Friday, January 9, 2015

Ed Malley and George Cole: hats in hand

Ed Malley (left) and George Cole

Despite the fact that their crime had a serious effect on Nevada finances, Ed Malley and George Cole essentially became background figures in their own case. The ease with which they were able to pilfer state funds set the stage for a dramatic confrontation with a longstanding political boss over how Nevada's affairs were managed.

Both Malley and Cole moved to Nevada to pursue the growing mining industry there. Malley was born in Coaldale, Pennsylvania, and came to the state after living for some time in Leadville, Colorado. Cole was a native of Canada, born in the town of Renfrew in the Ontario province on September 9, 1873. He moved with his family to Minneapolis when he was seven years old, and later went west and got a job as a miner in Park City, Utah. He eventually settled in Nevada, becoming chairman of the Democratic Party of Lincoln County. Both Malley and Cole eventually settled in Tonopah, joining the rush of miners to the community following the discovery of a silver lode.

Cole's early success in politics continued, as he was elected as a state assemblyman in 1904 and again in 1912. He pursued mining and hotel work in the interim, then became the state controller in 1914. He held onto the position until his defeat in a re-election bid in 1926, at which point he said he would rejoin the workforce in Clark County. Despite this loss, there was talk that Cole would be named as the Democratic nominee for the 1928 U.S. House of Representatives election.

Malley served as a constable in Tonopah before becoming chief of police in 1907. He was elected as sheriff and assessor of Nye County in 1910. While riding in a vehicle during his campaign for re-election, a shotgun became tangled in some overcoats and went off. Malley was shot point-blank in his right arm, and the limb later had to be amputated. He began serving as state treasurer after he was elected to the post in 1914.

While the men were in office, Nevada politics were strongly influenced by a Reno businessman and Republican named George Wingfield. A former cattle rancher and gambler, Wingfield had moved to the city in 1908 and made his fortune in mining. He was offered a Senate appointment in 1912 following the death of Senator George S. Nixon, but turned it down. Wingfield also owned several banks across the state, holding deposits of public funds and using his influence to build up a bipartisan political machine. Given Nevada's tiny population, the state government operated more like a small town; power was concentrated in a few individuals, and most people in governing positions knew one another.

Suspicions of corruption in the state finances began in the 1927 legislative session, but no investigation materialized. The legislature's joint ways and means committee was reluctant to ask for the funds to look into the matter, and some members were convinced that Malley and Cole were upstanding figures who could not possibly be guilty of malfeasance.

On the evening of April 27, 1927, Malley and Cole visited Wingfield at his home to confess that they had been misusing state funds for several years. Malley said the cash had been taken from state insurance money as well as the treasury to cover losses from investments that did not pan out. The duo had speculated in Tonopah mines as well as the wells of the Nevada Signal Hill Oil Company, but neither endeavor had been profitable. All told, they had lost $516,322.16.

The embezzlement had been aided by H.C. Clapp, a cashier at the Carson Valley Bank. Clapp had issued three fraudulent cashier's checks to cover the losses during audits, showing a receipt of money that was never actually deposited. The largest check came to $392,700. Clapp had also allowed Gilbert Ross, the state bank examiner, to carry overdrafts on his personal account and lost more than $6,000 as a result.

Wingfield, as owner of the Carson Valley Bank, was a central figure in the whole mess. He also owned the Nevada Surety and Bonding Company, which had bonded Malley and Cole for $100,000 each. And he had recently fired Clapp due to poor performance stemming from frequent drinking. Malley and Cole knew that the former cashier was prepared to take revenge by going public with the story. Wingfield, as both the bank owner and bondsman, was in the best position to handle the crisis quietly by covering for the losses.

Malley would later testify that Wingfield and his attorney, George Thatcher, had gone so far as to promise him and Cole immunity for their crime. Indeed, Wingfield worked diligently for nine days to stabilize the financial situation. He sent the vice president of the Carson Valley Bank to San Francisco to raise $500,000 (some accounts say $600,000) and deposited the sum in Nevada. He also quietly withdrew as Malley's bondsman.

Even if Wingfield promised protection for the two officials, his close association with both the state and bank put him in a difficult situation. Unless he wanted to willingly part with half a million dollars of his own money, the revelation of the defalcations would put the onus of replacing the money on either the state or the Carson Valley Bank. By pursuing the prosecution of Malley and Cole, the burden would fall to the state and prevent a potentially ruinous situation at the bank.

Wingfield summoned several state officials, including Governor Fred Balzar, to brief them on the embezzlement. On May 7, he issued a press release detailing the confession he had received from Malley and Cole. The statement was carefully timed, taking place on a Saturday to allow extra time for the courts to open and insurers to be informed. To avoid a run on the bank, Wingfield assured the public that his deposit had ensured the solvency of the deposits in the Carson Valley Bank. "I will personally guarantee the state's losses, and of course we can alleviate any run on the bank by announcing that the funds are available, and there has been no loss to the depositors," he announced. Malley, Cole, and Clapp were arrested on the same day.

