WHEN HIS TRIAL BEGAN ON APRIL 16, 1935, DUTCH SCHULTZ offered his army of attorneys his own advice and counsel in the selection of the jurors. "You can't read faces," he told the reporters, "but you can tell an intelllgent man when you see one. This jury appears intelligent to me, judging from their answers to questions--but don't say it looks good to me."
We shall see how good it was.
The prosecution was mainly in the hands of John H. McEvers, special assistant to Attorney General Homer Cummings and the bearer of rather impressive credentials: he came off the prosecution team that had won the Capone conviction. Now he was armed with a case assiduously put together by Tom Dewey, then wearing among his garlands a mint-fresh tax conviction which had put Waxey Gordon, that formidable bootlegging contemporary of the Dutchman's, behind bars under a sentence carrying ten years and a fat $50,000 in fines. With Schultz, Dewey got off to a flying head start when Hugh McQuillan, chief of the Treasury's intelligence unit in New York, turned up a dummy bank account in which the Beer Baron had deposited a round $856,000 in the last six months of 1930. On this item alone, if you followed the book, Schultz owed $44,000 in back taxes and another $29,000 or so in penalties. The drawback in the case against him, of course, was that his legal battalions were to prevail in their view that he had to be tried in the Northern District--upstate, out of sight of possibly hostile New York City
jurors--because his business was in The Bronx and his tax returns, if he had taken the trouble to bother with that sort of trifle, would have been filed in Albany.
The interval between 1929-31 and the time of the indictment in 1933, compounded by the fact that the errant non-taxpayer spent so much time debating whether to stand trial, had pushed the Dutchman's asserted $92,103.34 deficiency up to $180,000 with the accrued interest and fraud penalties. There was an item of consolation, however: while the cash cost had gone up so precipitately, a severance of seven of the counts before trial reduced the potential penalty from 43 years and $110,000 in fines all the way down to 16 years and a pittance of $40,000 in fines. If, that is, a jury of graying farmers and merchants in the very wet state of New York could be persuaded that a kindly bootlegger deserved to be punished just for cheating on his taxes; it is well to remember that the Democratic Party's 1928 standard bearer, Alfred E. Smith, Governor of New York, ran against Herbert Hoover on a dripping-wet platform even in the face of the natural burden he had to carry as the first Catholic candidate for the Presidency.
There wasn't much question in the Schultz trial about the generous flow of income derived from the banished juices during Prohibition by the defendant and the army around him. While the government had to show only that Arthur Flegenheimer had taxable income of almost a half million dollars in the period under question, McEvers regaled the upstate jurors with a towering assortment of figures. From a nine-day procession of witnesses, heavily weighted with delegates from the 18 banks that accommodated the bulging Schultz accounts, the prosecutor drew testimony purporting to show a three-year gross of $2,863,000 and a net of $1,352,000. These telephone numbers did not inspire much argument in the courtroom. Indeed, deposits of $1,600,000 in two of the three years under an assortment of Flegenheimer aliases--Joesph Harmon (he used the name Harmon in a 1921 pinch for grand larceny), Charles and Arthur New (his mother's maiden name was Neu) and George Schultz--were conceded by the Dutchman's legal battery. The line of the defense was fairly clear: of course there was money in beer, nobody gave it away, but how much of it stuck to Arthur Flegenheimer's own hot little hands?
Thus, for example, the defense dwelt at painful length on ledger items of $236,026.96 carried alongside the initial S. The government labored to persuade the jury that S stood for Schultz and the defense in turn implied very heavily that S in any illicit operation might also be short for shakedown." A particular December listing of $22,991.50 alongside the familiar S drew special attention from William J. Hughes Jr., an attorney imported from Washington by Jim Noonan for his special background in tax matters. Hughes made the point that Christmas comes in December and the Dutchman addressed himself to the same piece of wisdom during a recess. "The best definition of Christmas I ever heard," he said, "came from out West, where some professionals were testing gangsters with the Binet test. One of the questions they asked was, 'What is Christmas?' and the answer was, 'Something a cop thinks comes every day.' "
This sort of thing, naturally, was not calculated to improve the angry disposition of the Mayor of New York. Mr. LaGuardia said that any cop shown to have accepted any cash gifts from the likes of Schultz would be dealt with severely. This was not followed, as you might have guessed, by any mass exodus from the Police Department.
