for so long?

  Crowe, eager to silenc
e his critics, secured an indictment charging Leo with theft, fraud, and operating a confidence game. Then federal authorities elbowed their way into the headlines with a grand jury indictment of their own and bold predictions that an arrest was imminent. Assistant US District Attorney Harry F. Hamlin issued an arrest warrant on December 18 on a charge of using the mail to defraud. The federal indictment was based on a letter Leo had written in June 1923 promising “huge returns” to the Chicago clothing merchant Alfred Decker. If convicted, Leo faced up to five years behind bars and a fine of $5,000. This, Hamlin stressed in press interviews, was only the beginning: his investigators had gathered enough letters to investors to support up to fifty counts. If convicted of every allegation, the swindler could face a cumulative penalty of a 250-year prison term and a $250,000 fine. Further indictments, Hamlin said, would be sought once Leo was in custody. “The main thing now is to apprehend Koretz.”

  The mail-fraud indictment elevated the “scope and dignity” of the manhunt, in the words of the Daily News. US marshals, postal inspectors, and other federal agents across the country were now on the case, and the State Department could ask foreign governments for assistance and seek Leo’s extradition if he had fled the country. Federal investigators would cooperate with police and prosecutors at the state level, Hamlin promised, and would work out an arrangement to share evidence with the state’s attorney, to avoid duplication of effort. But he was adamant on one point: the feds wanted first crack at prosecuting him even if Chicago police or Crowe’s detectives arrested him first.