The Ohio Gang: Teapot Dome, Veterans Bureau, and McGrain v. Daugherty

The Ohio Gang was a circle of political cronies, fixers, and friends surrounding President Warren G. Harding who used their proximity to the White House in the early 1920s to loot federal agencies, sell government favors, and take bribes on a scale that produced some of the worst scandals in American history. Their schemes sent the first Cabinet member ever to prison for a felony committed in office, generated a landmark Supreme Court ruling on the power of congressional investigations, and left Harding ranked at or near the bottom of American presidents.¹

Who the Ohio Gang Were

Harding won the presidency in 1920 and filled key posts with longtime political allies from Ohio. He was, by most accounts, a genial man who could not say no to the people he liked. Historian Robert K. Murray later described the group as having “no concrete form, no cohesion, and no plan,” functioning instead as a collection of “rank opportunists” chasing quick money rather than any sustained conspiracy.²

The core appointments that would prove disastrous were Harry Daugherty as Attorney General, Albert Fall as Secretary of the Interior, and Charles Forbes as head of the newly created Veterans Bureau. Around them orbited a looser network of operatives, including Jess Smith, Gaston Means, and Howard Mannington, who peddled influence, sold illegal liquor permits, and arranged corrupt deals out of a rented house at 1625 K Street NW in Washington, known as the Little Green House on K Street.³ Appointments, pardons, and liquor permits were traded there amid poker games and bootleg whiskey.

The Teapot Dome Scandal

The most infamous of the gang’s schemes involved the secret leasing of federal naval oil reserves to private companies. The government had set aside three petroleum reserves for national emergencies: Elk Hills and Buena Vista in California and Teapot Dome in Wyoming.⁴ In 1921, Albert Fall persuaded Harding to sign an executive order transferring control of the reserves from the Navy to the Department of the Interior. Fall then quietly handed out no-bid drilling leases to two oilmen. Edward Doheny of Pan-American Petroleum received Elk Hills along with a contract to build storage facilities at Pearl Harbor. Harry Sinclair of Sinclair Oil received Teapot Dome.

In return, Doheny gave Fall a $100,000 cash payment, delivered in a black bag by Doheny’s son Ned and framed as a “loan” to buy a ranch in New Mexico.⁴ Sinclair’s payments ran through a fraudulent shell company called the Continental Trading Company, incorporated in Canada in late 1921, which skimmed profits from oil transactions. Sinclair funneled $198,000 in Liberty Bonds to Fall through Fall’s son-in-law, plus another $35,000 in bonds and $36,000 in cash. Continental Trading generated $3,080,000 in profits from a 25-cent-per-barrel markup on oil it brokered, converted into Liberty Bonds and split among Sinclair and his associates.⁵

The Senate Investigation

The scheme began to unravel in April 1922, when the Wall Street Journal reported on suspicious oil contracts. Wyoming Democratic Senator John Kendrick introduced a resolution calling for an inquiry on April 15, 1922, and the Senate Committee on Public Lands took up the investigation.⁶ The committee’s most junior minority member, Montana Senator Thomas J. Walsh, a former prosecutor, led the probe. Walsh reviewed a truckload of documents and gradually pieced together how Fall had grown so rich so quickly, uncovering the Liberty Bond payments and cash bribes.⁷

Trials and Prison

The Justice Department filed civil suits to cancel the leases. Federal courts in California and Wyoming ruled them fraudulent, and the Supreme Court upheld those decisions, describing Fall as a “faithless public officer.”⁸ Seven criminal trials followed. Fall was convicted of accepting a bribe from Doheny and sentenced to one year in prison, becoming the first Cabinet member in American history convicted of a felony committed in office.⁹ He served nine months.

