Playboy's History of Organized Crime, Part III: Slicing up the Big Apple

There are no commemorative plaques on the benches in New York's Central Park, but maybe there ought to be. The nation's elder statesman Bernard Baruch sat on one of them for years, holding court, philosophizing, advising, handing down judgments that would influence the direction of the nation and the world. And just inside the southern boundary of the park on 59th Street, there is another bench where, during the decade after World War One, an underworld elder statesman, Arnold Rothstein, held court, listened to propositions, philosophized and handed down advice.

On a bright warm day in the early fall of 1920, relaxing on his favorite park bench, Rothstein came to a decision that would send tremors down through the years. Prohibition had been the law of the land for nearly nine months, but it was clear that the law was barely enforceable. There weren't enough Federal or state agents and many of them were easily bribed political hacks. And much of the nation, particularly the big cities, showed no inclination to stop drinking just because the law said to. People were drinking just as much, and many would soon be drinking even more. Only now, instead of patronizing a neighborhood saloon or a gilded night club, they were drinking in the thousands of speakeasies that had sprouted since January 17 and that, though illegal, made little pretense of being anything but what they were and opened their doors to anyone who knew the passwords--"Joe sent me." And now, instead of buying stock for their private bars from neighborhood package stores, they were patronizing the neighborhood bootlegger. For liquor and beer and wine were still available, but not from legitimate businessmen; gangsters had moved in and were selling booze "right off the boat"--which could mean that it really came right off the boat; or maybe from an illegal distillery; or was good stuff that had been cut, reblended and rebottled, watered down; or came from a homemade still and was only a little better than poison.

During these early months, Rothstein--millionaire gambler, swindler, loan shark, fixer, friend and confidant of politicians and gangsters--had made no move to cut himself in for a piece of the action. He was essentially a loner, a man who wanted to run his own show his own way. But bootlegging, he saw early, was just too big and too complex to be controlled by a single man, or even by a single organization. Rothstein, however, was wary of developing an organization of his own, because he didn't trust the intelligence or balance of the labor pool he would have to draw upon: the underworld. He understood that with hoodlums competing for control, violence was inevitable, and he was a man who abhorred violence in most circumstances. He had no desire to cross the Federal authorities, for he was certain that they would make a major effort to enforce the law, at least at its outset.

So Rothstein stood aside and let others open up the business and take the initial risks. Some he financed, provided with bail and lawyers when they were arrested (and, as security, in addition to the usurious rate of interest a Rothstein loan entailed, anybody who borrowed from A. R. was forced to take out a noncancelable insurance policy, with Rothstein as the sole beneficiary). But that was all. However, he watched and examined and thought. By the fall, he was convinced it was time for him to make his move. All he needed was the opportunity.

It came on the warm day in Central Park. A Detroit bootlegger named Max "Big Maxey" Greenberg had been running Scotch and other good whiskey across the Detroit River from Canada since January and had done well enough to buy a fleet of trucks and open a string of warehouses. But the competition for good whiskey from Canada was increasing, driving the prices up. Most of Greenberg's money was tied up in the stock on hand, in his trucks and storage depots, when he was approached by a contact in Canada who could guarantee a continuing supply of good whiskey. To secure the deal, Greenberg needed $175,000; he didn't have it. He went to his friend Irving Wexler: thief, sometime dope peddler and strikebreaker, now seeking to become a bootlegger and winning a reputation under the name "Waxey" Gordon. If Gordon could come up with the money, Greenberg would cut him in as a partner. But in 1920--within a year, it would all change--Gordon didn't have that kind of bank roll. He knew someone who did, however: Arnold Rothstein. Gordon took Greenberg to meet Rothstein at his bench in Central Park.

Rothstein listened to Greenberg's pitch and questioned him closely, his mind moving far ahead. When Big Maxey had finished, Rothstein turned him down. But Rothstein came back with a counterproposal. It was stupid, he said, to buy booze in Canada at the high prices caused by competition. The way to buy it was to tie up the production of whole distilleries right at the source, in England and Scotland. Greenberg was intrigued, but that would take a hell of a lot more than $175,000. Don't worry, Rothstein told him. He would make all the arrangements and would, instead of lending Greenberg the money in cash, cut him in for $175,000, taking as collateral his trucks and warehouses--thus giving Rothstein immediate transportation and storage facilities--and, of course, as much life insurance as Greenberg could take out. And, in lieu of a finder's fee, Waxey Gordon would be given a small percentage of the new partnership, and thus his hoped-for start in the business. Greenberg and Gordon agreed with alacrity.

Rothstein set about the bootleg business not on a chaotic and random basis, as did most other early entrants, but with an approach copied from big business. He sent Harry Mather, a former Wall Street bucket-shop operator who had done jobs for him in the past, to England as his European agent. Mather was to tie up the output of good Scotch distilleries and make arrangements for shipping the whisky to a point just outside the American territorial waters in the Atlantic. Within weeks of his arrival, he had bought 20,000 cases of good Scotch and leased a Norwegian freighter to haul the stuff to a point off Long Island.

At home, Rothstein pulled together the other threads of the business. He bought half a dozen fast speedboats to carry the booze ashore and, to make certain it got there with no trouble, he bribed the Coast Guard at Montauk Point not merely to look the other way when the freighter arrived but actually to help unload it onto the speedboats and even to carry some of it ashore in Government cutters. At the landing zone, he had the Greenberg trucks, protected by tough gunmen, and in Long Island City and other points around Manhattan, he leased warehouses to store the merchandise. And he cemented contracts both with other bootleggers and with the better speak-easies in midtown to purchase the Scotch.

