Broker, Trader, Lawyer, Spy Page 7

  These protests didn’t register with the politicians on Capitol Hill. In 1893 Congress passed the federal Anti-Pinkerton Act, which began the company’s long decline in the popular imagination. The Pinkertons were reduced from heroic detectives to oppressors of the workingman. The Anti-Pinkerton Act is still a federal statute, stating:

  An individual employed by the Pinkerton Detective Agency, or similar organization, may not be employed by the Government of the United States or the government of the District of Columbia.

  That language has new resonance now: it has been cited by opponents of controversial U.S. government military contractors working in Iraq, such as Blackwater (now known as Xe), Custer Battles, and Triple Canopy.

  Despite the disaster at Homestead, the Pinkerton Agency had a long life. It prospered financially under the leadership of Allan Pinkerton’s sons.* The agency found lucrative work around the turn of the century, infiltrating labor unions for corporate clients; and James McParland, who’d succeeded so spectacularly against the Mollies as a young man, now served as the head of Pinkerton’s Denver office, deploying newer agents in undercover operations against labor. McParland ran the entire western division of the Pinkerton agency, but his critics claim that he conducted a cynical operation, positioning his spies in leadership positions in the regional mining unions, where he could both obtain intelligence on the labor activists, and, some said, even order provocative union actions that in turn generated ever more lucrative business from the mining concerns.

  In an era of easier transatlantic travel, made possible by the introduction of the steamship, the Pinkerton brothers also became global operators, hunting down suspects for clients in London, in Paris, and across Europe. Robert’s son Allan Pinkerton II served in World War I and then took over the company from his father in 1923. Allan II’s son, Robert Pinkerton, took over in turn in 1930, renounced antiunion work entirely after yet another series of bruising hearings on Capitol Hill in the 1930s, and took the company public in 1965. He died on October 11, 1965, and was replaced by the first non–family member since the company’s founding more than 100 years earlier.

  Throughout most of the twentieth century, the Pinkerton Agency receded from its dominant position in the national consciousness. Several competitors, including the Thiel Detective Service Agency, formed by a former Pinkerton detective, George H. Thiel, began to obtain market share. The Pinkertons never forgave Thiel for launching a competing firm. Another up-and-coming competitor was the William Burns International Detective Agency. All the firms dabbled in strikebreaking to some degree, but that work began to wane after the 1930s.

  In 1999, the company Allan Pinkerton founded was sold to Stockholm, Sweden-based Securitas AB, a 250,000-employee security services company based in Stockholm, Sweden, with offices around the world. Pinkerton’s operates today as a subsidiary of this Swedish conglomerate; it is now called Pinkerton Consulting & Investigations.

  It’s a long way from Bogus Island.

  CHAPTER THREE

  For the Money

  At the dawn of the twentieth century, the Department of Justice had no investigators of its own. Humiliatingly, it had to borrow agents from the Secret Service every time it needed to conduct an investigation. There was no national police force, and early efforts to create a federal bureau of investigation were mired in controversy. The government’s impotence created the market filled by the Pinkertons. Congress, for the most part, was happy with this state of affairs: in the early 1900s, the nation’s politicians were suspicious of the “secret services,” or what they called “black cabinets,” that governments around the world used to conduct espionage on their own citizens.

  The conduct of the actual Secret Service didn’t help matters. In one famous case, the federal agents conducted surveillance on a Navy midshipman who’d run away with a married woman. That set off howls of protest on Capitol Hill, where lawmakers resented the idea of federal investigators’ being used as a kind of morality police.

  The debate began to change in 1906. Attorney General Charles Bonaparte decided he needed a police force of his own, as the situation was becoming intolerable. In 1906, he had to borrow sixty agents from the Secret Service. The next year, he’d borrow sixty-five. This borrowing was getting expensive, and Bonaparte resented the fact that he didn’t have control over the investigators working for him. In a missive to Congress, he alerted the legislators to “the anomaly that the Department of Justice has no…permanent detective force under its immediate control.”

