Long before con man Bernie Madoff there was the Franklin Syndicate, which only goes to prove once again the old saws about a fool and his money and/or if it sounds too good to be true…
The Franklin Syndicate was a Ponzi Scheme that collapsed in Brooklyn in November 1899, sucking the life savings from thousands of people across the country. The front man of the Syndicate went to prison for 6 years and walked away with nothing except a debilitating case of consumption, while two of his partners managed to skate away with a bunch of money. One of them served a few of years for fraud in return for enough money to live a life of leisure, but the other managed to escape punishment altogether and lived happily ever after over in Europe.
A Ponzi scheme is a pretty simple con. Named for Charles Ponzi, an Italian immigrant to the United States who managed a con that put even the Franklin Syndicate to shame, the game is simply to promise a high rate of return on an investment and use the proceeds of the initial investment to pay the interest or dividend. Ponzi didn’t invent the scheme, but it bears his name anyway.
Essentially it works like this: I promise you a return of 10 percent per week on your $100 investment (520 percent per year). The first week I give you $10 of your $100 back and tell you it’s the interest you earned. You then either take the $10 and leave the initial investment alone or reinvest the $10. If you reinvest, you think you have $110 earning 520 percent, but actually there is only at most the original $100 left. Chances are there is less than that because I’m a con man and I’m using your money for my own nefarious purposes. You think this is such a good deal that you bring in your friends and soon lots of people are investing with me. Because the return is so good, most people let the investment ride and reinvest their supposed earnings — like most of us do with bank accounts or 401(k)s.
Meanwhile, I’m living the high life on your money. As long as no one wants their initial investment back, everything’s cool. Eventually, though, people do want their money back, or there just isn’t enough left to continue to pay the returns and the whole house of cards collapses.
The Franklin Syndicate
The Franklin Syndicate began quietly in Brooklyn in March 1899 when the president of a prominent Brooklyn church’s Christian Endeavor Society, William F. Miller, 25, convinced three of his Sunday school friends to give him some money to invest in the stock market. Miller, who had previously unsuccessfully speculated in a small way on Wall Street, promised them a 10 percent per week return on their investments because he was a party to “inside information.”
Oscar Bergstrom, 20, became the first investor in Miller’s Bucket Shop when he gave Miller $10 on March 16, 1899 and received a receipt that read, in part: “The principal guarantied (sic) against loss. Dividends weekly from $1 upwards till principal is withdrawn.” On April 8, Bergstrom invested another $10 and received an identical receipt.
Miller quickly expanded the scheme by drawing in the other two men and inducing them to bring in others by promising a 5 percent commission on a deposit from any person they brought in to the syndicate.
As the con became more successful, Miller branched out from Brooklyn and began advertising in newspapers around the country. As an indication of how successful the Franklin Syndicate had become, in the summer of 1899 Miller spent $32,000 on advertising in 800 newspapers.
He also sent out official-looking circulars and letters. In this day and age Miller’s claims would have brought down a federal indictment before the ink dried on the paper, but back then the laissez-faire attitude of the government meant that it was caveat emptor for the investor.
“My intention is to make the Franklin Syndicate one of the largest and strongest syndicates operating in Wall Street, which will enable us to manipulate stocks, putting them up or down as we desire,” he wrote. “We also guarantee you against loss, there being absolutely no risk of losing, as we depend entirely on inside information.”
Miller also managed to take advantage of the burgeoning public relations business, hiring a man named Cecil Leslie to place positive articles in the papers. One article, submitted as evidence at Miller’s fraud trial, carried the headline: “Wall Street Astonished. William F. Miller’s Franklin Syndicate a Big Winner. 10 Per Cent. a Week Profit. All Former Efforts in Financial Operations Eclipsed by a New Wizard in the Realms of Stock Manipulation.”
In fact Miller only speculated on stocks once with funds received from his investors. He took $1,000 and managed to turn it into $5.60 in short order. From that point on he never bothered to invest again.