During the next 12 months, Rothstein's Norwegian freighter made 11 trips carrying booze to the man who had suddenly become the most important dealer in illegal liquor in the East. But as the ship set sail on its 11th voyage. Rothstein was tipped that a new officer-in-charge had assumed command of the Coast Guard station at Montauk and was going to take the ship when it started to offload. Rothstein urgently signaled the ship, diverting it to Havana, where an agent of a sometime Rothstein partner, Charles A. Stoneham, sportsman and owner of the New York Giants baseball team, took delivery and managed to smuggle the whiskey into the States another way (though Rothstein's partners, Gordon and Greenberg, were told that Stoneham had bought the booze at cost, so there were no profits from the trip).

Though the final voyage of the Norwegian freighter had been turned from a potential loss into the usual profit of more than $500,000 for Rothstein, it gave the gambler pause. He had in a single year made several million dollars out of rum-running--or, in his case, Scotch-running--but buying abroad and waiting for a shipment to reach the States tied up a lot of ready cash for months, and if, by chance, that shipment happened to be picked off by the Federal men, the money was irretrievably gone. There were, he figured, quicker and easier ways to turn Prohibition into a buck. Also, in his year as a whiskey importer, Rothstein discovered what he had suspected: Bootlegging was just too big for one man to control. There were too many people in it, all with big ideas about their own roles and their own power; the competition was intense; he could not command events nor the actions of other people. This was not the game Arnold Rothstein liked to play, so he decided to get out--of importing, at least.

After the freighter's final trip, he called in Gordon and Greenberg to tell them that it had been profitless--for them. And he told them he was quitting the racket; the business would be theirs after they paid up what they owed him, plus the usual high interest. They paid readily enough and without complaint. Then Gordon, with Greenberg receding into a secondary role as junior partner and aide, pyramided what Rothstein had started, becoming one of the leading illegal liquor importers along the Atlantic Seaboard and one of the biggest over-all bootleggers in the East. By the end of the decade, he would be a multimillionaire, would own blocks of real estate in New York and Philadelphia, where he centered his empire, would live in a castle complete with moat in southern New Jersey, would own a fleet of ocean-going rumships, night clubs, gambling casinos. His Philadelphia distilleries would be cutting, reblending and rebottling booze for scores of other major bootleggers around the country for a share of their action.

But Rothstein, although no longer importing, was not completely out of booze. In his year in the business, he had put together an efficient organization, and while much of it had been turned over to Gordon, Rothstein was not willing to let it all go. He owned pieces of some of the best speak-easies and he held onto them, turning their back rooms into lavish gambling casinos. And he had in his employ a killer named John T. Noland, who (Continued on page 130) Slicing up the big apple (continued from page 112) adopted the name "Legs" Diamond (the Legs from his speed in fleeing from the cops during his petty-thieving days). With his brother Eddie, Diamond had worked for Rothstein as a strikebreaker and, when Rothstein moved into liquor, as a guard for the trucks. Now Diamond came to Rothstein with a new proposition. While a number of big and tough outfits were coming to the top in the bootleg business, the highways were still filled with hundreds of amateurs trying to make a quick buck. They had little power or little ability to retaliate if they ran into trouble. Diamond wanted Rothstein to turn him loose to prey on these amateurs; he and Eddie and their gang would hijack the trucks and turn the booze over to Rothstein to dispose of. Since Rothstein was into both wholesale and retail outlets for booze, he bought the idea and financed the Diamonds.

For a couple of years, it worked well. But by 1924, the amateurs were giving way more and more to the tough professional gangs. With soft targets scarce, Diamond went against Rothstein's orders and began to try his luck hijacking the professionals. One of those he picked on was William V. "Big Bill" Dwyer, an Irish ex-stevedore who, in partnership with a rising Italian mobster named Frank Costello, had moved to the top in the illegal liquor-importing business. Dwyer was the wrong guy to take on. He went to Rothstein and told him to call off Diamond or it would be open season on the hijacker. Rothstein, who was becoming weary of Diamond's penchant for violence, anyway, and of the whole uncontrollable bootleg racket, informed Dwyer that Diamond was running on his own and he wouldn't mind at all if Dwyer put a stop to him. Dwyer tried: In October of 1924, as Diamond drove down Fifth Avenue, a car pulled up alongside and pumped a load of shotgun shells at Diamond. Somehow, Legs received only minor wounds. Diamond, who would become one of New York's most conspicuous and flamboyant hoods, couldn't understand it. "I don't have an enemy in the world," he said. But the shots had their effect; the Diamond mob fell apart; Legs became little more than a feared outlaw among outlaws, everybody's target, who managed to escape both upper-and underworld retribution until 1931, when he was finally gunned down.

The shedding of Diamond was Rothstein's last direct involvement in bootlegging. He decided to let others take all the risks and remain, himself, strictly a peripheral figure. He would bank-roll those who needed money at the usual high interest rates. He would, for a price, use his political muscle, which went to the top of Tammany Hall in the person of his close friend boss Charley Murphy and his heirs, to put the fix in when a bootlegger was arrested (and the fix was good; during the Rothstein years, of the 6902 liquor cases that went before the New York courts, 400 never went to trial and 6074 were dismissed).

By the middle of the decade, Rothstein's importance in bootlegging was almost at an end. He had always wanted to be the top man in whatever he did, and that just wasn't possible in booze (and besides, he used to point out to friends, he himself didn't drink). He gradually turned his energies back to his first love, gambling--owning casinos and staying involved in some perpetual card game. His loan-sharking continued to prosper; he went heavily into jewel smuggling, a thriving business in good times, when the wives of the nouveaux riches were trading all their loose change for sparkling gems; and, in the last years of his life, he became more and more involved in narcotics, then a small but expanding business, sending his agent to Europe and the Near East to make purchases and supplying the big dealers in the underworld with the junk. In November of 1928, after welshing on losses of more than $300,000 in a card game, Rothstein's life came to an end; he was fatally shot at the Park Central Hotel on New York's Seventh Avenue (no one was convicted of the crime). In another couple of days, he could have paid off his losses with a flourish: He had bet heavily on victories for Herbert Hoover in the Presidential election and Franklin Roosevelt in the New York gubernatorial race and when they won, he stood to collect nearly $600,000; further, even without those bets, there had been no need for Rothstein to welsh, for the initial accounting of his assets revealed an estate of about $3,000,000. And if he had really been tight, there were scores of friends in the underworld who would gladly have come up with the money for him.

