Empire of Deception

by Dean Jobb

  Nova Scotia’s attorney general, Walter O’Hearn, a law-and-order man in the Robert Crowe mold, was wary of Leo’s eagerness to leave. Was he trying to escape before he could be charged with swindles or other offences committed in Nova Scotia? There was “something sinister,” Halifax’s Evening Mail cautioned, in the desire of such a “daring, unscrupulous and oily gentlemen” to make a hasty exit.

  O’Hearn was not about to let a slick-talking American con man get away with a crime committed on his watch. Extradition would only proceed, he announced, when “we are certain his record here is clear.”

  THE CHICAGO PAPERS DISPATCHED five reporters to cover the story. It would take them two days to reach Halifax by train; in the meantime, editors relied on material picked up from the Nova Scotia papers to chronicle Leo’s exploits while on the lam. His fast-paced life in Nova Scotia was dissected in minute detail. He had spent money “like water,” Chicagoans learned. One-hundred-dollar tips. Cars purchased with cash. His secluded lodge transformed into a mansion as posh as his old one in Evanston, and every paper had the photos to prove it. “His dances, his dinners, his house parties,” the Daily News reported, “were done deftly and with no care for expense.” Laurie Mitchell, interviewed just before sailing south on Zane Grey’s new schooner, described the boozy housewarming bash and the many women Leo had courted and entertained.

  Sbarbaro was pleased to flesh out the story while adding his own spin. On the day after the arrest, he fielded at least thirty long-distance calls from Chicago reporters and passed along tidbits and observations that cast Leo in the worst possible light. Leo was trying to put up “a brave front” in jail, the prosecutor told one paper, “constantly acting a part, just as he acted a part during the days of his affluence and success in Chicago.” But he was cracking under the strain and begging for news of his wife, children, and mother. Jail officials, Sbarbaro said, had mounted a suicide watch, in case he had “a secret plan for the defeat of justice.”

  Rumors swirled; none was too outlandish for the newspapers to repeat. He had made nighttime forays into the woods at Pinehurst, and millions of dollars might be buried on the grounds, “a modern version of Capt. Kidd’s treasure.” Two armed bodyguards had accompanied him wherever he went in Nova Scotia—which was news to Thomas Raddall and the many others who had befriended the fun-loving Lou Keyte. Leo, it was said, had carried a gun himself, and the ever-exuberant Herald and Examiner claimed a revolver had been found in his hip pocket when he was captured. Sbarbaro chuckled when he tried to picture Leo brandishing a pistol. “Koretz is not a gunman,” he assured Halifax newspaper readers. “He does not carry a gun—he wouldn’t shoot anyone.” Leo wouldn’t even shoot a moose.

  The subject of all this gossip and speculation settled into life in the Halifax County Jail. A guard claimed he changed his clothes twice a day, producing a new suit—complete with matching spats—from one of the three suitcases that had accompanied him to jail. He spent much of his time in the privacy of the janitor’s quarters, nicknamed the jail’s “guest room,” and ordered his meals from the Carleton, the hotel where Sbarbaro and William McSwiggin were staying.

  Concerns that he was suicidal evaporated. He seemed at ease when he mixed with the other prisoners, including a convicted murderer and a couple of rumrunners. He chatted, cracked jokes, and rolled up his silk sleeves to demonstrate his prowess at cards.

  “Course I want to know him,” one of the rumrunners told a reporter. “Why, he got away with real dough; lots more than a bootlegger gets.”

  A half-dozen times a day, one paper reported, a jail official answered the telephone to hear a woman’s voice on the line. “How is Mr. Koretz today?” began a typical exchange.

  “Fine; who’s speaking?”

  “Oh just a friend.” Leo clearly had many women friends; the jailor swore he never heard the same voice twice.

  Leo’s love of flashy, expensive clothes was fodder for one more story. Not long before his arrest, he had supposedly ordered three pairs of fur-trimmed silk pajamas from Hiltz’s tailor shop, at an outlandish cost of $150. The Evening Mail gave the story credence in a bold headline: FUR-TRIMMED SILK PAJAMAS FOR “LOU KEYTES.”

  Within hours the anecdote was being reported in several Chicago papers, reinforcing Leo’s reputation as a free spender with an eclectic taste in clothes.