Throughout the summer the Syndicate flourished. Miller and his 22 employees were literally knee-deep in money in his store in Brooklyn. And we mean literally: Cash was stuffed in boxes and drawers around the building, there not being enough room in the small safe Miller purchased.
“Crowds of depositors appeared at the house,” wrote one account. “Some to deposit money, and others to receive their dividends. They extended in long lines from the office to the street, awaiting their turns, each in sight of the other; those depositing receiving encouragement to deposit by seeing the dividend drawers taking their profits.”
At the height of Miller’s con, there were an estimated 12,000 subscribers. His records showed that in October and November 1899 he was receiving anywhere between $20,000 and $63,000 per day. A dollar in 1900 had approximately the same buying power as $22 today, so it is obvious that Miller had more money than Croesus.
The Franklin Syndicate was not just Miller’s brainchild. Early on in the enterprise he enlisted the help of Edward Schlessinger, who rather smartly realized that nothing good lasts forever and demanded his cut — one-third of the take — in cash each day. That was good for Schlessinger and ultimately bad for Miller because it required that the men actually keep a record of what they took in. Schlessinger hid his money away somewhere while Miller, for some strange reason, seemed to think that the scheme could last forever. He never bothered to squirrel away anything.
Another problem for Miller was the fact that everyone who deposited money with the Syndicate got a receipt — essentially a signed confession bearing Miller’s name. The third partner in the Syndicate, brought in in October 1899, managed to come up with a scheme to get the dupes to return the receipts so the Syndicate could destroy them.
Col. Robert Ammon was a New York attorney with a shady past who always seemed to be representing the semi-crooked robber baron types who frequented Wall Street at the time. When the more legitimate newspapers of the city began looking closer at the actions of the Franklin Syndicate, Ammon connected with Miller and offered to run interference.
He realized that all of those receipts floating around were ammunition for the law, and he advised Miller to get them back by incorporating the Franklin Syndicate.
Miller sent out a letter to all depositors, alerting them to a forthcoming incorporation. In return for each dollar invested, the depositor would be issued a share of the corporation.
“As all depositors are entitled to stock certificates in the corporation, it will be necessary to compare the receipt you now hold with my books, and just as soon as I receive your receipts I will immediately send you your stock certificates,” he wrote.
Miller didn’t stop there. He promised his investors that their shares would quickly multiply in value. Not only would they continue to receive their 520 percent annual return, they would also enjoy capital gains from the increase in the price of Franklin Syndicate stock.
“It is my belief that Franklin Syndicate shares will be selling at $400 to $500 a share before March 1st next,” he wrote.
Miller was even more audacious later in his letter:
“After December 2nd…I shall open no new accounts for less than $50,” he wrote. “All accounts which I now have of less than $50 will have to deposit sufficient to make their account $50, or they will not be taken into the new corporation.”
Little did Miller know, but Ammon was planning his own con with Miller as the dupe.
While the newspapers continued to accept Miller’s advertisements, their reporters wrote scathing pieces about the obvious con Miller was running. Meanwhile, government officials tried in vain to find someone willing to make a complaint against the syndicate.
“Post Office Inspector William S. McGuinness has had Miller’s syndicate under observation for several weeks,” wrote the New York Times. “He could find nothing in Brooklyn on which to proceed against the concern, so he wrote 250 letters to Miller’s customers in various parts of the United States asking them if they had any complaint to make. All his replies expressed satisfaction with Miller.”
Local police had the same problem.
“I have yet to hear any of that man’s customers speak against him,” said Capt. James Reynolds of the Brooklyn police department. “I tell you that even yet I do not know what to make of Miller. The people in the neighborhood all had faith in him and many of the merchants there honor his checks even now.”
The investors blamed the media.
“Mr. Miller has never failed us,” one woman told the Times. “I put in $100 six weeks ago and have taken $60 out. It’s these newspapers and bankers that are causing the trouble. Nobody believes the papers. It’s envy. They’d like to make money themselves.”