As the years passed, Rothstein's influence remained strong and he was constantly sought for advice; the philosopher of the underworld, constantly preaching cooperation and the most limited use of force, unconcerned with ethnic or religious ties, but only with intelligence, imagination, ambition and nerve--he made use of anyone who could help him, unlike most underworld leaders, who seemed unable to break free of traditional ties and suspicions--Rothstein had drawn into his orbit all those who would lead the underworld in the years ahead. His ideas would influence their thinking and their actions.

In the first years of Prohibition, three young hoodlums, then little more than hungry thugs, had been drawn into the Rothstein circle and were changed forever. They were a Calabrian named Francesco Castiglia, a Sicilian named Salvatore Lucania and a Polish Jew named Maier Suchowljansky. They would become infamous as Frank Costello, Charlie "Lucky" Luciano and Meyer Lansky.

Born in 1891 in Cosenza in the south of Italy, Costello was the oldest. He arrived in New York at the age of four and settled in the Italian community in East Harlem, where, though considered one of the neighborhood's brightest boys, he took to the streets after finishing elementary school and became leader of the 104th Street Gang, a bunch of young Italian hoodlums. Afflicted early with throat trouble--the result of a slipshod operation to remove tonsils and adenoids when a child--he never spoke much above a rasping whisper and that soft voice seemed to lend added authority and importance to whatever he had to say. In these early years, he was considered one of the toughest young hoodlums in the area. By the time he was 21, he had been twice arrested and twice freed on charges of assault and robbery. In 1915, though, at the age of 24, he went to prison for the first time--and it would be 37 years before he saw the inside of a cell again. He was convicted of carrying a gun and sentenced to a year. Released from prison, Costello promptly took up his old life. And he renewed a friendship he had made a year or so earlier, with Luciano, and teamed up with him in a steady parade of burglaries, robberies and other crimes. With Prohibition, his world and his outlook altered. For many Italians at that time, it would have been unthinkable to form close friendships and lasting partnerships with Jews like Rothstein, Lansky, "Dandy Phil" Kastel and others, with Irishmen like Big Bill Dwyer, even with Sicilians like Luciano. But Costello was an unusual man, unconcerned with background; he had married a Jewish girl named Loretta and would remain married to her for more than half a century, until his death this year.

Six years younger than Costello, Luciano was born in the poverty-stricken sulphur-mining town of Lercara Friddi in the Palermo district of Sicily. He had been brought to New York in 1906, where his family settled on the Lower East Side, in a district teeming not only with Sicilians and Italians but with Jews as well. His formal education, like that of most of the mobsters, ended with elementary school, though while there, he developed a racket he would later use to earn millions: He sold, for a penny or two a day, his personal protection to the younger and smaller Jewish kids who were being waylaid and beaten on their way to and from school. In the streets, Luciano was soon leading a gang of young Sicilian toughs through their ghetto. It was not long before he graduated to bigger things (continued on page 156) Slicing Up The Big Apple (continued from page 130) and was pushing narcotics, just becoming an underworld money-maker with the enactment of the Harrison Act, which ended the legal narcotics trade and forced thousands of people who had become addicated to legal opium-based patent medicines to turn--as Prohibition would cause drinkers to turn--to an illegal market to support their habit. In 1916, Luciano's career as a pusher came to a sudden end; he was arrested and sent to prison for a year--it would be 20 years before he was in jail again. Back on the streets, he reassumed the leadership of his gang, teamed up with Costello and was soon joined, as well, by Lansky. As his reputation as a neighborhood tough with imagination grew, he came to the attention of older, powerful underworld leaders, particularly those of the Sicilian Mafia. What set Luciano apart from most of his Sicilian friends were driving ambition, considerable native intelligence and shrewdness and little prejudice or suspicion of outsiders. He recognized the value of brains as well as courage. At a young age, he became a close friend of Lansky's and would remain his friend and partner almost until the end of his life.

Lansky was the youngest. He was born in 1902 in Grodno, in the Polish Pale of Settlement, then under Russian rule, and brought to New York's Lower East Side, with his younger brother, Jake, in 1911. Although he was small as a child and as an adult would never stand more than a few inches above five feet, Lansky was, nevertheless, tough and belligerent, good with any weapon and seemingly always in the middle of a fight. While his education ended with the eighth grade, he was something of a mathematical prodigy; he combined this with mechanical aptitude, a penchant he shared with Luciano. Wherever he went, he was trailed by a taller, handsomer and four-years-younger Jewish kid named Benjamin Siegel, nicknamed "Bugsy." The two were a team and would remain so, the leaders of a gang of young Jewish hoodlums. But when it was time to graduate from petty larceny into more daring and violent crimes, Lansky, with Siegel at his elbow, looked for those with brains, cunning and ambition to match his own. He found them in the older Costello and Luciano.

It was Prohibition that gave them, as it gave so many others, the chance to move up from the small time. And it was Rothstein who showed them the way. In recruiting strong arms and guns to protect Rothstein liquor shipments, Legs Diamond had, on occasion, made use of the services of Costello, Luciano, Lansky and their friends, and in so doing, he opened the door to the master. They knew Rothstein by reputation, knew that he was a man from whom they could learn what could never be discovered in the streets. And Rothstein had enough ego to be flattered by their respect and by their willingness to listen, ask questions, follow his advice. They were his pupils and he taught them well. He lectured constantly on the need for organization; free-lancers in the rackets were only looking for trouble, were always weak and at the mercy of the stronger, whether from the world outside or from the underworld. In organization (though he himself had always shunned it; what applied to others did not necessarily apply to him, he was sure), there was the strength and the ability to go after what was too big for the single man.

