AUGUST 2017

AUGUST  2017
FACING DOWN THE RULERS OF WALL STREET A HUNDRED YEARS AGO. THEY ARE BACK.

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Sunday, May 15, 2011

THE LITTLE GREEN HOUSE ON K STREET - PART FOUR

I do not find it surprising that less than an hour after prohibition became the national law, at midnight on January 17th 1920, six armed men stole $100,000 worth of “medicinal whiskey” out of two rail cars parked unguarded on a Chicago siding. Even at that early moment America's dream for a moral nation, drunkenly stumbled over the sobering reality that alcohol has never been a mere beverage.
In 1920, the first year of national prohibition,  35,000 doctors would be granted permits to prescribe various potable forms of alcohol for thier patients -  those suffering from strokes and stress as well as the long term pain of arthritis, cancers, congenital headaches, congestive heart problems, depression and the general aches and pains of old age. That same year the company which distilled “Old Grand Dad” reorganized itself as The American Medicinal Spirits Company and kept right on distilling  “Old Grand Dad Whiskey” . In fact their business was booming. In the first five years of prohibition, the manufacture of hard liquor in America more than doubled.
As an article for “The Nation” magazine lamented in 1921, “In the U. S. are 27 warehouses in which 15,000,000 gallons of liquor are stored. The liquor is private property held for legal sale as medicine..A system of permit withdrawals was devised by the enforcement officials..for each case (3 gallons) of liquor. It very soon became apparent that a vast amount of fraud was being perpetrated.” It was this fraud that filled the backyard bank of the Little Green House on K street. The author of that article was Roy Haynes.
Each “Withdraw Permit” had to be signed by the Prohibition Commissioner, Roy Asa Haynes (above), who was famous in anti-saloon league politics and a political appointee by President Harding. The going price for each permit from the Ohio Gang on K Street was $15.00. The very first permits, for the withdrawal of some 2,000 cases of alcohol, was issued to the General Drug Company of Chicago, for which J.B. Kraffmiller was paid $20,000, cash. He kept $6,500 and passed on the rest to Howard Mannington at 1625 K Street, who divided it amongst the rest of the Ohio Gang, each member getting $2 per case. Even the General Drug Company got a one dollar kickback, for the use of their good name. What General Drug did not get was the booze. That went directly to the bootleggers who had actually bought the liquor and paid the bribes. They passed along this overhead to their customers,  who happily paid a dollar for a drink which the year before had cost them a quarter. And as Agent Means in the basement of 1625 K street sang, my God, how the money rolled in. The very first year of prohibition, it is estimated, bootleggers made about $100 million dollars in profits. K street was not guilty of booklegging. They were merely the facilitators.
The bag man in this facilitation was Jess Smith (above), the Attorney General's “jovial, rotund, combination confidant and valet.” Agent Means described him this way; “Poor Jess, he was a typical city department-store floor walker, transplanted into alien aisles....at a complete loss. And how he loved clothes. He worshiped Daugherty with a dog-like devotion.” This seedy looking man in expensive suits was the go-between, shuffling from his boss and idol, Attorney General Harry Daugherty (and Roy Haynes) and Henry Mannington and J.B. Kraffmiller in the little Green K Street house.  Two or three times each week Jess would arrive at 1625 K Street to deliver instructions and payoffs, and pickup the cash that been laundered through an Ohio bank owned by AG Daugherty's brother Milo. Jess Smith kept everything straight in the meticulous notebooks he carried on him, the “who”, the “how much”, the “for what”, and the “for whom.”
It was the sweetest deal in the history of K Street, and you just knew some schmuck was going to screw it up. The schmuck turned out to be the keeper of the backyard bank, Federal Agent Agent Gaston Means (above). For him bountiful was never enough. In the winter of 1922 Means got his hands on several blank Withdrawal Permits. He forged Haynes' signature, and started selling them on his own. It took very little time for word to get back to Daugherty, who, in February, suspended Means from the Bureau of Investigation. But the Attorney General dare not remove Means from the Little Green House, because Means had all those file cabinets in the basement, stacked with names, dates and amounts.  
In the mid-term elections of November, 1922 the Republicans lost five seats in the House and the Democrats were beginning to percolate over Republican scandals as a 1924 campaign issue. So in the spring of 1923 Daugherty was forced to go to the President and tell him of the trouble Means was causing. It was decided a sacrificial lamb would have to be offered up to the Democrats, and since it could not be Means, “poor Jess” was tailor made for the role, you might say. Jess had his own notebooks, but because of his devotion to the Attorney General he could be controlled.
On the morning of Tuesday, May 29th, 1923 Jess Smith played golf with Attorney General Daugherty, and was informed that he had to leave Washington the next day, permanently. Jess did not take it well. Daugherty then proceeded to the White House, where he phoned another associate, Warren Martin, and ordered him to go the Wardman Hotel and stay with Smith until the poor man was out of town. At six the next morning, Martin was suddenly awakened in his room by an explosion. He found the 61 year old Jess Smith, in his pajamas and a dressing gown, lying on the floor of Daugherty's bedroom. Smith's head was inside a wastepaper can, a bullet through his brain. A gun lay on the floor, inches from his fingers. There was no autopsy. His death was ruled a suicide by a friendly doctor. His meticulous notebooks and personal correspondence had mysteriously disappeared.
Sixty four days later, on the second of August, President Warren G. Harding died of a heart attack in a San Francisco hotel. For a time the fact that "Silent Cal" Coolidge was now President made little difference to the business of K Street. But inevitably, when dealing with crooks, somebody eventually screwed things up, again. This time it was Jess Smith's ex-wife, Roxy Stinson. Cheated out of what she thought was her share of Jess' share, Roxy spilled her guts to a Senate investigating committee, and on March 28th, 1924, President Coolidge demanded Daugherty's resignation. Daugherty said, “ "I wouldn't have given 30 cents for the office of Attorney General, but I won't surrender it for a million dollars." Then he added, “I have no personal feeling against the President. I am yet his dependable friend and supporter." And then he resigned.
In June of 1924, Gaston Means was sentenced to four years for perjury. Once out of prison he wrote a book, “The Strange Death of President Harding”. It was an instant best seller, a well written inventive concoction of half truths and fantasy. Still desperate for money, in 1932 Means claimed to have been contacted by the kidnappers of the Lindbergh baby. He was arrested after stealing the supposed $100,000 ransom, and sentenced (above) to fifteen years. He died of a heart attack in Leavenworth Prison, in 1938.
Howard Mannington died in 1932, at the age of 64, of a "lingering illness". Henry Daugherty (above) was indicted in 1926 for accepting bribes. The jury deadlocked, 7-5 in favor of conviction. His second trial ended in another hung jury, this time 11 – 1 for conviction. But the government gave up. In 1932 Daugherty published his own book, “The Inside Story of the Harding Tragedy.” It did not sell well. In October of 1940 Henry suffered two heart attacks which left him bedridden. He died in his own bed on October 12, 1941, a very rich man. And that was the point..
Now, the Little Green House on K Street was vacant again. The graft it had contained certainly did not end. It just got bigger and more professional.
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