But by November 24, 1899, the game was up, Miller and Schlessinger were wanted men and Ammon put his secret plan into motion. The men huddled at Ammon’s office to formulate an escape plan. Ammon advised Miller to flee to Montreal, Canada, to avoid arrest. Schlessinger said he was headed for Europe. He gathered his cash in a large satchel and was never seen again. The best estimate is that Schlessinger got away with $145,000.
It takes a thief to catch a thief and the slimy lawyer was about to show Miller that even con artists get conned. Ammon convinced Miller that it would be safest to hide the money he managed to grab in Ammon’s own accounts. As attorney for Miller, Ammon was protected by privilege, so even if Miller was punished for the con, the creditors would never see their money again. It is an untruth cut from whole cloth. Miller thought that was a good idea and with Ammon carrying a suitcase with $35,000 in cash, they deposited the swag in the Wells, Fargo & Co. bank.
In addition, Miller transferred a certificate of deposit for $100,000 and a check for $10,000, which represented his whole take from the scam. But Ammon was not finished. As long as the sucker had a dime, the lawyer wanted it. Shortly after, the gullible Miller turned over $40,000 in government bonds and Miller’s father gave Ammon $65,000 in New York Central Railroad bonds.
The next day Miller received word that he had been indicted in Kings County for fraud and warrants were already signed. After ducking through a drug store and a Chinese laundry to lose a trailing detective, Miller showed up at Ammon’s office where the lawyer made arrangements to get him over the border.
Miller left his wife and young daughter in Brooklyn and hid out in Montreal for a couple of weeks until he was traced by New York police and brought back to Kings County for trial.
His trial was a cut-and-dried event and he was given a 10-year prison term.
Ammon had Miller by the short hairs and let him know it. In return for Miller’s silence about Ammon’s involvement in the scam, Miller’s wife and daughter would receive a $5 week payment while he languished in jail.
“The character of the gentleman is well illustrated by the fact,” wrote Arthur Train, the assistant DA who prosecuted the case, “that later when paying Mrs. Miller her miserable pittance of five dollars per week, he explained to her that ‘he was giving her that out of his own money, and that her husband owed him.'”
For three years the Kings County District Attorney struggled to build a case against Ammon, but without Miller’s cooperation, there was nothing to connect the lawyer to the con.
Eventually Miller, seriously ill with consumption, agreed to testify against Ammon. The support for his family stopped immediately when Ammon was charged and brought to trial.
In 1903 Robert Ammon was convicted of theft of $30,500 and sentenced to four years in prison. Presumably he served his time and went on to enjoy the rest of his ill-gotten gains in comfort.
Miller’s fate is less certain. He was released after serving about 6 years of his sentence, and most reports say that he was terminally ill with tuberculosis. Another report, however, claims that he went on to run a grocery. The former is more likely, as he was quite sick at Ammon’s trial, and early in the 20th century TB victims did not recover to become grocers.
Tag Archive for corruption
Long before con man Bernie Madoff there was the Franklin Syndicate, which only goes to prove once again the old saws about a fool and his money and/or if it sounds too good to be true…
It is if the judges, drunk on the law, threw sober justice to the curb.
The Chronicles of Crime; or the New Newgate Calendar 1891
The Honorable Thomas R. Maloney, 13-year veteran of the Cook County (Ill.) Circuit Court, wasn’t a judge who became corrupt, he was a racketeer who managed to become a judge.
A longtime associate of the Chicago Outfit (the Second City’s Cosa Nostra franchise), Maloney managed to buy an acquittal for mob gunman Harry Aleman in 1977 and reportedly had been paying judges in Cook County for favorable rulings throughout the 1960s.
“It would seem…that by the time Maloney ascended to the bench in 1977, he was well groomed in the art of judicial corruption, an art that he would practice at least until 1986, when he correctly perceived that he was under the watchful eye of the FBI,” wrote federal appellate Judge Ilana Diamond Rovner in the wake of Maloney’s conviction.
