Capone: The Life and World of Al Capone (50 page)

Largely on the strength of Ries' testimony a grand jury, convening in the dead of night to hear it, indicted Guzik on October 3. It was not that, like Capone, he had filed no tax returns at all, but that the income he did report for the preceding three years fell about $980,000 short of his actual net.

"Who was your boss?" the prosecutor asked Ries at the trial that began on November 12.

"Jack [as some people also called him Guzik was my immediate boss," he replied.

"Were there others?"

"Al Capone, Ralph Capone and Frank Nitti."

"What was the average net profit of a gambling house?"

"About $25,000 to $30,000, when business was good."

"Did you ever know of the house to lose money?"

"No."

"What did you do with the profits?"

"I bought cashier's checks and gave them to Bobbie Barton, Jack's chauffeur, as I had been told to do."

The prosecutor produced $144,000 worth of those checks, endorsed by Guzik. Convicted on November 18, he drew a fine of $17,500 and a five-year penitentiary sentence.

The next important Caponeite indicted by the federal grand jury was Frank Nitti. On December 20 he pleaded guilty to evading $158,823 in taxes. His sentence was a $10,000 fine and an eighteen-month prison term.

Wilson's concern was now to keep Ries alive for future use. The government made no provision for protecting witnesses before trial. So the Silent Six intervened. They put up $10,000, enabling Ries to live in South America until needed, guarded by a federal agent.

The first entries under SI (Special Investigation) -7085-F, the case jacket number assigned to Al Capone himself, antedated all these investigations. As early as the fall of 1928 Special Agent Charles W. Clarke of the Miami office was writing to Irey:

I have completely checked the public records and taken full information therefrom regarding the purchase of [the Palm Island home]. . . .

I have been able to secure from the Miami Beach Bank and Trust Company (from a detailed check of their "remittance sheets") a list of all moneys received by Capone which passed through that bank. . . . This information was obtained through leads furnished by another bank who happened to notice one item which passed the Miami Beach Bank and Trust Company. The informing bank stated that the Beach bank had come to them with a $1,500 Western Union draft payable to and endorsed by Capone and wanted large bills in it. The bank told the other bank to wash their own dirty linen and refused to have anything to do with the draft. With this lead, and after the Beach bank tried to steer me clear of their books, I was able finally to get the information, which was a long, tedious job of searching through thousands of clearance items on out-of-town banks. . . .

It is believed that Parker Henderson will give me detailed information, but I am letting the Chief of Police handle him first in order to feel out his state of mind and willingness to disclose what he knows... .

Capone while here is a lavish spender.

Thus, by January, 1929, when Secretary of the Treasury Mellon, fresh from tossing a medicine ball, transmitted to Irey the Presidential directive concerning Capone, the gang leader had been under investigation for several months. Recalling Frank Wilson from Baltimore, Irey reassigned him to Chicago with a free hand to choose any agents he wanted as assistants. He asked for Nels Tessem, William Hodgins, Clarence Converse, James N. Sullivan (of the New Haven office) and Michael F. Malone. Of Malone-Mysterious Mike Malone, his colleagues called him-Wilson wrote almost four decades later:

I thought then, and still think, [he] was the greatest natural undercover worker the Service has ever had. Five feet, eight inches tall, a barrelchested, powerful two hundred pounds, with jet black hair, sharp brown eyes underscored with heavy dark circles and a brilliant, friendly smile, Mike could easily pass for Italian, Jew, Greek or whomever the occasion demanded. He was actually "black Irish" from Jersey City. During World War One he had been in an airplane crash, then married the nurse who attended him. They had one child, a little girl, who was killed by a truck at the age of three. After that, Mike and his wife drifted apart. He went into undercover work for the government. And he seemed to lose interest in everything else. It became his total life.

The challenge confronting Wilson was to find Capone's gross income over $5,000 (the then standard exemption) for years in which he filed no return, and a formidable challenge it was since Capone, unlike his brother Ralph, never maintained a bank account or acquired property under his own name, endorsed no checks, signed no receipts, and paid cash for everything. To trap taxpayers who concealed income, Internal Revenue had developed two methods of indirect proof based on circumstantial evidence, the first involving their "net worth," the second their "net expenditure." According to the first method, the taxpayer's scale of living and any outward indications of wealth were analyzed. If commensurate with an income of only a few thousand dollars, Internal Revenue assumed that he had increased his net worth by an unreported amount. This gain it then declared taxable. According to the second method, the investigators applied the same yardstick to the taxpayer's running expenses aside from his accumulated assets. In Capone's case they adopted both methods.