The government's case was somewhat hindered, although not at all critically, by the shyness of no less than 20 subpoenaed witnesses. On this roster, in terms of prominence, the name of Heinie Zimmerman, star third baseman of John McGraw's Giants until he fell from grace in a small bribery scandal, led all the rest. Zimmerman had been banished from baseball for passing along an offer of $100 apiece to three teammates--Benny Kauff, Fred Toney and Rube Benton--to throw a game to the Chicago Cubs on the last Western trip of the 1919 season. The slugger's story was that he just delivered the message and then played his own heart out in the game, foiling the dishonest gamblers by helping to win it with his own bat. A brother-in-law of Joey Noe, Zimmerman in due course drifted into that other national pastime, bootlegging, enjoying a partnership with the Dutchman himself in at least one Bronx speakeasy. McEvers wanted to ask him about a bank account he shared with Schultz but couldn't find him, although Zimmerman had testified before the Grand Jury that indicted the Beer Baron. Henry Margolis, Frank Ahearn and George Yarlas (Yarlasavetsky), much larger Schultz associates, indicted with him, were just as scarce. They had vanished the day the true bill was handed down and they weren't going to come in until the Dutchman's case was out of the way. Another key witness, Daniel (Deafy Dan) McCarthy, a partner in Schultz's Hub Social Club in The Bronx, did show up for the trial but failed to wait around to testify. Due on the stand one morning but told that he wouldn't be needed until the afternoon session, he asked McEvers, "Will it be all right if I go for a walk?" McEvers made the mistake of saying yes--and Deafy Dan never stopped walking, not even when a bench warrant was issued for his arrest.
Bo Weinberg was on hand. So was Rocco DiLarmi, another Schultz partner. So was Peter Donohue, skipper of the Dutchman's beer fleet. But they all pleaded a combination of faulty memory and the Fifth Amendment and cheerfully held still for the contempt sentences dealt out by Federal Judge Fredrick H. Bryant rather than help the government persecute their old buddy.
Still, amidst the endless procession of bank officials and accountants, McEvers managed to come up with a decent sprinkling of ex-speakeasy operators to give the jury the flavor and evident financial rewards of the Schultz operations. One of the more qualified prosecution witnesses was none other than Otto Gass, who had hired Li'l Arthur as a mere boy to work on his horse and wagons, delivering beer, only to suffer an unfortunate confrontation with him a few years later. Gass testified that Arthur, moving along in the trade, came into one of his drops one night and said to him, "I'll give it to you in three ways--get out, stay out, or be rubbed out." Horrified by this show of ingratitude, Gass withdrew from the beer business.
The prosecution even turned up its own pin-up girl in Marguerite Scholl, a brave Bronx lass quickly dubbed the Little Girl in Blue by the tabloids. Marguerite had gone to work for Wolf & Yarlas, one of the Schultz fronts, as a stenographer and bookkeeper at 17. Now she felt no compunction about taking the witness stand and describing the financial transactions she had recorded for the beer cartel. She even produced the most critical ledger book used by the government.
McEvers also brought in Julius Salke and Stephen DiRosa, the detectives who had tangled with Schultz and Danny lamascia in the shootout on Fifth Avenue. You will recall that the two sleuths said the Dutchman had offered them $50,000 apiece to let him off that morning. The inference to be deduced from their testimony was clear: If the man had $100,000 to spare for that kind of little favor in 1931 then he must have had some money left over for taxes as well. The defense, of course, ridiculed the notion that Schultz would have offered any cash rewards to two cops who had just shot down one of his best pals.
To add a touch of color to the government's case, McEvers put George S. Tarbell, a former Assistant United States Attorney, on the stand to testify about a strange incident that had occurred on February 27, 1933. On that day in history, just a month after the indictment, some cad broke into Tarbell's office in the Post Office Building in New York and made off with a bulging file of records, including wiretaps, bearing on the case against Arthur Flegenheimer. It wasn't a total loss: McEvers had some taps left, including a few showing that now and then the honest beer-and-booze merchant had occasion to do business with such nefarious racketeers as Ciro Terranova and Joey Rao, the men to see in Spanish Harlem, and even, in happier days, with a lowlife like Chink Sherman.
The Dutchman's side brushed it all aside--the beer, the booze, the money, the naughty associations.
