Rothstein (35 page)

Rice’s incoming mail also arrived in great burlap bags, filled with cash and checks, for by the early 1920s George Graham Rice had returned to bilking investors. His The Iconoclast became America’s largest-circulation financial paper, cautioning readers about other crooks and ranting against Wall Street’s legitimate firms. Rice was merely bad-mouthing competition, but Iconoclast readers saw him as their defender, a truthteller, unafraid of special interests. With credibility established, The Iconoclast moved in for the kill, shilling blatantly for Rice’s Columbia Emerald Company. When Columbia Emerald collapsed, Rice’s disciples invested in The Iconoclast’s next big tip: Idaho Copper. “Sell any stock you own,” the paper shouted in April 1926. “and Buy IDAHO COPPER. We know what this language means AND WE MEAN IT.”

Rice’s empire collapsed when a disgruntled henchman exposed his operations. For over a year afterward, the con man evaded process servers by holing up in Manhattan’s Hotel Chatham. When his chiropodist refused to make house calls, Rice left the building-and walked into a four-year sentence in Atlanta.

John Jacob “Jake the Barber” Factor (Iakow Factrowitz) was a Polish-born conman, who might also have gone straight-straight into his halfbrother Max Factor’s successful cosmetics business. Jake Factor moved from barbering to stock fraud to selling worthless real estate in the Florida land boom of the early 1920s. In 1923 A. R. loaned Factor $50,000 to bankroll his latest scheme-what would turn out to be Europe’s largest stock swindle. Operating out of England, Factor started by promising investors guaranteed interest rates of between 7 and 12 percent at a time, when most banks paid between 1 and 3 percent. Factor actually kept his promise-until he had lured enough suckers into his trap. He then returned to stateside, with $1.5 million in investors’ cash in his pockets. His dupes were too embarrassed to press charges.

One would think that Factor wouldn’t dare return to England. He did-in 1925-once more bankrolled by Rothstein. He now began by selling investors a legitimate stock, Simplex, at $4 per share. He then had a dummy brokerage firm buy up their shares at $6 each. He repeated the process with Edison-Bell stock. His customers-who rarely saw anything beyond paper profits-thought Factor a financial genius and rushed to plunge more money into whatever he recommended. What he recommended were two worthless African mining stock, Vulcan Mines and Rhodesian Border Minerals. A. R. met his death before Factor closed up shop again-and left England for Chicago with another $8 million.

The Rice and Factor episodes, however, were mere bagatelles compared to Arnold Rothstein’s major activities within the tangled, predatory world of the bucketshops.

On Tuesday afternoon, June 12, 1922 twenty-seven-yearold motion picture actress Nellie Black arrived unannounced at the lower Broadway offices of E. M. Fuller & Co. Elegantly dressed, she wore perhaps $15,000 to $20,000 worth of jewelry. More importantly, she was almost hysterically irate. For an hour, she screamed to see the firm’s senior partner, Edward Markel Fuller. Fuller, and his counsel Michael Delagi, a protege of Tammany chieftain “Big Tom” Foley, called police, claiming that Black threatened Fuller’s life.

Miss Black carried no weapons, but Magistrate Charles Oberwager ordered her held without bail in the Tombs. In court Black told a story that began in 1915, when she met Fuller at the Knickerbocker Hotel cafe. Six years later, she sued him for breach of promise, seeking $30,000 in damages. On June 6, 1921, she met with Arnold Rothstein, who gave her $5,000 and promised $5,000 more-if she dropped her suit. She never received the second installment.

Judge Oberwanger found Miss Black guilty of disorderly conduct and returned her to the Tombs, again without bail. She now finally grasped the power of Messrs. Fuller and Rothstein. Two days later, she again appeared before Oberwager. She vowed contritely never to annoy Fuller again. Oberwager suspended her sentence.

Nellie Black went away. Edward Fuller and Arnold Rothstein’s troubles didn’t.

E. M. Fuller & Co. had over a hundred employees in 1922, 10,000 clients (down from a recent peak of 16,000), offices in New York, Chicago, Cleveland, Boston, and Uniontown, Pennsylvania-and two known partners in Fuller and W. Frank McGee. McGee’s major claim to fame was his recent marriage to Broadway musical comedy star, Louise Groody.

“Ed Fuller and Frank McGee …” observed Arthur Garfield Hays, one of their attorneys, “were a well-balanced but strangely assorted pair, with nothing in common except their strewing of largess, their love of gambling, and their partnership. To me they were likable roughnecks. Lacking in all moral scruples, they were ready to handle any racket which would bring in `jack.’ They completely ignored the suffering that might result from their activities; as long as they dealt with numbers on their books, rather than with people known to them.”