Upset at what they considered a betrayal by the man in whom they had placed their trust, Malley and Cole hired one of Wingfield's most well-known enemies to defend them. Patrick McCarran had first gone up against Wingfield when he represented May Caric in a 1906 case against the businessman. Caric claimed that she and Wingfield were in a common law marriage, and she wanted to claim part of his fortune in a divorce; Wingfield won the battle, with the court granting an annulment instead. McCarran had held little influence in the state compared to his nemesis, serving some time as a Nevada State Supreme Court judge but failing in two attempts to be elected to the U.S. Senate in 1916 and 1926. Curiously, McCarran was also the attorney for the Nevada Signal Hill Oil Company, where the officials' investment had failed to produce any dividends.

The Reno Evening Gazette, an anti-Wingfield newspaper, was appalled by the revelation of the crime. It questioned how the embezzlement could go undiscovered for so long and why Malley was bonded for only $100,000 when other financial officers had much higher amounts. "Seemingly there has been an inexcusable amount of looseness in the financial administration of the state when more than one-half million of the people's money could be lifted from the treasury and replaced by paper which may prove worthless," the paper declared.

Malley remained defiant after his arrest. On May 10, he announced that he would refuse to resign. Two days later, he even tried to get Wingfield to honor the fraudulent cashier's checks. Balzar ordered all banks in the state to refuse to honor any state checks from the treasurer, and on May 18 he formally removed Malley from office. The treasurer's position was filled by George B. Russell, a Republican newspaper editor. Even after this ouster, Malley held onto the keys to his office until he and his co-defendants were arraigned on seven charges on May 21.

Clapp pleaded guilty to the charges on June 8 and was quickly sentenced to serve five to 15 years in prison. Meanwhile, negotiations between Wingfield and state officials began in the same month to try to resolve the issue of liability in the lost funds. The talks went nowhere, and the state filed a civil suit against Wingfield to try to recover the money.

Witnesses began to take the stand in the trial of Malley and Cole on August 22. Clapp had agreed to turn state's evidence, and his testimony lasted for five days as McCarran grilled him in an effort to exploit any inconsistencies. The former cashier claimed that he had destroyed many of the cashier's checks used in the transactions, but several thousand checks and deposit slips were still available to help outline the defalcations. Other witnesses claimed that Malley had asked to keep the shortages secret until the end of 1927, when he expected the oil well investments to become profitable enough to cover the losses.

Malley took the stand in his own defense, claiming that Clapp had orchestrated the entire scheme and that Wingfield had falsely promised him immunity. Cole was also called, but answered only two questions before he was excused.

The greater part of McCarran's defense was an attempt to have Wingfield, and the failures of the Nevada state administration as a whole, share in the blame for the embezzlement. He argued that the state had violated its own 1913 law to limit the deposit of public funds more than 75 percent beyond paid-up capital, since the Carson Valley Bank was capitalized at only $50,000 in 1927 while $750,000 in public funds were held there.

McCarran was also critical of the cozy relationship between Wingfield and the state government, noting that the state required no security on cashier's checks from Wingfield-owned banks. He questioned why Jim McKay, who owned several gambling and prostitution establishments in Nevada, was visiting Wingfield when Malley and Cole came to his house. He wondered why Wingfield hadn't confronted Clapp about his drinking earlier, accused the bank owner of having an interest in the failed oil well investment, and suggested that he was merely trying to relieve the liability on the bank so the state would be on the hook for the lost funds.

In his closing argument, McCarran railed against Wingfield's character for three-and-a-half hours. The issue, he argued, was whether Malley and Cole would be imprisoned or whether the Carson Valley Bank would be responsible for paying the $516,322.16. "Can human liberty go into bondage and come out?" he asked. "Can liberty of state go into bondage of gold and come out? If so, free men, where is your blood? I want wealth in this state, but I want liberty more - even if there is not a dollar in the state."

The prosecution simply reminded the jurors that Malley and Cole were on trial, not Wingfield. After only three hours of deliberation on September 10, both men were convicted. One week later, they received the same sentence as Clapp: five to 15 years in prison. Malley was unrepentant, maintaining that he was innocent. Cole offered a more ambiguous statement, saying, "I have made mistakes, as has every man, but I am not ashamed of anything I have ever done."

Historians have described McClellan's attempts to deflect blame from Malley and Cole as a somewhat strained attempt to critique Nevada government as a whole, but they agree that some figures managed to escape suspicion or even questioning at the trial. Ross was never held to account for the money he received on overdrafts. James Scrugham, who governed Nevada from 1923 to 1927, never took the stand to discuss how the majority of the defalcation took place during his years in office. In fact, since Scrugham had gone on to own the Nevada State Journal and the paper was mortgaged to Wingfield, he was able to oversee the publication's wishy-washy editorial stance on how other state officials couldn't be held responsible for failing to keep an eye on Nevada's fiscal matters.

There was still the issue of how to make up for the missing funds. Balzar said that a special legislative session was unnecessary, since he considered that the state could remain solvent until the next scheduled meeting of the legislators in 1929. However, he changed his stance in a November statement declaring that a special session would probably have to take place. The reversal came after Wingfield, excluding his injection of personal funds, said the Carson Valley Bank wouldn't have enough money to cover the losses without state action.