  President Theodore Roosevelt, eager to expand his executive authority, leaped into the debate. He dismissed the worries of the civil libertarians in Congress, writing, “There is no more foolish outcry than this against ‘spies’ only criminals need fear our detectives.” Roosevelt, always blunt, said that Congress was reluctant to create a detective force because the congressmen feared they would become targets of investigation. That accusation didn’t sit well with members of Congress.

  Attorney General Bonaparte had to proceed carefully in July 1908, when he reorganized his staff and appointed Chief Examiner Stanley W. Finch to head a small group of special agents. That was against the will of many in Congress, but Bonaparte’s special force managed to survive heated debate on Capitol Hill. The force would grow to become the Federal Bureau of Investigation.1

  With the rise of the FBI as a national police force, the need for private corporate detective services gradually dwindled, and the Pinkertons were forced to consolidate, maintaining a core business around their still profitable activities: keeping watch against corruption at horse-racing tracks, chasing jewel thieves, and providing uniformed guards for corporate plants.

  Although this era was the heyday of the fictional private eye, such as Sam Spade, the years of the two world wars and the early cold war saw increasingly centralized national investigative and intelligence capability under control of the federal government, not the private sector. From the founding of the FBI to the creation of the Central Intelligence Group in 1946 (it became the Central Intelligence Agency in 1947), the government was consolidating ever more intelligence and investigative power in its own hands.

  In those days, private eyes were better known for working on their own, cultivating a disdain for law enforcement, and sometimes using illicit tactics to solve cases. And those cases were often small-time stuff: missing people, insurance fraud, and divorces—lots of divorces.

  But even as companies ceded their defense against criminals to government authorities, many found they still needed offense: intelligence-gathering operations against their competitors. Corporate espionage never went away. It just went farther underground.

  WITH NEW TECHNOLOGY, the spying became ever more sophisticated. The investigator Sam Dash* chronicled the rise of corporate espionage involving bugging and wiretapping during the early twentieth century in his classic book The Eavesdroppers. He found corporate spying in small towns and in the nation’s capital. In Toledo, Ohio, in 1932, for example, investigators came across an extensive wiretap setup in a hotel room next to the headquarters of an agricultural group, the Farmers’ Producers Association. This group had been discussing boosting the price of milk, and the evidence showed that the room had been bugged for days. As a result, somebody had advance warning of the price increase, although it’s not clear who ordered the spying. (Today’s commodities traders still use esoteric intelligence techniques to get advance information on market pricing—in a later chapter, we’ll see that they’re now using satellites to gather intelligence.)

  In Washington, D.C., Dash wrote, a “raiding squad” from the Federal Communications Commission (FCC), acting on a tip in 1935 or 1936, found wiretapping equipment in a building near the brand-new Supreme Court building. The wiretappers had been using the equipment to listen in on the phone lines of Supreme Court justices. The spies were never found—not surprisingly, they didn’t turn up to collect their equipment from the government agents—but one member of the FCC team concluded that t
he wiretapping was paid for by a “major private business concern” that had an interest in a case before the Supreme Court.

  Across the street, members of Congress were also targets of spying. A Senate investigation revealed that a police lieutenant in Washington, D.C., Joseph Shimon, had tapped the telephone of Senator Josiah Bailey of North Carolina, a Democrat who was chairman of the powerful Commerce Committee. The question for investigators: Why did Shimon do it?

  They found that the police lieutenant wasn’t working for the metropolitan police department when he’d tapped the lines; he was working on his own. Shimon had carved out a unique niche within the department. Although he was a police officer who reported each morning for roll call, he was assigned much of the time to a special investigative unit of the U.S. district attorney for the District of Columbia. He had no full-time boss, and no one in the police department knew where he was each day. By 1946, Shimon had been a lieutenant for less than five years, but he was often free to spend his time as he pleased.