The defense, a crisp three-hour affair, rested on three witnesses--two Schultz attorneys, Edward H. Reynolds and David Goldstein, and the faithful Schultz accountant, Milton Bernard. The burden of it was that (a) the defendant failed to file tax returns only because he had expert legal advice to the effect that he didn't have to and (b) when that advice turned out to be grievously wrong he made the most strenuous efforts to pay his debt to Uncle Sam only to be rebuffed at every turn. Reynolds, a former United States Attorney with considerable experience in Prohibition cases, accepted full responsibility for the faulty advice. He testified that he had assured Mr. Flegenheimer back in 1926 that no citizen of the republic was obliged to pay taxes on anything illegal, like selling beer while the Volstead Act was on the books. Reynolds said that when he ran into the Dutchman in Dinty Moore's restaurant in Manhattan five years later his ex-client scolded him rather severely. "You're a helluva lawyer, a helluva lawyer," he quoted
Schultz. "I'm in a fine fix on the income tax."
David Goldstein, the same attorney who helped Schultz beat the assault case growing out of that Fifth Avenue confrontation, then described how no stone had been left unturned to square the tax thing once it turned out that Arthur Flegenheimer really should have taken Uncle in as a partner, like any true-blue American entrepreneur, even though he was making his money by violating one of Uncle's newer laws. Goldstein submitted that he himself had gone all over New York and Washington trying to settle the overdue account for that big $100,000, no questions asked, but nobody would listen to him. Milton Bernard, also in the battalion of couriers employed in this noble patriotic cause, told the same story, and the tall, broad-shouldered Noonan, an impassioned courtroom orator, summed it all up for the jurors: "It shows that he was on the level--that there was no willfulness in his heart. The government wouldn't take his money."
McEvers had another view of it: "He went to a lawyer and was told that although a court had ruled otherwise income from an illegal business was not taxable. This big Beer Baron of The Bronx said, 'I'll take a chance,' and he continued running his $2-million-a-year business in defiance of the government. But when he saw that others of his kind had been sent to Alcatraz and other prisons, he hurried to pay his taxes."
The defendant himself, outside of court, put it this way: "I offered $100,000 when the government was broke and people were talking revolution and they turned me down cold. You can see how that at least I was willing to pay. Everybody knows I am being persecuted in this case. I wanted to pay. They were taking it from everybody else, but they wouldn't take it from me. I tried to do my duty as a citizen--maybe I'm not a citizen?"
The Dutchman passed over another testimonial he might have included in his self-portrait as a citizen so profoundly dedicated to his country's welfare. The fact is that at one stage he was prepared to dish out a good deal more than $100,000--like $200,000--to help things out in Washington. In 1932 one of his agents approached Hugh McQuillan in New York and offered to slip the extra 100 Big Ones into the Democratic kitty for the party's upcoming drive to evict Herbert Hoover from the White House in favor of FDR. The offer was spurned. Looking back, one had to wonder what had ever prompted Citizen Schultz's political brain trust to believe that Mr. Roosevelt was going to need any help from them to win that election, but that's beside the point here.
With the rhetoric out of the way, Judge Bryant gave the case to the jury on April 26th--and then the man of the hour had some anxious moments. The jury got the case at 11:50 A.M. on April 27 and deliberated for the rest of the day, with the Dutchman pacing the corridors nervously, puffing on cigarettes and confessing that "the suspense is awful." Just a few days before, exuding confidence and good cheer, he had kidded the reporters about their writing talents. He told them he was reading Ambrose Bierce's Write It Right in his spare moments--"all about how you newspaper fellers misuse the English language"--and enjoying it immensely. Now he was a little more grim. "There's a certain amount of strain but I can stand it," he said in one of his seemingly more assured moments, but that surely was a mild way to put it. Never mind the tax bite or the certain fines, Schultz was a cinch to trade in his ill-fitting low-cost civvies for prison denim for quite a stretch if the jurors happened to bring in the wrong verdict; there was nothing in the charge to the jury to suggest that Judge Bryant suffered from any lighthearted attitude toward gangsters who chiseled on taxes.
The first day's deliberations produced nothing closer than a six-to-six tie and the judge ordered the jury locked up for the night after the foreman, a rawboned giant named Michael J. Shea, who had been a bank appraiser, insurance man and operator of a general store, assured him that the panel would be able to reach a verdict the next day. But at 3:00 P.M. that afternoon the jurors came up empty once more. It was seven-to-five for conviction now, but hopelessly deadlocked. The judge discharged the panel with thanks. It was evident that in the town of Syracuse, New York--hardly Bible country--the sins of Arthur Flegenheimer were not regarded as at all opprobrious.