Wingfield also held the upper hand, since he had the option of liquidating the bank. As part owner, doing so would allow him to recover $45,000 (half of what the Carson Valley Bank was capitalized at) and be liable for only $75,000 of the bonds. State officials knew that if Wingfield pursued liquidation, they would lose out on any funds he would offer and be left scrambling to get the rest of Malley's bond from his other bondsmen, most of whom were dead. On December 15, Balzar called a special session of the legislature to meet on January 16, 1928.

The key question of the session came down to how much money Wingfield should pay to cover the defalcation. The businessman had put a great deal of energy into lobbying his position in the intervening weeks, and he said most residents in the state favored a compromise solution. He also argued that the state had been in a position to discover the fraud, not the Carson Valley Bank. Wingfield said he was legally liable for only $123,622.16, or the difference between the shortage and the state warrant held by the bank, and offered to pay this sum.

This amount was rebuffed as the few anti-Wingfield legislators tried to push an amendment that would split responsibility evenly, with both the bank and the state paying 50 percent. The attempt was unsuccessful, and the parties settled on a figure of $154,896.65 to be paid by the Carson Valley Bank. The compromise was approved by the house of representatives on January 31 and by the senate and Balzar the next day. The funds were deposited on February 3 after the deal was approved by the board of compromise and adjustments set up by the legislature.

The solution left a balance of $361,425.51 to be covered by Nevada taxpayers. There was also a tab of $52,000 in indirect costs caused by the special legislative session, including audits and legal fees. A 10-year property tax was imposed to meet these costs.

At first, Wingfield suffered few repercussions from his association with the scandal. He was elected unopposed to the board of regents at the University of Nevada later in the year. Some even praised him for his response to the crisis, saying his actions had prevented a more severe panic and that he had graciously agreed to pay more than he was liable for in the final settlement with the legislature.

However, the affair was the beginning of the end for the political boss. The embezzlement had exposed Wingfield as a behind the scenes power broker in Nevada politics, and newspapers both in Nevada and in nearby states denounced the settlement as letting him off too easily. It didn't help that the decade-long tax was arriving just before the start of the Great Depression.

The scandal also helped McCarran get the political recognition he had long pursued. In the 1932 election, he again ran for the Senate against Republican incumbent Tasker Oddie. The Depression had been underway for three years, and Wingfield had again tried to prop up his banks with personal funds. It was not enough, and the banks were forced to close in the same week as the election. This factor has been credited with giving McClellan the edge he needed in the race, and he narrowly defeated Oddie.

Wingfield was forced into personal bankruptcy in 1935. He was able to regain a more modest fortune with a successful gold and copper strike, but he never again had the same influence in Nevada politics. McCarran, by contrast, developed a political machine of his own and was able to hold onto his Senate seat for another three terms.

The two men ultimately buried the hatchet, working together on issues of common interest such as mining regulations during the 1940s. For McCarran's 78th birthday in 1954, Wingfield wrote, "You are a great American, a great Senator, and a good friend; and may you live long and prosper." As fate would have it, McCarran died a month later. Wingfield, who had been born just eight days after McCarran, lived another five years.

The officials convicted in the embezzlement were all released in May of 1931, after serving the minimum sentence with time off for good behavior. In May of 1935, the state parole board issued full pardons to Malley and Cole to restore their citizenship. Malley pursued a real estate career and was able to resume government work by getting a position in the Federal Emergency Relief Administration. Cole became a dealer at a Lake Tahoe club and later worked for the state highway department.

Cole died in October of 1948 at the age of 75. Malley died 18 years later, in January of 1966, at the age of 87.

Special thanks to Michael Maher, librarian at the Nevada Historical Society, for his help in finding additional information for this article.

Sources: Online Nevada Encyclopedia, "Nevada State Funds Half Million Short; Treasurer Faces Jail" in the Evening News on May 6 1927, "Bank Cashier Found Guilty" in the Spokesman-Review on Jun. 9 1927, "Clapp Denies Guilt in Nevada Scandal" in the Berkeley Daily Gazette on Aug. 24 1927, "Clapp Unshaken in Nevada Fund Probe" in the Berkeley Daily Gazette on Aug. 29 1927, "Nevada Officials Face Prison Term" in the Berkeley Daily Gazette on Sep. 12 1927, "Malley, Cole Given Paroles from Prison" in the Nevada State Journal on May 5 1931, "Cole and Malley Get Pardon and Citizenship" in the Nevada State Journal on May 9 1935, "George Wingfield and Nevada Banking, 1920-1933: Another Look" in the Nevada Historical Society Quarterly in Fall 1992, "The Cole-Malley Scandal: Nevada's Political System Revealed" in the Nevada Historical Society Quarterly in Summer 2007, "Nevada Political Power: Bosses of the Silver State Squared Off in Sensational Trial" in the Reno Gazette-Journal on Jan. 4 2014, Pat McCarran, Political Boss of Nevada by Jerome E. Roberts, The Roots of Reno by Al W. Moe, A Short History of Carson City by Richard Moreno, George Wingfield: Owner and Operator of Nevada by C. Elizabeth Raymond

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