Prohibition: Thirteen Years That Changed America (19 page)

In this immediate postwar period, there was a great deal of litigation arising out of irregular wartime contracts and seizures made under the Enemy Appropriations Act. As attorney general, Daugherty was at the center of things: he could expedite, delay, and settle cases virtually at will. In some cases, documents simply disappeared. Captain H. L. Scaife, a former Justice Department investigator, told Senator Wheeler how he had resigned in disgust after discovering that his patient investigation into the Standard Aircraft Company affair had been mysteriously “lost.” The company had been paid millions of dollars during the war to provide fighter aircraft, but not a single plane had been made or delivered. It was later discovered that a representative for the Japanese Mitsui company, which had acquired the Standard Aircraft Company, had met with Jess Smith. Money had changed hands, and the proceedings just stopped.

Daugherty was equally diligent in speeding cases up, for a suitable fee. The $6 million assets of the American Metal Company, owned by the Metallgesellschaft und Metall Bank in Frankfurt, had been seized during the war. Daugherty and Fall, the secretary of the Interior, used John King, a middleman who often worked for Jess Smith, to bargain with German lawyers. $441,000 changed hands. King took a fee, with the bulk of the money going to Jess Smith. As Daugherty’s bagman, he is thought to have handed over some of it to the attorney general himself.

As Senator Wheeler found out to his cost, proving Daugherty’s financial involvement in these scams was not easy. There was a simple reason why Jess Smith was so invaluable to Daugherty: Smith’s brother, Mai, owned the Midland National Bank of Ohio, and it was through this small bank that a lot of the money was laundered. The bank was capitalized at only $100,000, but received huge deposits regularly. When investigators finally succeeded in getting permission to look at the records, Mai Smith destroyed them, but not before Wheeler discovered that there were large fluctuating deposits there in Daugherty’s name.

But Daugherty and Smith’s biggest money-earner came from Prohibition. Millions of dollars passed through Jess Smith’s hands provided by those shrewd enough, and wealthy enough, to buy immunity from prosecution. George Remus may not have been Smith’s biggest single contributor, but he was the most notorious — for the simple reason that when, finally, his huge cash payments failed to buy him the promised exemption, he decided to spill the beans.

E
very bootlegger, Prohibition agent, nightclub owner, and affluent private customer in the Midwest knew about Remus, his parties, his ostentatious generosity, and his inexhaustible supply of high-quality liquor. He was convinced he was untouchable. All of the politicians and law enforcement agencies of the city of Cincinnati were in his pocket, and he had what he knew was a unique relationship with the “deputy Attorney General,” Jess Smith. But his luck was not to last, and when it went, like Job, he was assailed with every conceivable woe.

There were a number of reasons for his downfall — his overconfidence and excessive greed, to begin with. In 1922, he was well on the way to establishing a whiskey monopoly. This was not to the liking of other bootleggers with underworld connections, and he may well have been the victim of a conspiracy to bring him down at all costs. His German origins, too, were almost certainly held against him in these hysterically anti-German years, though his immediate fall stemmed also from the ingenuity of the two people in the world he found he could not bribe — the Prohibition directors of Indiana and Kentucky. But
most of all his nemesis came when Jess Smith, Daugherty’s front man and operative, fearful that he was about to be indicted at long last and unwilling to betray his mentor, committed suicide in December of 1923.

When, a year later, Senator Wheeler finally persuaded the Senate to look into Daugherty’s record, Remus became one of the star witnesses of the investigative committee. His cross-examination explained why he had been so sure he would never come to grief, even if indicted. Remus told the committee how his lawyer, Elijah Zoline, introduced him to Smith and then “gracefully withdrew.”

W
HEELER:
Did you know he was close to Daugherty?

R
EMUS:
Well, having practiced criminal law, we knew these matters. It was a matter of public record that he was pretty close to the Attorney General.

W
HEELER:
What did he say?

R
EMUS:
He said that for a consideration he would obtain permits, if I would pay him so much for the permits per case.

W
HEELER:
What did he say with reference to your being indicted in these matters, or prosecuted?

R
EMUS:
That there would never be any conviction — maybe a prosecution, but no ultimate conviction, that no one would ever have to go to the penitentiary.

W
HEELER:
How much did you pay him on this first occasion?

R
EMUS:
Fifty thousand dollars.

W
HEELER:
And the money paid to Jess Smith was for protection, was it not?