  29

  THE RETURN

  THE TRAIN CARRYING reporters for the Chicago papers reached Halifax three days after the arrest. The group took rooms at the Carleton, the hotel Sbarbaro was using as his headquarters, then headed for the county jail. The sheriff refused to let them interview his prisoner, but the newsmen, who were accustomed to roaming through police stations and cell blocks back home, were not about to let that stop them.

  Austin O’Malley of the Herald and Examiner scored the first interview. He was one of the stars of the Hearst papers, perhaps the most aggressive and resourceful reporter in a city filled with resourceful, aggressive reporters. He was “brilliant, literate, scholarly, with the instincts of a Sherlock Holmes,” one colleague recalled. He also cut a flamboyant figure, dressing in black, carrying a cane, and shielding his eyes under the wide brim of a fedora, also black. He had solved more crimes than many policemen, perhaps because one of his favorite ploys was to flash a silver star and impersonate one. Talking his way into the Halifax County Jail must have been easy.

  In O’Malley’s interview, published on November 28, an unrepentant and defiant Leo emerged. Yes, he had received “several million dollars” from people who had begged to invest in his ventures. But they were victims of a risky investment gone sour, he claimed, not fraud. “I had lost most of the money that was intrusted to my care. I knew the crash was inevitable and I could not face the music. The sum and substance of the proposition is that I used bad judgment.”

  Leo made similar claims to Donald Ewing, a Daily Tribune correspondent. “There was no swindle,” he insisted. “A lot of people insisted that I handle their money—they just forced it on me—and then when things went wrong they blamed it on me. … I never asked any one to invest with me. I refused hundreds of thousands of dollars.” To Gregory Dillon of the Daily News, he expressed regret for the losses smaller investors had suffered, but he added, “The others can stand it.”

  Leo seemed to think—or at least wanted everyone in Chicago to think—that he could beat the charges. The smooth-talking purveyor of fake mortgages and worthless oil stock was trying to sell something almost as far fetched: his innocence. He was heading home to try to convince a jury that “he never swindled any one out of a penny,” Ewing wrote in the Daily Tribune. “He will not confess anything, will not plead guilty and will not admit that he has ever done anything wrong.”

  LEO’S DEPICTION OF THE Bayano swindle as nothing more than a failed business venture—and himself as the innocent victim of his investors’ greed and inflated expectations—did not wash in Chicago. Leo had been clever—he had tried to cover his tracks by issuing receipts for payment, rather than stock certificates, to many investors—but not clever enough. Robert Crowe shrugged off the notion that Leo could beat the charges. There were no Panamanian oil fields and there never had been. And while Leo’s suckers had lined up for the fleecing, this made no difference in the eyes of the law. The fake dividends paid to investors to keep the scheme afloat “consummated a fraud on Koretz’s part,” Crowe explained to reporters, “and makes a confidence game case stand up beautifully.”

  But Crowe was taking no chances. He had sent his best prosecutors to Halifax to plug any legal loopholes. And as Leo pleaded his case to a succession of Chicago reporters, the state’s attorney suspended his war on gangsters long enough to appear before a grand jury seeking more indictments. By coincidence, Leo’s brother Ferdinand was serving on the jury. Excused from the session, he waited on a bench outside the jury room, smoking and declining reporters’ requests for an interview.

  Crowe emerged with three fresh indictments for theft, fraud, and o
perating a confidence game. Leo was accused of taking $11,500 from Francis Matthews and $4,000 each from two investors, Stella Gumbiner—the mother-in-law of Ludwig Koretz—and Percy Simon. The third indictment was one of the weaker ones: Simon had received Bayano stock certificates, but Leo had convinced him to hand them back, leaving nothing on paper to prove he had ever invested.

  No paper trail. Money offered and tendered without solicitation. Crowe was diving into murky legal waters. Leo may have been counting on his victims to be too embarrassed to file a criminal complaint and face him in court. “Koretz’s victims,” noted the Daily News, “are not likely to display in their offices a placard saying, ‘One Was Swindled Here.’” Crowe responded by ordering his investigators to fan out in search of more victims willing to testify.