In the course of his judicial career, Maloney oversaw some 6,000 cases and was eventually indicted and convicted of accepting bribes from criminal defendants appearing before him. He is serving a 16-year federal term for racketeering conspiracy, racketeering, extortion under color of official right, and obstruction of justice.
The arrest and conviction of Maloney surprised many in the Cook County Courthouse, who viewed him as a prosecutor’s judge who was “tough on crime.”
“He was tough, tough as hell,” former Criminal Court Judge Richard Fitzgerald said of Maloney after his indictment. “And he was tough on crime. He was looked upon as being a thoroughly honest judge.”
For his part, Maloney claims he was set up and denies ever taking any bribe.
“Bribes? Definitely not,” Maloney testified recently in a court hearing that resulted from the still ongoing fallout of his corruption. He claimed his accusers were “shyster lawyers,” said prosecutors and police framed him and attacked his own former defense lawyers as “incompetent.”
“Every case I ever heard was decided on the facts and the law,” he said.
The truth, of course, showed differently.
A far-reaching investigation into judicial corruption in Cook County revealed that Maloney took bribes in at least four cases, including three murder cases. As a result of his conviction, the question of whether “a judge’s corruption is likely to permeate his judicial conduct rather than be encapsulated in the particular cases in which he takes bribes” has caused countless defendants, victims, attorneys and others to wonder to what extent Maloney’s corruption colored his actions in cases where no bribe was made or suggested. The cost in terms of dollars and time for Maloney’s actions is almost incalculable.
In 1980, the government alleged as part of its conspiracy charge, Maloney tossed a confession in a double murder case that shredded the State’s case after an attorney paid around $2,500. William Swano represented Wilfredo Rosario before Maloney and was troubled by the fact that his client had confessed to the crimes. When Swano was discussing this case with Lucius Robinson, a court bailiff and Maloney’s go-between at the time, Robinson indicated he could arrange a fix with Maloney.
One of the problems with a bribary conspiracy is that it’s not unheard of for the bagman to be playing both sides in a scam called “rainmaking.” In such a scam, the bagman tells the mark the official is on the take, when in fact no bribe is paid to the official. If the mark makes the payment and the decision goes his way, he assumes the bribe was taken; if it doesn’t go his way, to whom can he complain?
Fearing such a scam, Swano wanted some indication from Maloney that the judge was actually involved. Robinson set up the meeting and Maloney told Swano that Robinson is “my guy, deal with him.” Shortly afterward, the government alleged, in Maloney’s presence, Swano handed Robinson an envelope with a portion of the bribe. In 1981, Maloney suppressed the confession and found Rosario not guilty.
The first bribe for which Maloney was indicted occurred in May 1981. Attorney Robert Cooley was asked to represent Lenny Chow, a hit man for the On Leong Tong, and two others who were charged with attempted murder for shooting William Chin in Chicago’s Chinatown. Another member of the tong, William Moy, told Cooley he wanted a guaranteed not guilty verdict. First Ward politician Pat Marcy, acting as Maloney’s bagman, assured Cooley that Maloney could be bought, warning him that the judge “wants a lot of money on this one.” Moy agreed to pay $100,000 and Marcy gave some of that money the judge. After Chin died and the charges were elevated to murder, Maloney allowed the prior bond to stand as long as a friend of his joined the case as co-counsel. At trial, Maloney admitted a dying declaration fingering Chow as the shooter, but found it unreliable, resulting in an acquittal. Tapes of a conversation between Cooley and Marcy made after Cooley became an informant confirmed the existence of the fix.
In 1982, Swano represented small-time hustler Ronald Roby in a series of theft by deception cases before Maloney. Roby, already convicted of deceptive practices in 1980, was afraid a conviction this time would mean jail. Through Robinson, Swano negotiated a $5,000 “fee” to guarantee probation, rather than prison. Maloney received $2,300 for that deal, while Robinson received about $300 for his role.