But Rothstein's ideas about organization far exceeded those commonly understood and practiced in the underworld. As they stood, he said, the gangs were ridiculous; ethnic exclusivity and rivalry were both stupid and wasteful. Make use of the best, organize the best, make alliances with anyone who could help, and to hell with where they came from. Look around at the way big businesses were run and copy their methods. That, Rothstein insisted, went beyond just selection of personnel, hiring and training of specialists, departmentalization and diversification, prudent use of money and time. It went to the creation of an image. Prohibition was giving the gangster an opportunity that might never come again, a chance to walk at least part way through the door to respectability and a measure of social acceptance as a good businessman, dealing in an illegal commodity, certainly, but a businessman nevertheless. All this could be blown if the image was only a grosser and richer reflection of the old portrait of the gangster. Let Capone and his Chicago contemporaries dress garishly, flaunt their wealth and power openly, becoming the objects not merely of public fear but of public derision and amusement as well. The outward facade won more than half the battle, according to Rothestein, and he pointed to himself as an example. His pupils--and they followed his advice--should look only like the successful businessmen they were; they should dress in good clothes, but clothes from the same tailors and in the same conservative styles as the Wall Street bankers'; they should watch social leaders and ape their manners and their style; they should live quietly and conservatively, giving little indication of their wealth or power. They should avoid public display, notoriety or publicity as much as possible, remain in the background and let the light shine on somebody else, for when the light shone, so, too, did the heat. Look at Johnny Torrio; he had practiced these rules, had amassed great power and wealth, but few seemed even to know his name, while everybody knew Capone, and this would eventually be Capone's undoing.

Rothstein also lectured on the limited use of force. And he taught them one thing more: Survival was dependent on alliances with those in political power. Cultivate them assiduously. Rothstein had the key to the doors, he would open them and let them through.

Beyond those doors, the young gangsters discovered a changed world. As money from booze poured into their pockets, they no longer had to seek favors from Tammany Hall; now Tammany leaders came to them, and so did the police; they could buy and own Tammany, and much more.

Using these contacts, Costello managed to corrupt the political world of New York even more than it had been corrupted before. He had already begun to make a number of contacts with contemporaries who had become ward leaders, and now, through Rothstein's influence, he widened his scope, began to forge deals with Tammany, with city hall, with the police department that would, by the end of the decade, pour more than $100,000,000 a year in graft into official pockets up and down the line and would give the gangsters free rein to operate almost any racket in the city.

The moves to capture the allegiance of the politicians could not have come at a more opportune time for the racketeers. For Tammany was embroiled in a struggle for power. Boss Charley Murphy was coming to the end of his long rule; he would die in 1924. The heirs apparent were greedy, venal and eminently corruptible. They were James J. Hines, out of the traditional mold of Irish Tammany bosses. He had come up the long political ladder, and the closer he came to reaching his goal of power and wealth, the more desperate he became to achieve it, seeking support wherever he could find it. He bought the assistance of, and eventually sold himself to, almost every Irish mobster in the city.

Hines's chief rival was the first Italian to drive a wedge into the once solid Irish suzerainty over Tammany. He was Albert C. Marinelli. As Hines sought support, strong arms and votes from the Irish underworld, Marinelli turned to the Italian.

The struggle between Hines and Marinelli intensified and when Murphy died, the other powers in the Hall, rather than throwing in behind one or the other and so alienating the loser, turned to George W. Olvany as their new leader. But Olvany was a weak mediocrity who made little use of his power. So the struggle between Hines and Marinelli continued. Arnold Rothstein was friend to both, and to Olvany as well, and soon Costello became their friend and their benefactor, too. In the process, the Hall fell completely to the underworld. Before the end of the decade, both Hines and Marinelli (continued on page 232) Slicing up the Big Apple (continued from page 156) not only would be on the payroll of the underworld that supported them but would also be partners with underworld leaders in some of their ventures--Hines with, among others, one Arthur Flegenheimer, who adopted the name Dutch Schultz, and Marinelli with "Joe the Boss" Masseria, Luciano, Costello and others. As Tammany capitulated, so did the rest of the city's official complex, which took its cue from Tammany. Mayors, district attorneys, police commissioners and others would all be dependent on the underworld, afraid to move without first getting clearance from the organization. By 1932, a new mayor, John Patrick O'Brien, would tell the press when asked who his new police commissioner was going to be, "I haven't had any word on that yet." By that, he meant the word from Hines, Marinelli and the underworld.

Though there were parallels between New York and the Chicago of Torrio and Capone, there were also decided differences. Torrio had fallen victim to the violence that marked the Chicago scene, had been forced to flee for his life, leaving behind the brutality of Capone and a city strewn with the bodies of Dion O'Banion, Hymie Weiss, the victims of Saint Valentine's Day and hundreds more. The city had become a war zone, its street corners battlegrounds, its gutters often rivers of blood; Torrio's dicta of cooperation and peace were forgotten.

Such, though, was not the fate of New York. Perhaps the barons competing for power, most of whom had come under the Rothstein influence at one time or another, had listened and paid close attention to his words. Perhaps, too, New York was just too big for any one man or organization to control and there was a recognition of this simple truth. For whatever reasons, the city itself escaped the kind of ravages that filled Chicago. There were shoot-outs. Dutch Schultz was not above putting his enemies to a violent end, often in public and personally. In the early Thirties, he was embroiled in a running war with the young Irish killer Vincent "Mad Dog" Coll, in which the body count ran up to a score or more. Louis "Lepke" Buchalter's guns were often busy in the Garment District of Manhattan, where he was moving in on the rackets. Legs Diamond's count was high. Bootleggers had a nasty penchant for knocking one another over. Frankie Yale, the Brooklyn bootlegger--killer--Unione Siciliane president, was cut down in his car on 44th Street in Brooklyn in 1928 by a submachine gun (the first time that weapon, a stand-by in the Chicago gang wars, was used in New York), but his killers, it turned out, had been sent from Chicago by Capone to pay off Yale for some double crosses on liquor shipments.