  Sidney Kahnweiler, another Bayano victim, was onboard. “Tell a jury what I know about him?” he exclaimed when contacted by a reporter. “I should say I will. He isn’t a safe man to have about.” If Crowe needed help, chimed in Leon Weil, who was nursing a grudge as well as losses approaching $7,000, “I’ll be right there to help in the grand unmasking.” Alfred Decker, who had thirty-five thousand reasons to want him behind bars, vowed to do “all in my power to aid his conviction.” Simon Westerfeld, whose cousin had married one of Leo’s brothers, was out $31,000 and eager “to help get for Koretz what he deserves.”

  Crowe needed all the ammunition he could muster. He was under pressure to stand down and allow the federal government to prosecute Leo first, on charges of using the mail to defraud. Federal investigators had amassed enough evidence for additional indictments, and while it was not an extraditable offense, it was a serious one. If convicted, he faced five years in prison and a $5,000 fine on each count. A conviction on the state charges carried a heavier penalty—a term of one to ten years behind bars—but that had to be weighed against the growing concerns over whether those charges would stick. Did Leo see a technicality that Crowe and his assistants had missed? Did he have a hidden stash to grease the wheels of justice or to hire a top-notch lawyer to plead his case? One pundit cautioned Crowe not to brag too loudly about having a solid case, since his nemesis, Clarence Darrow, “may take that as a challenge.”

  Ben Hecht, for one, viewed Chicago’s justice system through the cynical eyes of a newsman who had watched too many defense lawyers “pull ‘innocent’ verdicts like rabbits out of a hat.” The poor and unpopular were usually convicted, while the rich and powerful bought their way out of legal jams. “Money was in itself a guarantee of special treatment,” Hecht recalled. “Big Business was in that day as sacred as religion, and a millionaire was as rare in a defendant’s chair as an archbishop.” It was anyone’s guess what a jury would think of a man sharp enough to make his millions at the expense of people who should have known better. “It is to be hoped,” the Daily News warned, “that the prosecuting mechanisms of this county will be proof against Leo Koretz’s exquisite self-salesmanship.”

  There was another consideration: How long would it take to put him on trial? The state courts of Cook County were notorious, as one Chicago newspaper warned, for “slow, technical, antiquated procedure,” while their federal counterparts had streamlined their rules to speed up trials. US District Attorney Edwin Olson, who was openly accusing the state courts of corruption, threatened a showdown; in his opinion, the feds had the stronger case, and a trial in the federal courts would ensure that Leo was convicted. One legal point was clear: if federal charges took precedence, Crowe could still prosecute, and for that, Leo had Charles Ponzi to thank. The United States Supreme Court had ruled in 1922, in a case Ponzi had fought and lost, that a defendant convicted of federal charges could be tried on state charges based on the same criminal acts.

  The new indictments strengthened Crowe’s hand; if Leo was acquitted of the main charge of defrauding Samuel Richman, he would be prosecuted on the others. The additional counts also made it unlikely that Leo would have enough money to get out of jail while he awaited trial. Bail on the four indictments was set at $100,000.

  As gangland slayings escalated and critics questioned the state’s attorney’s resolve to fight crime, Crowe was determined not to allow his high-profile, headline-grabbing prize to slip away. “Leo Koretz is my prisoner,” he told reporters, “and I propose to try him without interference from any one.” He was confident he could secure as many as forty indictments, if need be, and had enough evidence for a conviction on every one of them.

  “If he were indicted and tried separately for all his frauds we should be able to sentence him to a thousand years in jail,” Crowe predicted. “It will be time enough for the federal men to come forward when we are through with Koretz. They are welcome to him then.”

  THE CHICAGO PAPERS OFFERED fresh reports out of Halifax linking Leo with a succession of women, most of them young. A little digging revealed Topsy’s identity. Tracked down in Caledonia, Mabelle Banks denied she had been engaged to a man she now knew was not only married, but an accused con artist to boot. “There really was nothing between Lou Keyte … and myself,” she insisted. “I knew him well, frequently saw him at his estate, and frequently went to chaperoned parties he gave.” She also tried to defuse the scandal of being found in Leo’s hotel room when he was arrested, claiming her father had been with them and had just stepped out when the officers knocked on the door.