Stated bluntly, Fuller and McGee were crooks. They were also very close associates of Arnold Rothstein.

The pair had formed E. M. Fuller & Co. in 1914. In June 1920, federal authorities indicted them for mail fraud regarding stock in the California-based Crown Oil Company. In 1921 a new United States Attorney took office and never bothered to prosecute the case. Remarkably, E. M. Fuller not only survived, but prospered.

The market was good. America quickly recovered from the depression of 1919-20, and Wall Street initiated its wild ride through the 1920s. Fuller and McGee might have contented themselves with selling stocks in normal fashion, collecting commissions, and living moderately prosperous lives.

But that was no fun.

They specialized in deliberately selling bad stocks to good but greedy people, but not actually selling bad stocks. True, they dutifully placed orders and took checks, but they never bothered purchasing the securities in question. Instead, they pocketed their customers’ cash and prayed as hard as such men could that their stocks decreased in value.

Ninety percent of the time, they guessed right-and when they guessed wrong, they had enough margin to cover mistakes. Brokerage houses, operating in this fashion-“bucket shops”-were not uncommon. Most belonged not to the New York Stock Exchange, but to the rival Consolidated Stock Exchange (“The “Little Board”). E. M. Fuller was the Consolidated’s biggest house.

As long as the market behaved predictably, bucket shops had little to fear. But in 1922, the market unexpectedly enjoyed a very good year, and dozens of stocks Fuller picked to fail increased in value.

On June 26, 1922, nine days after Nellie Black’s sentencing, E. M. Fuller & Co. unceremoniously collapsed-one of the biggest brokerage house failures of the postwar era. Gullible investors lost a total of $5 million. Numerous other shady firms, the Consolidated Exchange itself, and the entire bucket shop system collapsed in its wake.

The system had operated with the suffrage of the authorities, the authorities being, as usual, Tammany Hall, and the authorities being aided as usual, by Arnold Rothstein. “Big Tom” FoleyWilliam Randolph Hearst’s old enemy-was the man to see at Tammany Hall. Hearst ordered New York American editor Victor Watson to have his top muckracking reporter, Nat Ferber, investigate Foley, Rothstein,
et al.

Ferber had his work cut out for him. Save for bulging bank accounts, crooked politicians normally leave no paper trail. Neither would Ferber enjoy cooperation from Manhattan’s new district attorney, Joab H. Banton, who owed his election to Foley. Banton wasn’t particularly interested in pursuing Fuller and McGee-an investigation that could lead only to Foley.

Ferdinand Pecora served as Banton’s first assistant. Pecora’s family had immigrated from Sicily when he was five. He abandoned distinctly non-Sicilian plans to become an Episcopalian minister, out of consideration for his family’s tenuous finances. Working his way through City College and New York Law School, he joined the prosecutor’s office in 1919, becoming Banton’s first assistant in 1922. Ferdinand Pecora was the jewel in the district attorney office crown-but Banton didn’t like being reminded of it. Before Ferber approached Banton, he convinced his editor Watson to editorialize glowingly about Pecora-and how Pecora ran Banton’s office. Only then did Ferber request access to E. M. Fuller’s records. Normally, Banton would consult Pecora-and in this case, prudence dictated denying Ferber’s request. But stewing over Pecora’s favorable publicity, Banton blurted his assent.

Banton wasn’t risking much. E. M. Fuller’s records consisted largely of buy-and-sell orders, and Ferber’s chances of finding anything significant were infinitesimal. Banton also knew that his staff had already picked the best stuff clean, depositing it in a locked file cabinet. Unfortunately, they had marked that drawer-ever so faintly-“District Attorney.” Ferber spied the notation patiently, waited until he alone was in the room, and jimmied the file. He discovered dozens of checks from Fuller payable to fellow bucket shop owner Charles Stoneham, huge checks to Arnold Rothstein and, most amazingly of all, a $10,000 check to Tom Foley.

Foley tried talking his way out of it. Nobody believed his story, but it had a nice ring to it. Generous soul that he was, Big Tom claimed to have lent the firm $10,000, out of friendship for Bill McGee’s wife, who had grown up in his election district. “I didn’t know the partners very well,” Foley swore. “I am a fool, and I’ve been a damned fool all my life. But I was asked for help by McGee’s wife. I have known her since girlhood…. I don’t know the difference between bucketshop, the Curb, or the Big Exchange. I only knew McGee’s wife, Nellie Sheehan, and that she needed help.”