The Dutchman, positively exultant over the hung jury, had a thing or two to say later when he repaired to Bridgeport to await his second trial. He was also somewhat critical of the press:
"You newspaper birds are to blame [for his troubles] but I don't hold it against you. I was a little shaky when I read some of your stuff but when that jury disagreed I knew you couldn't fool the people too much. You've made me Public Enemy No.1 and the jury didn't believe it. And it will be better than seven-to-five when the next trial comes up. I ain't admitting anything but the record will show that I tried to pay my income tax and the government refused to touch it. Sure I got dough. I'd be a sucker if I didn't have some.
"Now you take Capone. He was supposed to be a smart guy. But the jury didn't disagree when Al got the works, did it? I ain't never going to Alcatraz or Leavenworth or nowhere. I'm no gorilla. I never killed anybody or caused anybody to get killed. They say I was a Beer Baron. Well, what if I was? We got Repeal, haven't we? I get a laugh out of anybody calling anybody who gave the people beer a public enemy. If that is the case, how about Roosevelt?"
There being no immediate motions for a summary indictment of the President, the victory statement went on:
"This tough world ain't no place for dunces. And you can tell those smart guys in New York that the Dutchman is no dunce and as far as he is concerned Alcatraz doesn't exist. I'll never see Alcatraz. Al Capone was a dunce for going to Alcatraz."
It was a portrait of an arrogant winner, hardly a suitable companion piece for the earlier, pre-trial view from that meet-the-press session in Syracuse. This was Dutch Schultz, the gangster, telling 'em all off. The guy in the Syracuse hotel room was Arthur Flegenheimer, up from the streets, good to his mother, hard working, suddenly persecuted by unseen and unnamed enemies.
The second trial was set for the little backwoods town of Malone in July. The Dutchman set himself up there a week in advance and went on a social rampage calculated to show the burghers up North that he was just another regular fellow and anything but the bum they might have read about in the papers. This buttering-up process, with the wine and beer flowing freely and all the tabs picked up by the openhanded stranger in town, brought forth some instant protests.
The Reverend John R. Williams, pastor of Malone's First Congregational Church, took to the pulpit to deal with the matter. "I have even heard," he said, "that men in high places will fawn over a gangster and hail his advent because it will bring money to the community." What had provoked the clergyman was the Dutchman's appearance at a local ball game with Mayor Ralph Cardinal and a pair of leading businessmen in his entourage. Schultz had an answer for that. "After all," he said, "I like baseball. Because I happen to have some income-tax trouble doesn't mean that I have to bury myself."
Judge Bryant, a native of Malone himself, evidently thought there was more merit in the pastor's view. He revoked the defendant's bail just before the trial got under way, shaking off the anguished demands of counsel for an explanation; he said he did not have to furnish any reasons for what he was doing. So Arthur Flegenheimer went behind bars again, effectively removed from the higher social life of Malone while he was facing a Malone jury.
Martin Conboy, Special Prosecutor in the government's new effort to clap some more permanent iron bars around the Dutchman, put it to the second jury in a rather elementary way. Conboy started by noting that a married man with one exemption was entitled to an exemption of $1,900 on his tax returns. Had Arthur Flegenheimer made more than $1,900 a year? "Well," said Conboy, "here's his income: In 1929 it was $131,522.41. In 1930 it was $202,021.92. In 1931 it was $147,693.02. His gross business for those three years was not at the rate of $5,000 a year. The total was almost $3,000,000. Yet he never filed an income tax return and never paid a cent of income tax."
The government's two-week case included the same array of talking witnesses--Marguerite Scholl and all the bankers and speakeasy operators and accountants--and pretty much the same array of non-talking witnesses. Bo Weinberg again, his memory in no way improved. Rocco DiLarmi again. Moe Margolese and Samuel Rasnoff, two other tongue-tied Schultz henchmen. Nothing had changed; the loyal inside men all preferred contempt sentences as an alternative to betraying their employer's secrets. Still missing, of course, were such Schultz associates as Heinie Zimmerman and Deafy Dan McCarthy.
The prosecution suffered another blow when the Dutchman's ledger book, admitted in the first trial, was barred by the court as inadmissible. This was after the defense, correcting an earlier oversight, conceded that the book was the property of the defendant and thereby won its argument that it could not be put into the record because the government's illegal seizure of it violated his Constitutional rights. Even so, Conboy managed to get in an impressive array of facts and figures to support the indictment's contention that the defendant Flegenheimer had enjoyed considerable prosperity between 1929 and 1931.