Maloney was corrupt, but he wasn’t stupid. When the facts in a case made outright acquittal impossible, he didn’t risk raising eyebrows in the courthouse by redefining “beyond a shadow of a doubt” to include “mere possible doubt.”
In late 1982, Owen Jones was charged with felony murder after beating a man to death with a pipe during a burglary. Swano was hired, but by this time Robinson had become “too hot” to serve as a bagman for Maloney, who turned to his former law partner Robert McGee. McGee told Swano that the best the would do on the Jones case would be to acquit on felony murder, convict on voluntary manslaughter and impose a nine year sentence. Agreeing that this was preferable to a likely twenty year sentence for felony murder, Jones’ mother agreed to pay Swano $5,000 for the fix. After trial, Jones was found guilty of voluntary manslaughter and sentenced to nine years.
By this time, Maloney knew he had Swano under his thumb. Unfortunately, Swano didn’t know this (actually, it was more unfortunate for James Davis).
In 1985, Swano represented Davis, who was facing armed robbery charges. After investigating the prosecution’s case, Swano concluded that it would be unnecessary to bribe Maloney to obtain an acquittal in this case: three witnesses to the robbery knew the two perpetrators and said that Davis was not one of them; Davis had an alibi; and the victim of the crime, who had initially identified Davis as one of the perpetrators, had confessed uncertainty about the identification. Swano later testified that he was confident that “the case was a not guilty in any courtroom in the building.” To Swano’s surprise, however, Maloney convicted Davis after a bench trial. Swano took this as a lesson that “to practice in front of Judge Maloney . . . we had to pay.”
The racketeering conspiracy unraveled shortly afterward.
In June 1985, El Rukns gang members Earl Hawkins and Nathan Fields were charged with murdering two men. Swano represented Hawkins and assured him that he could win a decision in his favor in a bench trial if Hawkins could pay. According to Swano, McGee told Swano that the fix was conditional upon Swano putting on a “a good case.” Swano had some difficulty collecting the $20,000 bribe money (a 50-50 split between Maloney and Swano) from the El Rukns. On the morning of trial Swano left court, went to the El Rukn headquarters to get the money, called McGee to confirm the fix and gave him a file folder with the money at the Mayor’s Row restaurant. The case proceeded to a bench trial.
Over the next two days, the state presented three eyewitnesses identified Hawkins as the murderer. By this time, the FBI had become suspicious of Maloney and of the Hawkins/Fields case, and its agents were watching the trial closely. This attention, along with the strength of the state’s case, prompted Maloney to have second thoughts and he attempted to “give the books back that he had given him the other day.” Swano, hoping to salvage the fix, told McGee to “hold onto the books ” at least until the defense could put on its case.
By the end of trial a week later, Maloney believed that Swano had not lived up to his end of the bargain by putting on a good defense case. McGee called Swano to inform him the fix was off. The next morning Maloney told Swano that a lawyer had left a file for him in his chambers and directed a deputy sheriff to retrieve it. When Swano went to the Judge’s chambers, Maloney handed Swano the file of money he had passed to McGee. Hawkins and Fields were found guilty by the Judge and subsequently sentenced to death.
By 1988, a grand jury looking into widespread corruption by Cook County judges had heard from Robinson testifying with immunity, and Maloney knew he was under suspicion.
At one point, Maloney asked Swano “whether or not he was standing tall,” which Swano understood to mean was he resisting the questions of federal investigators. Maloney also asked Swano if he “needed a lawyer or any sort of help.” Later, in a back stairway of the courthouse, Maloney again asked Swano if he was “standing tall,” because he had “heard that there is a lot of investigation going on.”
It didn’t matter, because in 1991, Maloney was indicted by the federal grand jury. The case went to trial in 1993 and he was convicted. His own appeals went nowhere, although the appeals of some of the thousands of defendants who had faced him over the years continue to grind on through the justice system.