Searching Chicago and Miami for shops, real estate agents, hotels, establishments of any kind with which Capone might have dealt, they compiled a partial list of his outlay for goods and services during the years 1926-29, together with evaluations of his fixed possessions. From two Chicago furniture companies they learned that he ordered $26,000 worth of chairs, sofas, tables, beds and rugs for his Prairie Avenue and Palm Island houses and his Hotel Lexington headquarters. Two Chicago jewelers sold him $20,000 worth of silverware, a gold-plated dinner service and personal ornaments, including thirty diamond belt buckles. His custom-made suits with the extra strong pistol pockets, his silk monogrammed shirts, shorts, undershirts, pajamas and handkerchiefs, his detachable stiff collars and flannel winter underwear-most of it from Marshall Field & Company-came to about $7,000. For Dan Serritella he once bought ten Marshall Field suits at $135 each. His Chicago hotel bills ran between $1,200 and $1,500 a week. The night of the Dempsey-Tunney fight he gave a party that cost $3,000. His telephone bills totaled $39,000. He traded in a 1924 McFarland town car, for which he had paid $5,500, against a new, more expensive model, and he also bought a $5,000 Lincoln limousine. Among the Miami purchases that Special Agent Clarke catalogued were draperies, bedspreads and upholstery ($3,225), linen, glassware and kitchen utensils ($800), meat and poultry ($20 to $50 a day), doctors' bills ($2,000). In addition to $40,000 for the Palm Island house, Capone spent $18,000 for two new docks, a boathouse and a second garage. All told the revenue detectives uncovered about $165,000 of taxable income.

But this did not satisfy Wilson. The sum was trivial in view of the millions that flowed to Capone from illicit sources. Furthermore, the legality of the net worth-net expenditure principles as a basis for criminal conviction had not yet been fully tested. (Nor was it until 1954 that the Supreme Court, reviewing four convictions for income tax evasion, upheld it.) Ideally, to ensure the kind of prison sentence President Hoover wanted for Capone, Wilson needed evidence directly linking the gang leader to his breweries and distilleries, his gambling houses and brothels, evidence of ownership.

Special Agent Sullivan, borrowed from the New Haven office, undertook a study of the brothels. The local police customarily chose a Saturday night to raid them because it was the busiest night. During Sullivan's first months in Chicago a federal grand jury began investigating different phases of gangsterism, and before releasing the girls after a raid, the police would take them before a grand jury for questioning. None dared testify. It occurred to Sullivan, however, that a show of sympathy combined with payment might persuade some girl to talk to him privately. So on Saturday nights he would haunt the Federal Court Building, sizing up each girl as the police brought her in. Following a raid on the Harlem Inn, he took note of a bedraggled veteran in her fifties, at the end of her professional career, who called herself "Reigh Count" after the 1928 Kentucky Derby winner. He sensed a potential informer, and his intuition proved sound. For $50 a week, a fortune compared to her usual earnings, she went to work for him.

Meanwhile, the Hotel Lexington-the Fort, as it had come to be known-acquired a new guest. A black-haired foreigner with an Italian accent, wearing a white snap-brim hat, a checked overcoat and a purple shirt, he signed the register "Michael Lepito-Philadel- phia." He was given Room 724, next to Phil D'Andrea. For hours every day Lepito sat in the lobby behind a newspaper, talking to nobody, looking at nobody. His main interest appeared to be gambling, for which no dearth of opportunity existed in the hotel, and he shot craps a good deal at sizable stakes. Capone's wary sentinels finally ran a check on the stranger. They intercepted his mail. Postmarked Philadelphia, it bristled with cryptic underworld lingo. They searched his room. His noisy wardrobe bore the labels of Wanamaker's department store in Philadelphia. One day a Caponeite named Michael Speringa approached Lepito and bluntly asked him his business. "Keeping quiet," he said, by which Speringa understood him to be a fugitive outlaw. A few days later Speringa stood him a drink, and a few days after that, while returning his hospitality, Lepito confided that the Philadelphia police wanted him for burglary. The gang liked Lepito's style, and they befriended him. They let him join their poker game. He ate with them at the New Florence Restaurant around the corner. Whenever he found himself alone and unobserved, Mike Malone (for it was none other) telephoned Frank Wilson.