Jim Noonan produced his familiar trio of star witnesses to show that his client had failed to file tax returns only because of some misguided legal advice. He added a fourth, Frank Wagner, a home-grown tax consultant, to testify that there was nothing in the government's presentation which showed any distinction between gross income and net income. It was the same old tried and true Syracuse formula: of course money came in from the sale of beer, but how much could the proprietor have kept?
And once more, as in Syracuse, great pains were taken to let the jurors know that the $100,000 offer from Schultz not only stood in perpetuity but would be paid to Uncle even if the jury deemed the defendant to be innocent of the tax evasion charges. "I will do my duty as an American citizen," Schultz himself was careful to tell the newspapers, evidently forgetting an earlier proclamation to the effect that the government had no right to go after him in the first place but should have had its bloodhounds on "the big swindlers who steal millions of dollars from the widows and orphans."
Lest there be any doubt about the nice stranger in town who was being persecuted by them bluenoses in Washington, a local attorney, George Moore, carried the ball much of the way for the Dutchman. When the prosecution suggested that the defendant was not only a tax evader but a gunman on the side, Moore asked his Adirondack neighbors to observe for themselves that the defendant "hasn't a wicked countenance." And as for getting filthy rich peddling spirits in the dry days, Moore, speaking as "one home-towner to another," reminded the jurors that "the beer business was a hazardous business--our local bootlegger never made much money."
The message did not fall on deaf ears.
The jury, nine to three for acquittal on the very first ballot, deliberated 28 hours and 23 minutes and on August 2 brought in a verdict of not guilty.
Judge Bryant sat bolt upright, disbelief on his face, banged his gavel angrily over an outburst of cheering in the courtroom, and then addressed the jurors in a low, quivering voice:
"You have labored long and no doubt have given careful consideration to this case. Before I discharge you I will have to say that your verdict is such that it shakes the confidence of law-abiding people in integrity and truth. It will be apparent to all who have followed the evidence in this case that you have reached a verdict based not on the evidence but on some other reason. You will have to go home with the satisfaction, if it is a satisfaction, that you have rendered a blow against law enforcement and given aid and encouragement to the people who would flout the law. In all probability, they will commend you. I cannot. The clerk will give you your vouchers."
The tall, gray Conboy, equally shaken, had nothing to add to the stinging rebuke from the bench, but in Washington Attorney General Cummings went even further than the judge. He called the verdict a "terrible miscarriage of justice."
The jury foreman, Leon Chapin, Director of the New York State Dairymen's League, took the searing blast from the bench with aplomb. "We feel that the government just didn't prove its income tax evasion charge," he said. "We feel the government utterly failed to show that he earned so much as a nickel of tax income and we based our verdict on that belief. If the government had shown us only $5,000 gross income we would have convicted."
It made one wonder what that mountain of evidence was all about. It certainly sounded like income when so many of those 67 prosecution witnesses were reeling off the numbers. It sounded like income when the prosecution showed beer money, or some kind of money in any case, flowing into 18 bank accounts in the names of Arthur Flegenheimer or his associates. And it sounded like income when Martin Conboy exhibited to the jury a notebook which showed the Dutchman pocketing $23,600 in a single eleven-day period.
The cascading dollars--could it have been stage money?--also vanished, quite naturally, in the appraisal of the jubilant Dixie Davis. Not in the least disturbed by Judge Bryant's acid-tipped remarks, the counselor rushed right into print with an endorsement of the kindly jurors. "It was the only verdict under the circumstances," he said. And Schultz, shaved to a pink glow all during the trial but ashen white when the jury came in, seconded his mouthpiece's words. "You can say I said so too," he told the reporters.
Were they really going to pay that 100 grand to the government, win or lose, as they said? "We intend to pay," Davis said.
Were they going to pay the $36,937.18 tax claim New York State had outstanding against the Dutchman (not counting the penalties): "We intend to settle all taxes," Davis said.
As it happened, no undue haste was expended in the process of reducing the Flegenheimer national debt but Milton Bernard did get right on the pipes to square things in the Empire State before anybody started dragging his boy into court again. Bernard drew a blank because he didn't quite
want to pay the whole $36,937.18; he wanted to "discuss" it first. New York just wanted the money and didn't want to kill a lot of time talking about it.
As far as the city was concerned, the Malone verdict failed to endear Fiorello LaGuardia to the victorious defendant. "Dutch Schultz won't be a resident of New York City," said the Little Flower. "We have no place for him here."
This did not please the Bronx boy-in-exile.
"So there isn't room for me in New York?" he said. "Well, I'm going there."