Foley faced other questions: Why had he loaned E. M. Fuller & Co. an additional $15,000 when it began going under, and why had he never even bothered to receive a formal note in exchange? (“What the hell good is a note? If you pull out, all right. If not, put it down as a bad bet.”) He also needed to explain why and how he cajoled Charles Stoneham into pumping $147,500 of his money into the failing operation.

Nonetheless, Foley, battered and embarrassed to be implicated in the swindle of thousands of families, escaped scot-free. He was too high-up, and Tammany remained powerful enough to save him. Hearst and Watson and Ferber realized that and went looking for other targets: Fuller, McGee, Stoneham, and Rothstein

District Attorney Banton reluctantly indicted Fuller and McGee, who went into hiding, with accommodations provided by Arnold Rothstein. As it developed, Stoneham was a secret partner in E. M. Fuller and, in September 1923, was indicted for perjury for denying it.

Between August 1, 1916 and September 30, 1921, Rothstein collected $336,768 from sixty checks drawn on E. M. Fuller’s accounts. Were they payoffs for services rendered with Tom Foley and Tammany? That would be hard-if not impossible-to prove. Or were they what Rothstein said they were-gambling debts?

Attorneys for E. M. Fuller’s creditors took A. R. at his wordaware of his reputation as a “sure-thing” bettor. If they could prove Rothstein had cheated Eddie Fuller to win that money, it would be ordered returned to the firm’s list of assets.

Some said that Arnold had, in fact, cheated Fuller with a variant of his old dollar-bill serial-number scan. Rothstein and Fuller would loiter outside Lindy’s. Someone would suggest betting “odds” or “evens” on the license plate of the next Cadillac or Hupmobile to turn the corner. A. R. had a small fleet of vehicles-even a Mack truck-nearby, waiting to be summoned by prearranged signal.

But their big bets had been on baseball, and investigators were particularly curious about the 1919 World Series. In October 1923, attorney William M. Chadbourne, representing E. M. Fuller’s creditors, grilled Rothstein regarding the Black Sox fix. Chadbourne asked a lot of questions and obviously had a lot of the answers. We will never know for sure which questions had real meaning-and which were mere fishing expeditions. But the resulting exchanges are A. R.‘s most direct and detailed comments regarding the scandal. They are also the most authentic, surviving accounts of the Rothstein mind at work, of his attitudes and arrogance. They bear listening to.

The doublecrossing that began in 1919 continued long after the World Series ended. Not only did the Black Sox doublecross their fans, Attell and Sullivan and Rothstein doublecrossed the Black Sox. Not only did Attell and Zelser and the Black Sox doublecross Bill Burns and Billy Maharg, Arnold Rothstein doublecrossed Sport Sullivan. And Sullivan and Boston attorney William J. Kelly gained revenge by blackmailing Rothstein.

In their fascinating but little-known 1940 work, Gang Rule in New York, crime reporters Craig Thomson and Allen Raymond shed additional light regarding Rothstein’s testimony. Among the many incriminating papers A. R. left behind were documents relating to the World Series fix. Thompson and Raymond revealed:

In a file marked “William Kelly” the delving authorities found papers showing that a Boston lawyer of that name had come into possession of four affidavits dealing with the Black Sox affair, and promptly filed a bill with Rothstein for $53,000. The four affidavits were by Abe Attell … , Fallon … , Eugene McGee, Fallon’s partner, and a Joseph Sullivan. Lawyer Kelly asked Rothstein for $53,000 for “legal services rendered.” Rothstein paid him off, and got an unconditional release from Kelly, who later was indicted in Boston for blackmail in some other enterprise. Rothstein also regained the affidavits which told of his bribing the “Black Sox,” and left them in his files.

That information goes a long way toward explaining otherwisemystifying exchanges between Referee Chadbourne and A. R. Chadbourne wanted to know. Their sparring began on general terms, but soon escalated to specifics. “Did Fuller or McGee put a bet on the World Series with you in 1919?” Chadbourne wanted to know.

“I do not recall,” Rothstein responded blandly.

“Is that your answer?”

Again A. R. could not recollect, but later he answered quite astoundingly, “The only bet I made with Fuller on the World Series I lost.” Chadbourne wanted to know if Rothstein honored that wager.

“Certainly-I pay my bets.”

“I wouldn’t be so sure about that,” Chadbourne countered. “I’ve been looking up your record for some time … “