Malone and Sullivan between them fed Wilson invaluable background material. When Capone gave a birthday party at the Lexington for Frank Nitti, he invited Lepito-Malone, who was thus afforded a close look at the gang in its most unguarded mood. From Reigh Count, Sullivan obtained a detailed picture of prostitution under Capone management. The two agents also made important contributions to the tax cases against Nitti and Guzik. But hard evidence directly relating Capone to the sources of his income continued to elude them.

Wilson, who throughout the investigation shared a room at the Sheridan Plaza Hotel with his wife and worked out of an office in the Federal Court Building, fared no better. He visited scores of banks and credit agencies, looking for records of any financial transactions involving Capone. Month after month he tramped the South Side and Cicero, eyes and ears open for the faintest sign of Capone ownership, of how money was channeled from speakeasy or gambling dive into his pockets. More than a year passed.

"Unusual difficulties were encountered," he wrote later in a summary memorandum to Irey, "because all important witnesses were either hostile to the government and ready to give perjured testimony in order to protect the leaders of their organization or they were so filled with fear of the Capone organization . . . that they evaded, lied, left town and did all in their power to prevent the Government using them as witnesses. . . . In order to locate them and serve them with subpoenas it was necessary to pick them up on the streets near the Capone headquarters at the Lexington Hotel, at Cicero hotels and at nightclubs, also through various subterfuges. Considerable work in locating witnesses was performed at night in and around the hang-outs of the Capone organization by Special Agents Tessem, Malone, Converse and Sullivan and the agents were facing danger in the event their identity was discovered by the gangsters."

In April Capone's tax lawyer, Mattingly, telephoned Wilson to assure him that his client wished to clear up any indebtedness and would furnish information about his business activities. "Bring him in," said Wilson. "I want to talk to him." They came on the seventeenth, leaving a brace of bodyguards standing outside the building. Capone wore a double-breasted blue serge suit, black shoes tipped with white and his customary complement of bejeweled ring, belt buckle and watch chain. In addition to Wilson, there were present Ralph Herrick, the tax agent in charge of the Chicago enforcement unit, William Hodgins and a stenographer. "Glad to see you, Mr. Capone," said Wilson. Capone held out his hand, but Wilson pretended not to notice it. Lifting a silk handkerchief out of his breast pocket, Capone dabbed at a corner of his mouth, and Wilson caught a whiff of lily of the valley.

Herrick opened the interrogation. "I think it is only fair to say that any statements which are made here, which could be used against you, would probably be used."

"Insofar as Mr. Capone can answer any questions without admitting his liability to criminal action," said Mattingly, "he is here to cooperate with you and work with you."

Herrick turned to Capone. "What records have you of your income, Mr. Capone; do you keep any records?"

"No, I never did." His tone was low and respectful.

"Any checking accounts?"

"No, sir."

"How long, Mr. Capone, have you enjoyed a large income?"

"I never had much of an income."

"I will state it a little differently-an income that might be taxable?"

"I would rather let my lawyer answer that question."

"Well, I tell you," said Mattingly, "prior to 1926, John Torrio, who happens to be a client of mine, was the employer of Mr. Capone and up to that point it is my impression his income wasn't there; he was in the position of an employee, pure and simple. That is the information I get from Mr. Torrio and Mr. Capone."

Wilson took over the questioning. Capone pulled out a fistful of cigars and offered him one. "I don't smoke," said Wilson.

"Did you furnish any money to purchase real estate which was placed in the name of others?" he asked.

But to this and almost every other question that followed-did Capone's wife or relatives keep brokerage accounts? Safe-deposit boxes? What about the money transfers wired to him in Miami? Was he ever connected with the Hawthorne Kennel Club?-the response was the same: "I would rather not answer that question." His voice grew louder and rough-edged. "They're trying to push me around," he growled at one point, "but IT take care of myself."