But the body count in New York never matched Chicago's, even though the New York underworld was proportionately much larger. And though the city itself was the scene of many of the killings, there was a kind of circumspection about the murders. Most took place in lonely ambushes, in sparsely populated restaurants or speak-easies, on streets where there were few people about, at night, on back roads during a hijacking or after a one-way ride. The warfare, unlike Chicago's, tended to be private. The public was rarely involved, seldom caught in street-corner cross fire.

By the middle of the Twenties, the bootleg business in New York had been left to the strongest, and despite sometimes sudden and violent confrontations, they managed to cut the city up among themselves and maintain the power with in their own provinces to repel attempted invasions. Aside from the older mafiosi, who were just emerging into the world at large, the bootleg rulers were mostly young, still in their 20s when Prohibition arrived and, if they survived the violent decade, only into their middle 30s when it ended. Though they were often rivals and bitter ones, they were often, too, friends and allies on a temporary or even a semipermanent basis. Their comparable ages and great ambitions both drove them apart and. particularly in the later struggles with the older gangsters from another generation, brought them together. Binding them, too, were common interests in turning Prohibition into wealth, and the lessons of Arnold Rothstein. Later, all this would enable many of them to work closely together to forge a national Syndicate that would make the underworld an organized business.

The Bronx was the realm of Dutch Schultz, a name he was later to regret: "It was short enough to fit in the headlines," he complained. "If I'd kept the name Flegenheimer, nobody would have heard of me." He was only 18 when Prohibition became law, but he had already served a prison term for unlawful entry (his rap sheet would eventually list 13 arrests, for every crime from disorderly conduct to homicide). Tough and merciless, Schultz fought his way to the top in his borough, eventually bossing an empire that would include liquor and beer, speak-easies, numbers, protection and assorted other rackets and would earn him millions every year. But Schultz was a miser. He paid those who worked for him as little as possible and would rage when anyone had the temerity to ask for a raise; Otto "Abbadabba" Berman, a human computer who handled all Schultz's financial details and even worked out a method to rig the numbers so the payoff from the policy racket would be more astronomical than usual, had to threaten to take his valuable services elsewhere before Schultz agreed to pay him $10,000 a week.

Schultz never spent more than two dollars for a shirt or $35 for a suit, and rarely had them cleaned. "You take silk shirts, now," he once said. "I think only queers wear silk shirts. I never bought one in my life. Only a sucker will pay fifteen or twenty dollars for a silk shirt."

As Luciano, a meticulous dresser, later said, "Dutch was the cheapest guy I ever knew. The guy had a couple of million bucks and he dressed like a pig, and he worried about spending two cents for a newspaper. That was his big spending, buying the papers so's he could read about himself."

But for all his parsimony, Schultz was willing to spend money to solidify, expand and protect his empire. He took Jimmy Hines in as a partner, thereby not only gaining Tammany's protection but also buying a piece of it. And he bought himself a piece of the Bronx Democratic organization, too, becoming such a power that boss Edward J. Flynn (later to be a major dispenser of patronage for Roosevelt), when sheriff of the borough in 1925, made Schultz a deputy sheriff. And Schultz, like all who rose to power, was merciless with his enemies; they had a way of dying or disappearing. Thus, the Dutchman became the strong man of the Bronx and later, when he muscled in on policy, of part of Harlem as well.

Brooklyn was more populous and thus more profitable, so no man could hold complete suzerainty there. Until his death. Frankie Yale, with his base in the Unione, a tight organization and his early entrance into rumrunning, had a major slice. Another slice belonged to a bright Jewish boy who aspired to culture and a more genteel life and thought the way to get it was through the riches of illegal booze, and who spread out from the Jewish ghetto into more of Brooklyn. His name was Abner "Longy" Zwillman. As the competition in the borough in tensified. Zwillman, while maintaining a hold there, saw more riches and less trouble in the outlying districts and began to branch out into then--sparsely populated Queens and beyond into Long Island's Nassau County. He crossed the Hudson River to northern New Jersey, where he linked up with a rising young Italian mobster named Willie Moretti, who sometimes went by the more Anglo-Saxon name of Willie Moore. Together they controlled bootlegging in their province and moved into gambling with a string of back-room casinos that stretched clown the Hudson from Fort Lee, directly across the river from Manhattan and easily reachable then by ferry. Through Moretti and growing out of his own bootlegging, Zwillman met and became friends and partners with his contemporaries, Luciano, Lansky, Costello and the rest.

Brooklyn, in the mid-Twenties, was becoming more and more a territory the young Italian gangsters were looking on as their own. A handsome young Italian named Joseph Doto--who took a name to match his good looks and vanity, Joe Adonis, or to his friends, Joe A.--moved in from his original Manhattan base. The waterfront was gradually coming under the influence of a tough killer named Albert Analgesia, and a young and rising mafioso named Vincent Mangano was moving up in the wake of Frankie Yale.

But the real power and the real big money lay in Manhattan, which was split up a dozen ways among a dozen groups. In Harlem, just beginning to fill with blacks but still Italian ground, Cairo Terranova, a Mafia leader, gave the orders; in Little Italy in Lower Manhattan, other mafiosi, those who would be called the Mustache Petes--Joe Masseria, Salvatore Maranzano and others--controlled all the rackets, terrorized the people, warred on one another and were just beginning to edge into the their methods.