  George Banks defended his friend—and, by association, his beleaguered daughter—in the pages of the Gold Hunter. The “daily press teem with inaccuracies and very highly colored write ups, entirely misleading,” he wrote, though he made no effort to separate fact from fiction. Lou Keyte—Banks still could not bring himself to use Leo’s real name—“was at all times courteous, genial and acted the part of a gentleman in every respect.”

  On November 26, Nova Scotia’s attorney general completed his review of Leo’s activities since his arrival in the province. There were “no grounds whatever,” Walter O’Hearn announced, “to suspect that the man had committed any crime while under Canadian jurisdiction.” John Sbarbaro was free to take his prisoner home. Another of Crowe’s assistants, Thomas Marshall, arrived on the night of November 27 after a roundabout trek from Chicago to Springfield, the Illinois capital, then on to Washington and Ottawa, to assemble the papers needed for extradition. Crowe was taking no chances; Marshall had drafted the charges against Leopold and Loeb and was considered the in-house expert on legal paperwork.

  Leo would leave Saturday morning by train, accompanied by Sbarbaro, McSwiggin, and Marshall. Connolly and Scriven would join them, and the prisoner would remain in Scriven’s custody until he was handed over to the authorities in Chicago. Private compartments were booked on the Ocean Limited, the Canadian National Railway’s run to Montreal, where Leo and company would make a connection to Chicago. The black-hatted O’Malley and the other Chicago newsmen bought tickets and looked forward to two days of interviews with Leo and plenty of sensational revelations. A Daily Tribune cartoonist envisioned a warm welcome at the train station, with disgruntled creditors and hopeful criminal lawyers lining up for a crack at the swindler and a chorus of Bayano investors singing “Hail to the Cheat!”

  AN AUTOMOBILE TURNED OFF Spring Garden Road and approached the gate to the Halifax County Jail on the evening of Friday, November 28. The driver turned off the headlights and, when the gate opened, backed into the yard. Deputy Sheriff Rainard Scriven and another man climbed in. The car swung onto the street and disappeared into the darkness.

  A few blocks away, a reporter for the Acadian Recorder buttonholed Joseph Connolly on the sidewalk. Would his client make a statement before boarding the train in the morning? No, Connolly said, the reporter would be wasting his time if he showed up at the station—Leo would have nothing to say. As for the Chicago newspapermen, they were in for “a surprise in the morning.” Connolly jumped into a car, the same one that had stopped at the jail. It drove away.

  The car headed for the waterfront and pulled up to a gangway on
Pier 2, where John Sbarbaro and Thomas Marshall stood in front of the towering hull of the Caronia, a Cunard liner bound for New York from England. Caronia was in port just long enough to land 132 passengers, five tons of cargo, and seven hundred sacks of mail. Connolly, Scriven, and the third man emerged from the car, and all five boarded the vessel. They sailed at midnight. Not even officials with Cunard’s Halifax office knew about the last-minute additions to the passenger list, let alone the name of the fifth man.

  Leo Koretz left Nova Scotia the way he had arrived in March—with his true identity a closely guarded secret.

  THE CHICAGO NEWSMEN, MEANWHILE, were celebrating their final night in Halifax. William McSwiggin was with them, to ensure no one suspected there was a plan afoot to spirit the swindler out of the city. The group gathered at Leo’s old stomping grounds, the Royal Nova Scotia Yacht Squadron, which afforded a close-up view of the lights of the departing Caronia as it slipped past. It was several hours before they heard rumblings of the clandestine departure.

  Frantic efforts were made to find out where Leo was and where he was headed. Phones rang all over the city, rousing people from their sleep. One reporter placed a long-distance call to Crowe’s home. “I give you my solemn word,” Crowe said, still groggy from being jarred awake, “that so far as I know Koretz leaves with Sbarbaro and Marshall by train Saturday morning.” Leo had been dreading the prospect of being at the mercy of the newsmen on the long ride back to Chicago. Connolly, it turned out, had masterminded the plot to outfox them.

  More calls were made to Chicago newsrooms. When the reporters discovered that Leo was on the Caronia, a wireless message was flashed to the vessel; Sbarbaro did not respond. Thought was given to hiring an airplane to intercept the liner at sea or chartering a special train to New York. But there was nothing the reporters could do. They boarded the train to Montreal the following morning, wading through a crowd that had assembled at the station in hopes of catching a glimpse of Leo before he left.