  And what pleased Shimon was making money on the side. As the Senate investigation concluded, Shimon was doing freelance spying for paying clients.

  Shimon’s saga gets complicated, but the layers of corporate and political intrigue are crucial to understand. They underscore just how valuable a particular piece of intelligence can be in a corporate setting. The information from one wiretap, placed on the right phone at the right time, can be worth billions of dollars. As a result there were—and probably always will be—people willing to pay for the tapping, and people willing to conduct it.

  In 1945, Senator Bailey’s Commerce Committee held hearings on the All-American Flag Lines Bill, which would have rolled all the major American air carriers into one national airline. Executives at Pan American Airways were desperate for information on the hearings. Pan American was pushing for the bill, which would be likely to put it in control of the most lucrative market in the world, the United States. It was going head to head with the powerful billionaire Howard Hughes and his Trans World Airlines (TWA), which opposed the bill. Pan Am wanted to know how much influence TWA had to block the proposal in the congressional committee. It had more questions than answers. What is Bailey going to do? Who is he talking to? Does our All-American proposal stand a chance?

  Lieutenant Shimon went to work—on his own, without police supervision—for a private detective who in turn had been hired by Sam Pryor, a vice president of Pan American. In effect, Shimon provided the espionage component of Pan American’s Washington lobbying strategy. But that’s not what he told his fellow officers. Since wiretapping was a labor-intensive business—someone has to sit there all day to monitor the recorders—Shimon recruited several other cops to work on the case with him, explaining the wiretapping as a hush-hush investigation for a legitimate congressional inquiry.

  Shimon’s team tapped the phones of Senator Bailey’s apartment complex in Georgetown, pulling into the garage of the building and setting up camp in the basement for long hours of eavesdropping. It was boring work, but the men found one way to spice it up. One participant brought a “young lady” to the basement to “keep Shimon company” while he waited.

  Shimon’s little group also tapped phones at the luxurious Occidental Hotel, where the freelancing cops listened in on the conversations of a TWA lawyer who had traveled to Washington for the hearings. The attorney used his hotel phone to coordinate strategy, and those listening to the recordings of his calls had advance notice of TWA’s every move. Pan Am now knew what its rival TWA was thinking and what the chairman of the committee was planning. This was a tremendous tactical advantage. But still it wasn’t enough. The All-American Bill never passed.*

  Two years later, Shimon was at it again. This time, Senator Owen Brewster of Maine, a Republican, used his Senate War Investigating Committee to hurl incendiary charges at Howard Hughes. Brewster alleged that Hughes’s company had collected $40 million from the government to develop a prototype aircraft that had never been delivered. He said this was fraud, and he hauled Hughes before the committee to defend himself. The testimony set off a media frenzy, as Hughes confronted Brewster and his Senate colleagues—on national television. Hughes made his own counter-allegations, charging that Brewster had secretly promised to call off the investigation if Hughes would agree to merge TWA with Pan American.*

  As the fireworks exploded on television, Shimon’s small group quietly recorded phone conversations of TWA lawyers staying at the Carlton and Mayflower hotels in Washington. Once again, Pan Am executives would have the inside track on their opponents’ strategy. And once again, it wasn’t enough.

  By the time the hearings ended, Hughes was seen nationwide as an honest businessman who’d taken on the corrupt Washington elite. Brewster’s reputation was damaged, and Hughes drove home his victory a few years later, financing an aggressive Republican Party challenge that ousted Brewster from the Senate. Brewster died in 1961. Hughes lived until 1976 and became more involved in private espionage of his own, eventually becoming so suspicious of his enemies, real and imagined, that after 1950 he dropped from sight to live as a terrified recluse.