The outcomes for the bribe-payers baffled observers. A separate jury acquitted Doheny of paying the same bribe for which Fall was convicted of accepting. Conspiracy charges against Fall, Sinclair, and Doheny also produced acquittals. Sinclair was convicted of contempt of Congress and contempt of court for jury tampering, and served roughly six months.¹⁰

The Veterans Bureau Theft

Charles Forbes, appointed by Harding to run the newly established Veterans Bureau, orchestrated what a 1924 Senate investigation concluded was the theft of more than $200 million, roughly $2.8 billion in today’s dollars.¹⁰ Forbes accepted kickbacks from contractors building veterans’ hospitals and arranged the illegal sale of surplus government medical supplies to private buyers at fire-sale prices.¹¹

Forbes resigned in February 1923 after Harding learned the scope of the corruption. Shortly after, Charles Cramer, the bureau’s legal counsel, killed himself.¹² In 1925, Forbes was convicted of fraud, conspiracy, and bribery and sentenced to two years in prison.¹⁰

Corruption at the Justice Department

Attorney General Harry Daugherty was Harding’s political manager, the operative who engineered his nomination, and the Ohio Gang’s most powerful protector inside government. Under Daugherty, associates sold illegal liquor permits, pardons, and government favors. His Bureau of Investigation, run by his friend William J. Burns, served political interests rather than any law-enforcement mission.¹³

When Congress investigated, Daugherty refused to turn over Justice Department files. He narrowly survived an impeachment attempt in 1922.¹⁴ After Harding’s death, President Calvin Coolidge demanded his resignation in March 1924.¹⁵ In 1927, Daugherty was tried twice on charges of graft and fraud related to his conduct in office. Both trials ended in hung juries, and he was never convicted. He invoked the Fifth Amendment and refused to take the stand at his own trials.¹⁶

The Alien Property Custodian Case

One corruption thread inside the Justice Department involved Thomas W. Miller, the Alien Property Custodian, who oversaw property seized from German nationals during World War I. In the American Metals Company case, prosecutors alleged that Miller and Daugherty conspired to return $7 million in seized stock to a Swiss front company acting for the original German owners, in exchange for $391,000 in Liberty Bonds.¹⁷ Miller was convicted of conspiracy to defraud the government and sentenced to eighteen months in the Atlanta federal penitentiary along with a $5,000 fine. The jury failed to reach a verdict on Daugherty in the same trial.¹⁸

Burned Records and Jess Smith’s Death

Investigators suspected that graft proceeds had passed through the Midland National Bank in Washington Court House, Ohio, run by Daugherty’s brother Mal. When Senators Burton Wheeler and Smith Brookhart tried to inspect the records, Mal refused access and was cited for contempt of the Senate, a citation the Supreme Court upheld.¹⁹ Mal later testified that he had burned the relevant ledgers. Harry Daugherty separately admitted burning records at the bank, claiming they would reveal “financial irregularities by Harding and his clandestine love life” and that he had acted to protect the dead president’s reputation. Senate investigators found unexplained deposits of $75,000 for Harry Daugherty, $63,000 for Jess Smith, and $50,000 for Mal Daugherty in the family bank.¹⁶

Jess Smith, Daugherty’s childhood friend and personal secretary, worked from an anteroom at the Justice Department though he was never on the government payroll. He was the gang’s chief fixer, managing the network of dealings run out of the Little Green House. Despite Daugherty’s official salary of $12,000 a year, Smith and Daugherty maintained a lifestyle costing more than $50,000 annually.¹⁶

Smith’s death on May 30, 1923, remains one of the era’s enduring mysteries. He was found in Daugherty’s suite at the Wardman Park Hotel in Washington with a bullet wound to the head and a .32-caliber revolver in his hand.²⁰ Bureau of Investigation director Burns took control of the scene, excluded local police, and reportedly misplaced the weapon. The president’s personal physician declared the death a suicide, and no autopsy was performed. A patrolman noted that Smith’s head was found inside a metal wastebasket atop burned papers, an implausible position for a self-inflicted gunshot. Others reported that Smith had long been described as deathly afraid of firearms. The death came ten weeks after Cramer’s suicide at the Veterans Bureau.²¹

Gaston Means and the Bureau of Investigation

The gang’s corruption reached deep into the Bureau of Investigation, the predecessor of the FBI. Gaston Means, a professional con man who had worked as a detective for Burns, was hired as a special investigator in 1921 when Burns became director. Means functioned as a bagman for Daugherty, laundering money from criminals seeking pardons, parole, or protection. He sold forged whiskey-withdrawal permits, extorted bootleggers for protection payments, and used his access to government criminal records to sell information to suspects and destroy paperwork for cash.¹³

