Nelson Johnson - Boardwalk Empire - The Birth, High Times, and Corruption of Atlantic City

As revenge, Hearst’s newspapers ran several exposés of corruption in Atlantic City, which portrayed Nucky as a ruthless dictator. Johnson retaliated by banning Hearst’s newspapers from the resort, making an enemy for life. According to intimates of Johnson, Hearst used his influence with the Roosevelt administration to prod the federal government into investigating Nucky’s empire. “Hearst was tight with FDR, and when the Feds came to town everyone knew he was the one behind it.”

In November 1936, agents of the IRS and FBI led by Special Agent William Frank, who was a lawyer, began undercover operations in Atlantic City. Working out of a furnished apartment, the agents began by locating the gambling casinos, horse race betting rooms, numbers headquarters, and brothels. By making bets in the horse rooms and purchasing numbers slips they determined the odds paid. By observing these activities firsthand and speaking with local residents, the agents learned the names of the key figures in Atlantic City’s vice industry.

William Frank and his men found that the resort’s underworld was part of the community and made no effort to conceal its business. “These rackets were absolutely wide open.” The horse rooms were located on the two busiest streets, Atlantic and Pacific avenues, and their doors were open to whomever walked in off the street. The houses of prostitution were known by everyone and there was no pretense of hiding their activities. The numbers game or lottery, based upon results from several horse races, was played everywhere, similar to the prevalence of today’s state-sponsored lottery. “It was difficult to find a store in which numbers weren’t written.” Finally, the agents confirmed that not only did the police department know about these things, it was involved in regulating and protecting them from outside interference. The results of Agent Frank’s preliminary investigation provided Treasury Secretary Robert Morgenthau with justification to launch a full-scale probe of Johnson and his city. The investigation proved to be anything but routine.

Nucky had experience with tax audits from having been audited by the IRS in the past. He developed a practice of managing his money that left behind few footprints. He kept no books or records, maintained no bank or brokerage accounts, and held no assets in his own name—he did everything in cash. Nucky made it impossible for the agents to make a direct investigation of his tax liability. For each of the years preceding the investigation, Nucky had filed timely tax returns and listed his gross income at approximately $36,000. The County Treasurer’s salary accounted for $6,000 and the remainder was described as “other commissions,” for which neither Nucky, his secretary, nor his accountant would explain the source when questioned under oath. Nucky had created a situation where the government had to prove unreported income in excess of $30,000 per year. By making the entry “commissions,” which was permitted by the tax laws of the time, Nucky was able, should the agents prove a single graft payment, to argue that it was included in the amount reported under commissions.

Nucky instructed his lieutenants to handle their taxes the same way. Each year the people of Johnson’s inner circle filed timely income tax returns. The politicians stated their positions of lawful employment, while the racketeers referred to themselves as commission agents. They computed the amount needed to cover their verifiable expenditures and savings and used that amount as their gross income in their tax returns. Any unlawful income was included under the undefined heading of “other commissions.” This practice forced the government to construct tax liabilities from outside sources.

Another problem for the investigation was the surveillance of the agents themselves. During the first several months of the investigation, while their numbers were small, the agents went undetected. However, as William Frank’s investigative team increased in size and intensified their questioning, the agents soon found their every move was being watched. The city police department with its patrolmen, and the county prosecutor’s office, with its detectives, were loyal soldiers in Nucky’s empire. Once the FBI agents’ presence became known, they were placed under strict observation and Nucky received daily reports of whom the investigators were questioning. He kept closer tabs on them than they could on him. In addition to the police, Nucky saw to it that the entire community knew the agents were in town. Anyone who cooperated with them was blacklisted.

One of the first areas examined by Frank and his agents was municipal graft. It was common knowledge that every contract with city hall had its price. Since the time of the Commodore and before, graft was part of every contract let by city and county government. The typical price of doing business was to kickback anywhere from 5 to 33⅓ percent of the contract profits depending on the quantity and nature of the contract involved. This cost of doing business was factored into the contract price, and anyone who refused to play by the rules watched the work go to others. The agents knew they would find unreported income in this area; it was merely a question of whether any of it could be traced to Johnson.

Certain types of public work contracts were more likely sources of graft than others; one was highway construction. John Tomlin had been a local Republican leader for more than 20 years and had served as a member of the county governing body, the Board of Freeholders, where he was chairman of the road committee. With a dual position of authority in the city and county power structure, Tomlin was a prime suspect. He had encouraged his son, Morrell Tomlin, to begin a general contracting firm. Between the years 1929 and 1936, Morrell Tomlin had a virtual monopoly of the road construction and paving contracts let out by the county. In addition to the county work, Tomlin received a large contract from the state for the construction of a portion of the Black Horse Pike, a new major highway linking Atlantic City to Philadelphia. Johnson had obtained federal funding for the road from the Harding Administration. Nucky was a favorite of President Harding, having delivered the Jersey delegation at the Republican Convention. To show his gratitude, Harding invited Nucky to the White House to sleep in President Lincoln’s bed. In exchange, Johnson had an Atlantic County portion of a federal highway named in honor of Harding. With his influence in Washington and Trenton, Johnson was able to pick the contractors for his new road, the Black Horse Pike. It was John Tomlin’s son.

When subpoenaed by the treasury agents, Morrell Tomlin’s records were in shambles; however, he had a checking account for his contracting firm and the agents reviewed the ledger sheets and deposit tickets. But finding these records wasn’t easy. Tomlin’s bank went under during the Depression, and investigators were forced to spend several weeks in the summer of 1937 holed up in a steamy warehouse going through thousands of closed files and records until they reconstructed his accounts. When finally assembled, the checking account records showed total deposits for Morrell Tomlin for the years 1928 through 1935 of more than $1.6 million. As for John Tomlin, the deposits totaled in excess of $500,000. Morrell Tomlin never bothered to file an income tax return, while his father filed returns showing a nominal income below the taxable minimum.

The money in John Tomlin’s account was easily traced from his son’s business account. When first summoned to a meeting with the FBI agents to explain their unreported income, the Tomlins came dressed in rags and stated they were prepared to take a pauper’s oath. One of the agents confronted John Tomlin with a photograph from a recent newspaper where he was shown in attendance at one of Nucky’s gala political dinners dressed in formal evening clothes. When the agents made it clear they intended to prosecute them, the Tomlins hired lawyers and spent whatever was needed on their defense. Both father and son were indicted and eventually convicted. Despite offers of immunity for their testimony, neither Tomlin would admit that Nucky had shared with them in the profits.