February/march 1993 | Volume 44, Issue 1
One man invented the modern narcotics industry
Very late on the night of November 4,1928, Arnold Rothstein was found shot and critically wounded in the Park Central Hotel in Manhattan. Identified by The New York Times as “Broadway’s greatest chance-taker” and the accused but acquitted fixer of the 1919 World Series, the forty-six-year-old gambler was rushed to the hospital, where he held tight to the code of the underworld, refusing to shed light on his shooting. He lingered silently for forty-eight hours to die on election day, posthumously winning more than five hundred thousand dollars for having bet on Herbert Hoover.
But those early newspaper articles that described Rothstein merely as a clever gambler had assigned him too modest a role. In fact, he was an all-around criminal genius, one whose prodigious energy, imagination, and intellect had catapulted him to supremacy in an underworld that he changed forever. Rothstein, said one historian, permanently transformed American crime “from petty larceny into big business.”
The Brain, as Damon Runyon dubbed Rothstein, always thought big. The son of pious Orthodox Jews, Rothstein rejected their ways, and at a time when other gangsters were still working the traditional rackets, he masterminded a million-dollar stolen-bond business, pioneered and financed the first rum smuggling from Europe during Prohibition, and brought blackmail to new heights through labor racketeering. But it was his final criminal enterprise that stands as his most enduring legacy: organizing and bankrolling big-time international narcotics trafficking.
His involvement in drugs was unknown until his murder. New Yorkers were astonished to learn that this familiar Broadway denizen, famed for his Thoroughbred horses, women, chauffeured Rolls-Royce, and huge cash bankrolls (he had sixty-five hundred dollars on him when he was shot), was the brains and capital behind what federal prosecutors described as “a gang of international criminals who in recent years had smuggled millions of dollars in drugs into this country.” But this was indeed the case. Rothstein had seen an enormous opportunity and had moved ruthlessly to exploit it.
In the early years of the century, America realized it had a serious and fast-spreading drug problem, especially in the urban slums. By 1914 Congress had passed the Harrison Narcotic Act to restrict the previously easy access to morphine, cocaine, and heroin, and the government worked so doggedly and effectively that by the mid-1920s ready availability of the opiate and cocaine products of American pharmaceutical firms was finished at both the retail and wholesale levels. This left smuggling from Europe or Asia, theretofore minor, to supply virtually the whole illicit market. And this was the opportunity that Rothstein spotted.
Rothstein not only saw that an established and lucrative market of drug users and addicts had lost its ultimate source of supply; he moved in swiftly to create a whole new system to replace it. Rothstein possessed—as did no other gangster of his era—the capital to finance such an enterprise, the political clout to operate with impunity, and the connection to big-city criminal gangs for streetlevel distribution.
He dispatched a number of employees with experience purchasing liquor in Europe to locate major sources of supply. They found that buying narcotics on the Continent was ludicrously easy. Legitimate pharmaceutical firms—in France, Germany, and Holland—were happy to sell big orders of heroin, morphine, or cocaine, no questions asked. Rothstein used only his own people to arrange giant orders and oversee shipment back as innocuous sea freight. Once in the United States, the drugs were distributed by Rothstein’s people to the wide network of big-city Prohibition gangsters.
But Rothstein’s many years of colluding with Tammany Hall had made him arrogant and careless. When, for instance, two traffickers named Charles Webber and William Vachuda were arrested at a New York toy company on July 13, 1926, moments after the delivery of 225 pounds of heroin (identified as “bowling balls and pins”) from the newly docked liner Arabic —the biggest drug bust of the year—Rothstein promptly posted twenty-five thousand dollars in bail for each man.
Such blatant and frequent bailing out of arrested drug traffickers eventually aroused much federal interest, especially as it coincided with a quantum leap in the amounts of smuggled drugs seized by federal customs agents. In the fiscal year ending June 30, 1926, U.S. Customs had confiscated 449 pounds of opium, 42 pounds of morphine, 3.5 pounds of heroin, and 10 pounds of cocaine. By mid-1928 those figures had soared to 2,354 pounds of opium, 91 of morphine, 27 of heroin, and 30 of cocaine.
A few months before Rothstein’s murder, the U.S. Attorney’s Office in New York sent federal agents to talk with him. The Brain blandly “admitted lending money to those suspected…of trafficking in drugs” but denied knowing what they were spending it for. The government was preparing an indictment when Rothstein was shot.
But his loss was well compensated for by the incredible windfall of his meticulous files, especially those of the Rothmere Mortgage Corporation, the front for his narcotics business. One month after Rothstein’s death federal agents in New York, Buffalo, and Chicago seized four suspects and three steamer trunks filled with drugs said to be worth more than three million dollars. “This is the single biggest raid on a narcotic ring in the history of this country,” declared U.S. Attorney Charles H. Tuttle, inaugurating the hyperbolic style of assessing drug raids that has continued to this day.
In March Tuttle’s office said that “a casual study of some of the [Rothstein] account books indicated that receipts of from six to seven thousand dollars were received daily by the syndicate leaders in their headquarters in this city.”
Another rare glimpse of the Rothstein modus operandi came three years after his murder, when the New York trafficker “Ike” Berman—disgusted by an undercover agent’s reluctance to make a ten-kilo purchase of heroin—burst out, “Do you know who I used to do business with? Arnold Rothstein, Jack Diamond and Oscar and Sam Weiner…we used to bring back a million dollars’ worth of junk from Merck’s factory in Berlin.”
Meanwhile, to no one’s surprise, the Rothstein case dragged on unsolved. The police were patently unwilling to touch it, and a small-time gambler and hoodlum finally railroaded for the murder was acquitted. Chroniclers of the underworld ultimately concluded that Edward T. (“Legs”) Diamond, a member of the Rothstein syndicate, was responsible for the slaying, the aftermath of a double-cross over a drug deal.
Other gangsters moved in to take over the trade, and the basic monopolistic system Rothstein had established survived for decades, run by generations of powerful New York mobsters. It is no coincidence that Charles (“Lucky”) Luciano, a Rothstein employee in the twenties, would dominate the postwar heroin trade until his death in 1962. Rothstein’s system remained intact until the Colombian cartels brought cocaine and chaos to the markets in the 1970s.