The rest of the island, the world of the middle and upper classes, was the realm of the young mobsters who could adapt to this society and could deal with it on its terms. Costello, Luciano, Lansky and Siegel (soon joined by Adonis) worked closely together in midtown. They supplied good whiskey to the best speak-easies and to the best people and they cut themselves in for pieces of many of the speaks they serviced. They worked together and they worked with others. Needing regular sources of supply, they struck up deals with Waxey Gordon, Max "Boo-Boo" Hoff and Harry Stromberg, alias "Nig" Rosen, who had become the bootleg powers in Philadelphia, a city vital to their success, for there Gordon and his friends ran a string of distilleries where domestic liquor was produced and imported whiskey was cut, reblended and rebottled. They came to arrangements with Enoch "Nucky" Johnson, the boss of Atlantic City, whose resort community was one of the prime landing zones for the imported stuff, and with Charles "King" Solomon of Boston, whose port was constantly busy unloading booze. In search of supplies to keep their growing list of thirsty customers happy, they bought from the Cleveland powers--Moe Dalitz, Morris Kleinman, Sam Tucker and Louis Rothkopf--who were running a regular ferry service across Lake Erie from Canada. Lansky, as treasurer of the group in addition to other activities, was often dispatched on quick trips around the country to seek out new alliances and new sources of supply. He also went to Nassau, Bermuda, the other British islands and Cuba to tie up whiskey supplies there and to strike the toughst bargains, something at which he proved singularly adept.

Adonis, in partnership with Luciano and the others, put together what was called the Broadway Mob. Its territory was the great center of Manhattan and its clients were the class speak-easies--such places as Jack and Charlie's "21" Club, Jack White's the Sliver Slipper, Sherman Billingsley's Stork Club and the rest. In some they had a personal investment, to all they supplied only the best whiskey, "right off the boat"--which meant from Gordon's distilleries, from distilleries they took over, from their other sources, but not the rotgut that was being turned out in the thousands of stills in East Harlem, Little Italy and elsewhere. Not satisfied with only Manhattan, though, Adonis also branched out into Brooklyn and, backed by the growing reputations and might of his associates, was soon entrenched there. And he followed another pursuit that was to entrance him all his life: He became one of the master jewel thieves of the era.

Costello, meanwhile, was ubiquitous. Quiet, dignified, radiating success and power, he became the go-between for the underworld and the Tammany politicians, succeeding Rothstein in that role. But pulling the strings of politics was only one Costello role. Backed by a $40,000 loan from Rothstein, Costello went into partnership with Big Bill Dwyer as a rumrunner. By the middle of the decade, both had become millionaires. The Government would charge Dwyer with evading more than $2,000,000 in taxes in just two years--taxes, that is, and not income. The partnership broke up in 1925, when both were indicted for bribery and rumrunning. Costello beat the rap and rose steadily upward; Dwyer, however, was convicted and sent to the Federal prison in Atlanta. When he emerged, he decided to go straight, becoming a renowned sportsman who brought professional hockey to New York, opened race tracks around the country, including Tropical Park near Miami, and eventually settled down in Miami to a life of rich respectability. But Dwyer's departure signaled more than the end of a single man; it also marked the end of an era; the influence of the Irish as leading underworld figures in New York went with him, and the Italians and the Jews now moved to the fore.

Dwyer, though, was only one of Costello's partners. Costello teamed up in brewery and bootlegging enterprises with Owney "The Killer" Madden, an English-born gunman who had served a term in Sing Sing for murder. Suave and smart, Madden was eventually sent down to Hot Springs, Arkansas, to oversee the Mob's growing interests in that wide-open resort town.

And Costello was into more. With a former Rothstein Wall Street operator and swindler named Dandy Phil Kastel, he branched out into gambling, gaining a near monopoly on the punchboards that infested every candy store in town, and the two soon secured a monopoly over the abundant slot machines. Later, Kastel would oversee the Costello interests in New Orleans.

Inseparable in these years. Lansky and Siegel not only worked closely with their friends and partners but also took off from the Legs Diamond trade. Bringing together the toughest Jewish hoods they could round up, they formed the Bugs and Meyer Mob. "With their cars and guns, they were the protection service for the group's booze shipments, and they were its hijacking arm. Selling their services to the highest noncompeting bidders on a free-lance basis, they would protect or hijack--it didn't matter which. The quality of their service was exceptional, but the price was high and soon, rather than paying Bugs and Meyer, many a bootlegger decided it would be a lot simpler and cheaper just to cut them in as Partners. But they soon discovered that they were getting more than Lansky and Siegel as Partners; they were getting Adonis, Costello and Luciano, too, Which often meant that the original owners became servants or were forced out altogether.

To those who watched closely, it became evident that Luciano was emerging as the leader among these equals and as one of the rising young powers in the underworld. Behind Adonis in the Broadway Mob, there was Luciano. He had his own bootlegging going, too. He was involved with Costello in almost everything Costello did, and with Lansky and Siegel. He was in partnership with Zwillman and Moretti in a number of their deals and had a partnership, too, with Gordon. Schultz was his friend and, at times, partner. In the Garment District, he was working with Lepke and Lepke's strong gun, Jacob "Gurrah" Shapiro, and with the rising young Thomas Lucchese, known as "Three Finger" Brown, in union and management protection rackets, loan-sharking and all the rest. There seemed to be hardly an area of crime in Manhattan in which Luciano was not involved in some way. As his power and stature increased, he was wooed intensively by the competing Mafia rulers, particularly by Masseria and Maranzano. Though he worked at times with one and then the other, cooperated with them when need be, he delayed until late in the decade making the decision to join one. Before he would become an underling, even second man, he wanted his own power to be substantial enough to allow him to set the terms of a merger. And during this period of his rise, his power base lay in his partnerships with Costello, Adonis, Lansky and Siegel, in his dealings with the other young princelings.