Means was suspended from the bureau in 1922 and left with stacks of sensitive documents he continued using for blackmail. In 1924, he became a star witness before the Senate investigation into Daugherty, providing damaging testimony about bribery, wiretapping, and break-ins that contributed to Daugherty’s dismissal by Coolidge.²² J. Edgar Hoover, who took over the bureau in 1924, promptly fired him.²³ Means was convicted of forging whiskey-withdrawal permits and of conspiracy to obstruct justice. He died in prison in 1938 while serving a 15-year sentence for a separate swindle in which he defrauded a Washington socialite by falsely claiming to be in contact with the Lindbergh baby’s kidnappers.¹³

McGrain v. Daugherty: The Lasting Legal Legacy

When Mal Daugherty refused a Senate subpoena to testify about Justice Department corruption, the Senate issued a warrant for his arrest. Mal challenged it in court, arguing that the Senate lacked power to compel testimony from a private citizen. The case reached the Supreme Court as McGrain v. Daugherty, decided January 17, 1927.²⁴

Writing for a unanimous Court, Justice Van Devanter held that each house of Congress possesses the constitutional power to compel testimony needed to carry out its legislative functions. “A legislative body cannot legislate wisely or effectively in the absence of information respecting the conditions which the legislation is intended to affect or change,” the Court wrote, adding that “some means of compulsion are essential to obtain what is needed.”²⁵ Legal scholars have described the ruling as the “historical high-water mark” of congressional investigative authority. It established that congressional investigations are presumed to serve a legitimate legislative purpose, that a formal statement of that purpose is not required, and that the Senate is a “continuing body” whose investigations do not expire with a particular Congress.²⁴ It remains a foundational precedent every time Congress subpoenas an executive-branch official or private witness.

Harding’s Place in the Story

Warren Harding died on August 2, 1923, before the full scope of his administration’s corruption became public. Rumors had reached him by that spring, and he was reportedly “visibly distraught” upon learning that his friends were enriching themselves. The major investigations, indictments, and convictions all came afterward, under Coolidge.²¹ Harding himself was never personally implicated in the bribery schemes, but the betrayals by the people he appointed defined his presidency in the historical record.¹⁰

Scholar Eugene Trani has argued that the corrupt friends were not the sole cause of Harding’s low standing; his “own lack of vision” and “poor sense of priorities” also contributed.¹ Teapot Dome, the Veterans Bureau theft, the suicides, the destroyed records, and the parade of indictments remain inseparable from his name.

1
Miller Center. Harding: Impact and Legacy
2
Richland Source. The Ohio Gang Sullied President Warren Harding’s Administration
3
American Heritage. Four Mysteries of Warren Harding
4
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5
GovInfo. Continental Trading Co. Senate Report
6
United States Senate. Senate Investigates the Teapot Dome Scandal
7
United States Senate. Featured Biography: Thomas J. Walsh
8
Federal Judicial Center. Teapot Dome Student Handout
9
United States Senate. One Hundred Years Since Teapot Dome
10
History.com. Warren Harding Scandals
11
Encyclopaedia Britannica. Charles R. Forbes
12
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13
Encyclopaedia Britannica. Gaston Means
14
Encyclopaedia Britannica. Harry Micajah Daugherty
15
Miller Center. Harry Daugherty: Attorney General
16
American Heritage. Tempest Over Teapot
17
TIME. Corruption Blossoms in Court
18
The New York Times. Miller Appeals Sentence
19
TIME. Daugherty Bank
20
CrimeReads. The Mysterious Death of a D.C. Power Broker
21
Encyclopaedia Britannica. Ohio Gang
22
CrimeReads. Gaston Means and American History
23
FBI. Gaston Means
24
Justia. McGrain v. Daugherty, 273 U.S. 135
25
Congress.gov. Congressional Investigative Power – Section: McGrain v. Daugherty