Warren Harding & Harry Daugherty
It wasnt long into the Harding presidency before the scoundrels began their work. Daugherty surrounded himself with nefarious characters. The most odious of the group was Jesse Smith, an unofficial member of the Justice Department who specialized in kickbacks, whiskey distribution --- Prohibition had gone into effect in 1919 --- and political favors, all, presumably, with the approval of Daugherty.
A second remarkable character was Billy Burns, owner of a famous detective agency, who became director of the FBI, and was Daughertys principal instrument for intimidation of citizens who were critical of Harding or Daugherty. Burns, who kept his detective agency throughout his tenure as FBI Director, employed Gaston B. Means, an ex-convict and swindler of the first rank whose assignments included shadowing Harding on his amorous escapades. Smith, in particular, was important, since he delivered blackmail payoffs to a number of Hardings mistresses when they threatened to make public the amazingly juvenile love letters written to them by Senator, and then, President Harding. Most of all, this group, particularly Smith and Daugherty, formed the nucleus for late night poker games and stag parties held in a special house kept for that purpose. It was, in effect, Hardings YMCA.
Evalyn McLean with Hope Diamond
A dollar-a-year man hired by Daugherty was none other than the publisher of The Washington Post
, Ned McLean, whose wife, Evalyn (the owner of the famous Hope Diamond), was Florence
s best friend. Basically, McLean
was Hardings pimp and one of his bootleggers. It was his house, occupied by Daugherty and Smith, which was the setting for the presidential shenanigans. Though both were married, Daugherty and Smith had a very domestic relationship in McLean
s hideaway, prompting speculation that the attorney general and his unpaid assistant were gay.
While shenanigans were going on in the Department of Justice, Albert B. Fall, with the cooperation of the hapless secretary of the Navy, Edwin Denby, set his corruption scheme into operation. During World War I, Wilson
had placed the nations oil reserves under the control of the Navy Department. Fall, who was a friend of the oil barons Harry Sinclair and Edward Doheny, saw a golden opportunity. He convinced Harding to transfer the authority over the oil reserves from the Navy Department to the Department of the Interior. The clueless Denby went along with the proposal.
Secretary of the Navy, Edwin Denby
Falls objective was to sell the oil leases in the federal lands surrounding the oil reserves to the oil companies. He did this without competitive bidding to Doheny (the Elk Hills oil reserve in California
) and Sinclair (the Teapot Dome oil reserve in Wyoming
). The oil companies stood to make $100 million each, a considerable sum for the time.
Coincidentally, after the leases were approved, Albert Falls ranch in New Mexico was improved and expanded, all on his modest government salary of $12,000 a year. When eventually confronted with questions about his newly acquired wealth, Fall first said that he had received a loan from McLean, and then admitted that he had received loans from Doheny and Sinclair. One loan, from Doheny, was $100,000, delivered in a suitcase by Dohenys son. Soon after the leases were given to Sinclair and Doheny, Fall resigned his cabinet post (much to the regret of his good friends, the Hardings) and went to work for Sinclair. One cannot say that Albert Fall lacked boldness.
After Hardings death, Fall was charged with corruption; Sinclair and Doheny with bribery. They were tried, convicted, and sent to prison. Fall, the first cabinet member in history to go to jail, served a year.
Daugherty was not to be outdone by Fall, whom he did not like. In addition to skimming his part of the take from Jesse Smiths operations, Daugherty also managed to sell off government surplus goods at ridiculously low prices, which the purchasing companies then sold for many times what they paid. Here again, Daugherty took the kickbacks. The Daugherty-Smith illegal gains ended up in Daughertys brothers bank in the oddly named town of Washington Court House, Ohio. Daugherty was indicted for corruption and tried twice. His first trial resulted in a hung jury. He was found not guilty at his second trial because of insufficient evidence. It seems that the records of his brothers bank had mysteriously disappeared, and his partner in crime, Jesse Smith, had killed himself in 1923.
The boldest of the grafters was Charlie Forbes, a favorite of Mrs. Harding and the man responsible for the care of her boys, as she called the World War I veterans. As director of the Bureau of Veterans, Forbes also sold supplies to willing purchasers, but, in this instance, these were hospital supplies --- not surplus --- needed by the veterans hospitals. Worse, without approval from congress or the president, Forbes proceeded on a program of hospital construction, taking his cut from the inflated income of the contractors. In these schemes, he was assisted by the Veterans Bureau auditor, James Cramer.
There is a marvelous scene, worthy of the Three Stooges, in which Harding was found choking Forbes, shouting, You yellow rat! You double-crossing bastard! Forbes asked to conduct an inspection of British veterans hospitals, and Harding forced him to write a letter of resignation before he left. It was not needed. Before Forbes could leave the ship when it arrived in Southampton, England, Forbes received a cablegram that he had been fired. A little over a month later, Cramer committed suicide. Eventually, Forbes was tried, convicted, and sentenced to two years in prison.
There were at least two other suicides among these bands of pirates. Dohenys son, the messenger with the suitcase of money, committed suicide during the oil lease scandal investigations of 1924. Jesse Smith questioned by Harding about his activities, particularly for his arranging for paroles of convicts (for a price) without seeking the Presidents approval, committed suicide in June 1923. The usually ebullient Smith became depressed after this interview, and was particularly upset that he was no longer in favor with the President and the First Lady. Evidently, he fed on being intimate with power. (It is important to note that Smith had an intense fear of firearms, and it was odd that he would choose a revolver for his suicide. Gaston Means suggests that Smith was murdered in order to silence him.) The Hardings were shaken by Smiths death, as they prepared for a fateful trip west, but they were not nearly as upset as Smiths co-conspirator and housemate, Harry Daugherty.