R
EMUS:
Yes, he was to do what he could, to make connections as far as the withdrawal of these permits was concerned.

W
HEELER:
Did the payment involve him getting the permits for you?

R
EMUS:
No
, that was a different arrangement. The person withdrawing the liquor would pay $15 to $21 a case. A case contains three gallons. That you would consider overage expenses. That would be in addition to the $21 to $25 a case you would pay to the warehouseman.

W
HEELER:
Did Smith get any of that?

R
EMUS:
Yes, he got about — we figured at the time he and I talked — about $1.50 to $2.50 a case.

W
HEELER:
Are payments of that kind included in this $250,000 to $300,000 that you paid him (for protection)?

R
EMUS:
Oh, no, Senator.

W
HEELER
: That was in addition?

R
EMUS
: Yes.

Remus told the committee of meetings with Smith in hotels in New York, Washington, Cincinnati, Indianapolis, and Columbus, Ohio (the dates, times, and places had been carefully logged), each meeting invariably concluding with cash payments, or checks made out to “pay cash.” On one occasion, in Indianapolis, he saw Smith and Daugherty together but Daugherty was never directly involved in the transactions. Wheeler asked Remus whether there was any friendship between the two men, or was it “a pure-cold-blooded proposition.” “Not a bit of sentiment attached to it,” Remus replied. Again and again, the Senate investigators returned to the subject of Remus’s promised immunity.

W
HEELER:
Did you discuss with him anything with reference to your indictment? [Remus was currently in jail.]

R
EMUS:
Yes. The Department of Justice would put up a vigorous battle, but ultimately I would never see the penitentiary.

W
HEELER:
And that vigorous prosecution was going to be done just as a blind? Was that it?

R
EMUS:
I am sorry to say that is not true, Senator.

W
HEELER:
But that is what he told you?

R
EMUS:
Yes. He said that while there might be a conviction before the jury, the matter would go to the Court of Appeals and the case would be reversed.

W
HEELER:
Did Jess Smith not say to you that it did not make any difference if the Court of Appeals did confirm it, he could get you out of it?

Remus
: Yes.

W
HEELER:
When did he say this?

R
EMUS:
A short time after my conviction — May 1922.

W
HEELER:
Even after the conviction?

R
EMUS:
Absolutely.

W
HEELER:
He told you you would never serve a day, that he would see to it that you got out of it?

R
EMUS:
Absolutely.

W
HEELER:
Where was this?

R
EMUS:
At the Washington Hotel.

W
HEELER:
Did you pay him any money at this time?

R
EMUS:
About twenty or thirty thousand dollars.

W
HEELER:
The way he would get this suspension of sentence or anything would be through the Attorney General?

R
EMUS:
Yes. He said he was assured there would be no ultimate sending away of Remus or his men to a penitentiary.

W
HEELER:
And who did he say assured him of that?

R
EMUS:
The general.

W
HEELER:
He called him the general, did he?

R
EMUS:
Yes, sir.

W
HEELER:
How many times did he tell you that?

R
EMUS:
should say twice or three times.

W
HEELER:
Did he tell you that if the Supreme Court affirmed that decision you would still be granted a pardon, or that you would never have to serve a day in jail?

R
EMUS:
Yes, he said that. On account of his friendship with the general, he said he would do everything he could to see that the matter would be reversed.

The indictment that Jess Smith promised would be quashed was the work of the two “untouchables”: Burt Morgan, the Prohibition
director of Indiana, and Sam Collins, Prohibition director of Kentucky. Luck was on their side. In 1921, a regular Death Valley Farm customer, Nathan J. Goldman, was flagged down in Indiana with cases of whiskey in his car. In court, he pleaded guilty, and received a $500 fine and a ninety-day jail sentence. In the time-honored bootlegging tradition, he had refused to say where he had obtained his liquor, but Morgan was certain it had come from Death Valley Farm, which he had heard about, though he knew nothing of its whereabouts. Since it was in another state, the chances of involving Remus seemed slim.

But Morgan went to see Goldman in jail and proposed his immediate release in return for his cooperation. Goldman accepted. He even agreed to take Morgan by car to Death Valley Farm to show him where it was. They drove there, turned around, and went back to Indiana. Unlike Cincinnati, Indiana really was a dry state, and its agents, under the “untouchable” Morgan, were less ready to be paid off, but Morgan knew he would have a hard time getting the cooperation of his Cincinnati colleagues.