  As for Lieutenant Shimon, in 1950 he was dragged in front of a hostile Senate investigating committee, where he denied running the wiretapping operation. His fellow cops, however, gave detailed accounts of the operation in a public hearing. A federal grand jury investigated Shimon in 1950, but did not indict him. It seems his career continued, unscathed by the controversy: by 1960, he had been promoted twice, and he eventually became an inspector in the Washington, D.C., police force.*

  DESPITE THE HIGH drama of the Shimon case, the wiretapping itself was standard stuff. Shimon or his associates walked up to basement phone boxes and installed their taps right on the premises. All they needed to know was which cable to tap, and they got that information by calling the phone company and posing as repairmen out in the field. Helpful but clueless receptionists at headquarters always gave them the wiring details they needed.

  But the ambitions of the wiretappers were growing ever more sophisticated. On February 11, 1955, a group of investigators, including two city detectives and two inspectors for the telephone company, knocked on the door of a midtown Manhattan apartment building and stumbled upon a wiretapping operation capable of bugging any one of 100,000 telephones in the neighborhood. The discovery set off a chain of events that would embarrass some of the most important companies—and some of the wealthiest people—in America.

  The apartment building was conveniently situated just around the corner from the telephone office, and conspirators had strung a cable between the two.† With the help of a twenty-nine-year-old phone company employee, Walter Asman (who wore his hair in a stylish pompadour), the eavesdroppers had managed to assign apartment 4W at 360 East Fifty-Fifth Street ten fictitious phone numbers. Using those lines, they were able to tap ten telephones at the same time. When police got into the apartment, they discovered that it was equipped with automatic tape recorders for continuous recording. Two men and two women were found operating the machines, tapping phones in as many as ten different New York City exchanges, then known by their mid-century names, including the prestigious exchanges Murray Hill 8 and Eldorado 5.

  In his book, Dash explained that the covered area included “large law firms; gigantic businesses and financial houses; major publishing companies; aristocratic hotels patronized by the wealthy and the famous; fashionable apartment houses; and other subscribers who daily on the telephone made decisions, plans, and compacts, the knowledge of which was priceless to competing or adversary interests.”2

  The taping had been going on for years.

  Initially, the investigators didn’t do much about their discovery, simply ordering the tappers to knock it off. Police forces in those days were themselves heavily engaged in quasi-legal wiretapping, and wouldn’t have wanted any undue publicity about the practice. And no one at the phone company wanted the public to find out just how easy it was to listen in on t
elephone calls. One of the investigators told the wiretappers that the team would come back the next day, and he wanted all the equipment out of the apartment by then.3 It looked as though the tappers might get away with it.

  But the raid didn’t remain secret long. An anonymous tipster alerted a private citizens’ crime fighting group, the New York City Anti-Crime Committee, which in turn alerted the New York state legislature; and the media excitedly pushed government officials to launch an investigation into the goings-on in apartment 4W.

  It turned out that the tenant in the apartment was thirty-year-old Warren Shannon. An employee of the telephone company, Carl Ruh (also thirty years old), was involved in the plot as well. But those two were junior players. They reported to a tough-looking, heavyset fifty-two-year-old attorney and private eye, John Broady, who hired the wiretappers and encouraged the scheme.* Broady was already infamous, having been indicted twice during the 1940s on wiretapping charges, and this new case would mark the fedora-wearing lawyer as one of the most legendary wiretappers of the twentieth century.

  Investigators found that five active wiretaps were secured to the lines of executives of the pharmaceutical company E. R. Squibb and Sons—today, Bristol-Myers Squibb—and it was apparent what the tappers had been up to: “The circumstances make it clear that business intelligence may have been the reason behind them,” William Keating, counsel for the New York City Anti-Crime Committee, told a reporter for the New York Times several days later.†4

  Court testimony revealed that Broady’s biggest client was Charles Pfizer and Company, the corporate parent of today’s pharmaceutical giant Pfizer. Its executives worried that their corporate secrets were leaking to competitors. They hired Broady to tap the phones of several of their own employees, paying him $60,000 (a hefty sum at the time) for the project.