The longer Prohibition lasted, the deeper seemed to become the thirst of Americans. Prices kept going up, both in the domestic market and at foreign sources of supply. Competition for those supplies among rival bootleggers intensified. In order just to keep them, the customers happy, in orders just to keep them, the bootlegger had to be able to fill his orders promptly and at a competitive price. In a time of mounting demand, this was not always easy. Through 1926 and 1927, hijackings increased sharply, and so did the almost concomitant casualties. Lansky might go to Nassau and buy all he needed from the Bay Street Boys, but there was increasing danger that somewhere between Atlantic City and the Philadelphia distilleries, or somewhere between the distilleries and the point of delivery, the shipment might be hijacked. A deal could be struck with Dalitz and his Cleveland friends, with the Reinfelds. Bronfmans and Rosenstiels in Canada, but there was no guarantee that the vital whiskey would ever reach its destination. The Bugs and Meyer Mob was constantly on the road, protecting the shipments of the partners, hijacking those of competitors. But this was a dangerous and costly game, cutting into the profits and the personnel and potentially bringing the East to the edge of a Chicagolike war. In a number of Eastern cities, the realization that there had to be a better way seemed to strike almost simultaneously.

Rothstein had always preached the absolute necessity of cooperation. So, too, had Torrio, his contemporary and his intellectual equal. Now Torrio was back from Italy; he had discovered that the climate there was nearly as treacherous as in Chicago, for Mussolini had declared that he was going to round up any American hoodlums he found in Italy and lock them in cages for public display before giving them what they deserved. Torrio packed his bags and set sail for home. In New York, he immediately renewed his contacts with his old underworld friends and promptly began to each the Rothstein line that competition was bad for business and so was violence--just look at Capone in Chicago.

But what Rothstein and Torrio were talking about was not just cooperation among the gangs of a single city like New York. That would come eventually and was eminently desirable and should be worked for, but at the moment, it was only partially practical; the rivalries--ethnic, religious and generational--were just too deep to bring about more than a temporary truce. The cooperation they saw as attainable was sectional and, ultimately, national. Instead of everybody from every city competing with one another in search of booze, there should be some sort of merger. At the very least, a central buying office should be established that would take the orders from everyone, buy in huge quantities and, since there would be no competition, at reduced prices, then make sure everyone got his allocation. The buying office would make its purchases in Canada, England, the West Indies, from domestic distilleries, everywhere; it would make the shipping arrangements and handle trucking schedules. A member from every group that joined would serve on a kind of central committee to make sure that nobody got shortchanged. This kind of cooperation would benefit everybody; it would guarantee that every member got all the booze he needed at reasonable prices; it would sharply cut down on the number of hijackings, since they wouldn't be hijacking one another's shipments anymore and, in combination, their guns would be numerous enough to turn back any outsiders who tried.

At the end of 1927, that organization came into being. It was called the Seven Group--not a group of seven men but a group of powers. Its charter members included Luciano and Costello from Manhattan; Lansky and Siegel, the enforcers; Adonis from Manhattan and Brooklyn; Zwillman from Brooklyn, Long Island and northern New Jersey; Nucky Johnson from Atlantic City; Waxey Gordon and Nig Rosen from Philadelphia; and Torrio, as counselor, advisor, elder statesman and as a major underworld power in his own right. From this central core, alliances were formed with King Solomon in Boston, Danny Walsh in Providence, Moe Dalitz and his associates in Cleveland. Within the year, more than 22 gangs, from Maine to Florida and westward to the Mississippi River, were linked to the Seven Group and much of the bloody competition that had marked the first eight years of Prohibition came to an end (except in Chicago, which wrote its own special story for the decade) and the first tentative steps had been taken toward an interlocking criminal alliance of national scope.

But the underworld does not act in a vacuum unaffected by outside events. And there were some disturbing omens for anyone who thought that Prohibition had an unlimited future. Now that bootlegging was beginning to emerge from chaotic competition into monopolistic organization with increasing profits and peace for all, the realization began to seep in that Prohibition itself might be only a temporary national aberration, that liquor might well become legal again. The signs were there. Governor Al Smith of New York had for years made no secret of his disdain for the drys, his absolute conviction that Prohibition not only wasn't working but was actually deleterious to the nation. Now, in 1928, the Democrats nominated Smith to run for President against the Republican Herbert Hoover, and Smith carried his demand for an end to the Noble Experiment across the nation. In November, Hoove, trounced Smith badly, but the reasons for the defeat were many--not just Smith's wetness. He was a Catholic in a Protestant country; he was a city boy--a Lower East Side New York City boy, at that, with the cigar, derby and accent--in a still essentially rural country; and he was a Democrat running against a Republican, and the Republicans had brought the nation eight years of unparalleled prosperity and good times.

But the indications were clear that Smith's demand for repeal of the 18th Amendment had not been rejected as fully as he himself. Indeed, if anything happened to the economy--and in the months before his murder, Rothstein was telling friends that he saw some very disturbing signs on Wall Street and around the country; farmers weren't doing well, he said, were going broke, and trouble on the farms was eventually going to reach the cities; and, further, Wall Street was beginning to look to him like one big bucket shop, and he knew from experience that bucket shops could go on for only so long before collapsing--nobody was going to be able to stand in the way of the people's getting a legal drink. "Boys," Torrio told his friends in New York soon after the election, "we'd better start planning. I give Prohibition another four, maybe five years."

But planning for a new and unknown future was a vast and complex undertaking, far beyond the scope of a single organization. In the underworld in those months, there was increasing talk of the desirability of a national conference of underworld leaders, especially of those who had emerged with Prohibition and so were young enough to expect to lead crime into this unexplored territory. The proposals went around the nation and by early spring of 1929, there was unanimous agreement that such a conference ought to be held, and soon. Dalitz and his friends in Cleveland--which had been the scene of smaller meetings--offered to be the hosts. But the Cleveland cops, though on the pad, had developed the annoying tendency of picking up suspicious out-of-town mobsters they happened to spot and throwing them in the can for a few hours. Any major influx of out-of-towners would certainly mean a great deal of undesirable publicity and harassment. Dalitz' offer was politely declined. Then Nucky Johnson offered the sanctuary of his bastion in Atlantic City. What could be safer? Johnson ruled the town like a personal fiefdom. And, besides, if the conference were held at the beginning of the holiday season, when thousands were flocking to the seaside resort, who would notice a few extra visitors, even very rich ones?

