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Tempest Over Teapot
When the wheeling and dealing of some of President Harding’s closest friends was revealed, the mud spattered Cabinet members, the heads of oil companies, the chairman of the Republican party, and eventually the President himself
August 1965 | Volume 16, Issue 5
There was a crusading journalist in New Mexico, Carl Magee, owner of the Albuquerque Journal , who had been having trouble with Secretary Fall for some time. Magee had exposed various ways in which the power of the Department of the Interior was being used for the benefit of private interests in New Mexico, which enjoyed such privileges as the improper use of public land. Secretary Fall responded by trying to ruin Magee, and he almost succeeded. Banks, under Fall’s influence, called Magee’s loans without warning; he was harassed with successive suits for criminal libel; people who feared Fall’s power were afraid to entertain Magee and his wife socially, or to be entertained by them. In one of the criminal-libel cases, Magee was sentenced to a year in jail, though he was pardoned by the Governor of New Mexico, a Democrat.
Magee now came to Washington and told his story. In 1920, he reported, Fall had been practically bankrupt and thinking of resigning from the Senate for that reason. He had paid no taxes on his property for the past eight years. Yet now, only a few months later, he was buying additional land worth $124,000, paying his debts (often with $100 bills), building new fences, pouring expensive concrete gutters.
Senator Walsh was interested in where the money had come from. Fall, pleading illness, did not appear on the witness stand, but sent a sworn statement that gave a ready explanation: He had with some difficulty persuaded Ned McLean to lend him $100,000. Senator Walsh decided to check this statement.
McLean was in a dilemma. He didn’t want to lie, but he didn’t want to tell the truth either. He was in Palm Beach, trying desperately to avoid returning to Washington and sending back coded messages to his aides. Finally, he sent Walsh a report saying that he had indeed lent $100,000 to his dear friend, Secretary Fall.
Walsh came near to accepting his word, but then the touch of the bloodhound in him made him decide to go to Palm Beach and see McLean. Face to face, the young playboy wilted and told the truth. At Fall’s request he had in fact written checks totalling $100,000, but it was understood that these were never to be cashed and they had actually been returned to him uncancelled. Fall could not have paid for his new land with them; where did the money come from?
It came from me, said Doheny, hurrying across the country to save Fall’s neck. He had loaned his old friend $100,000 in cash. He had sent the money by his son, Edward L. Doheny, Jr., who had carried a small black satchel full of greenbacks from New York to Washington. Was this not a large amount to be handled so cavalierly? “Not to me,” said Croesus, with a grand wave. “A bagatelle to me … no more than twenty-five or fifty dollars to the ordinary individual.” And had he demanded no security? Certainly not; but after long thought he remembered that Fall had given an unsecured note for the amount. Where was the note? Days later it was produced, but with the signature torn off. Why no signature? Doheny explained that he feared he might die suddenly and that his hardhearted executors might press Fall for the money at an embarrassing moment.
Doheny might have been able to bribe Fall out of cash on hand, but, as the investigating committee soon discovered, Harry Sinclair’s approach to this problem was different. He had decided to raise the needed money, and a great deal more, through a shady transaction at the expense of the stockholders in two oil companies, one of which was his own. On November 17, 1921, a group of wealthy oilmen met in a hotel room in New York City. Besides Sinclair they included Colonel A. E. Humphreys, who owned a rich oil field of his own in East Texas; Colonel Robert W. Stewart, chairman of the board of the Standard Oil Company of Indiana; James E. O’Neil of the Prairie Oil and Gas Company; and Henry M. Blackmer of the Midwest Refining Company.
All except Humphreys were cronies and were in on a simple scheme. A dummy corporation, the Continental Trading Company, Ltd., had been set up in Canada for the sole purpose of buying 33,333,3331/3 barrels of oil from Colonel Humphreys at the going rate of $1.50 a barrel, and instantly reselling it at an unwarranted profit of twenty-five cents a barrel to the companies of Sinclair and O’Neil. It was Colonel Humphreys who had decided upon the unusual number of barrels; the reason, he later sheepishly explained, was that this made the transaction come to a round fifty million dollars, the largest in his career.
With a profit of twenty-five cents a barrel, Continental stood to make over eight million dollars, which was more than ample for the illicit purposes for which the company had been formed. It actually did collect somewhat more than three million dollars. Then the Senate investigators began to get too hot on the trail: the company was liquidated, and all its records were destroyed. This money was turned into Liberty Bonds —an incredible blunder, since the bonds and their coupons were numbered, and the latter could be traced after they had been cashed. The law said that the Treasury Department must destroy these coupons after holding them a specified length of time; some of those that figured in the oil scandals were actually rescued by investigators only forty-eight hours before this would have been done.