On May 13, 1929, in their huge limousines, with chauffeurs and armed bodyguards to protect them, the delegates began arriving, taking over the President Hotel on the Boardwalk. Capone came from Chicago and brought along his financial advisor and, some thought, the real brains in his outfit, Jake "Greasy Thumb" Guzik. King Solomon drove down personally from Boston and Nig Rosen and Boo-Boo Hoff came up from Philadelphia. From Cleveland there were Moe Dalitz, Lou Rothkopf and Chuck Polizzi (his real name was Leo Berkowitz; an orphan, he had been raised by the Polizzi family and had adopted its name; with his adopted cousin, "Big Al" Polizzi, he would become one of the leading Cleveland mobsters, the man who could deal with and be accepted by both the Jewish and the Italian organizations). The Detroit Purple Gang sent a large delegation headed by its boss, Abe Bernstein. Boss Tom Pendergast of Kansas City couldn't take time off to attend personally, but he sent a surrogate, John Lazia. Zwillman was there as the northern New Jersey power. And from New York came the largest and most prestigious delegation of all. It included Torrio; Luciano; Costello; Lepke; Adonis; Schultz; one of Costello's partners in the gambling and bookmaking business, Frank Erickson; Lansky, using the occasion to celebrate his honeymoon with his new bride, Anna Citron; Vince Mangano; Frank Scalise, a Brooklyn mafioso; and Albert Anastasia.

There were, however, some very prominent absentees, including Masseria, whose Mafia organization Luciano and Costello had finally thrown in with, on their terms, about a year earlier, with Luciano emerging as the number-two man to Masseria; and Salvatore Maranzano, who was still in bitter competition with Joe the Boss for Mafia rule. In fact, the list of delegates included not a single one of the older Mafia rulers around the nation, those the younger generation scorned as Mustache Petes. Perhaps, if invited, they would not have come, for they disdained outsiders, were suspicious to the extreme of anything they didn't know or understand, and this meeting was swarming with Jews and other non-Sicilians. But their very absence permitted Luciano, Costello, Adonis, Lansky and the others to form friendships and forge alliances that would, in a few years, propel them to the top of the new organization of the underworld and would spell doom for those who stayed away, uninvited.

The Atlantic City conference lasted three days, intermingling gaiety--Nucky Johnson was a lavish host, providing carloads of steaks, good whiskey, high-priced entertainers and a never-ending parade of willing girls--and serious business discussions. Rest periods found the gangsters strolling along the beach with their trousers rolled up around their knees, their shoes and socks in their hands, their feet washed by the lapping surf of the Atlantic Ocean.

For the first time in the history of American crime, the major leaders of the underworld were not only gathered in peaceful enclave but were looking to, and planning for, the future. The success of the Seven Group was held up as a model, and there was general agreement that as long as Prohibition lasted, this was the way to go; from that time on, there would be cooperation all across the nation in buying and dealing booze, an end to cutthroat competition. When Prohibition ended, as all were now convinced it would, there was the possibility of going legit. Money would be set aside for that day. Breweries, distilleries and liquorimport franchises would be bought and the control of liquor would remain right where it had been during the dry years. "After all," Luciano said, "who knew more about the liquor business than us?"

But going completely legitimate was something, of course, that nobody at Atlantic City ever contemplated. Even with liquor out of the way, there were myriad other illegitimate enterprises into which they could move, and there were enterprises they were already in that could be expanded sufficiently to take up some of the slack. Some were strictly local, such as protection and union busting, even policy and other forms of minor gambling. While they were certain to grow, each outfit would handle its own without interference. But there were some that could easily mushroom on a national scale, require the cooperation and alliance of every organization and might end up even bigger than booze. Gambling was the major one, in casinos of all kinds and on horses and any other kind of sporting event. If Americans liked to do anything better than drink (putting sex aside, though sex, through the control of strings of cathouses, was still a good business for many), it was to gamble. And except on horses and then only at the tracks, gambling in most places in the United States was just as illegal as liquor. The mobs would begin to work out ways to give the public every opportunity to gamble, and would do so in cooperation where that was feasible, as, for example, in the dissemination of racing odds and results across the race wires, and deals would be worked out with Moses Annenberg, who controlled the wire syndicate.

The New York group, led by Torrio, Luciano and their friends, and backed by Dalitz and his friends from Cleveland and others, opened up a discussion of the unfortunate increase in underworld violence, particularly in Chicago. While violence and force were part of the business and were sometimes necessary, the way Capone was going at it, witness the Saint Valentine's Day Massacre, was just too much. This was hurting everybody, forcing the cops and the politicians to put the heat on. Something had to be done to get the heat off. Capone agreed and set up a deal. The most prominent of the nation's gangsters and the most voluble advocate of violence would stand an arrest and a short jail term on a minor charge as a sop to the public outcries.

Then, on May 16, the delegates packed and went home.

Before the next major steps could be taken and the national Syndicate could really come into being, those who stood in its way would have to be eliminated. Those of another generation and another background so wedded to their traditions that they could not see into the future, could not see the necessity of cooperation and peace and businesslike methods, the necessity of working as equal partners with those of different backgrounds, would Lave to follow the Irish into the garbage bin. They would not fade gracefully, so they would have to go violently.

Luciano, Costello and their allies went back to New York, to a war that was beginning.

This is the third in a series of articles on organized crime in the United States.