Walkabout: The Great Defalcation, Part Two

Raymond St. Jail, NYPL 1

We don’t hear the work “defalcation” used much anymore because we have other words to describe this bit of malfeasance. “Embezzlement” is probably the best, “dipping into the till” is more colloquial, but “stealing” works just fine, as well. All of those words and phrases describe what was going on in Brooklyn in 1873 at the Brooklyn Trust Company, one of our city’s most successful and powerful banks. Commercial and savings banks deal with deposits and withdrawals, and can supply short-term loans and/or mortgages to individuals and small businesses. A trust is a form of commercial bank that allows the trustee (the bank) to invest and otherwise administer funds on behalf of their clients. Trusts often are the executors of estates, distribute funds in an inheritance, as in “trust fund,” and in general, manage and grow other people’s money. The operative word here is “trust,” as both a noun and a verb.

The long-time president of the Brooklyn Trust was a man named Ethelbert S. Mills. He was everything people expected a Brooklyn banker to be: he was rich, lived in Brooklyn Heights, was married to a woman who came from another old, rich family, and they and the kids had a summer home in Nantucket. Mills belonged to a socially acceptable church, Second Unitarian, and all of the best men’s clubs. He sat on the boards of other banks, corporations, musical organizations and charities, and he, to the outward eye, was a respectable and trusted member of Brooklyn’s Society elite.

But Mills had a dark secret. He was stealing from the Brooklyn Trust, and he’d been doing it for years. By 1873, he had helped himself to close to $200,000, an amount that would be the equivalent of $377 million today. He had invested most of the money in speculative real estate deals, and had developed houses in the growing and expanding neighborhoods of Brooklyn. He’d also dabbled in high risk stocks, and wasn’t good at it. He had also made a few bad loans in the Trust’s name to shady railroad companies, loans that could not be repaid, and these losses added up to another $150,000. To top it off, America was on the verge of a deep recession that started that year, and the economy was slowing down, and money was tight.

Perhaps Mills realized he was in too deep, and the worsening economy would make it impossible for him to replace the funds, or perhaps he knew that his theft would be soon discovered. In July of 1873, Ethelbert Mills took an early morning swim in the Atlantic, at Coney Island, only to have the waves wash his lifeless body ashore several hours later. This part of the story is detailed in Part One. As news of Mills’ death and the defalcation of Brooklyn Trust’s funds became known, it was very obvious that he had to have inside help. Money doesn’t disappear without a trace. Someone knew what was going on and had helped Mills cook the books in order to hide the losses. All eyes soon fell on the Secretary of the Brooklyn Trust, a man named M.T. Rodman.

When the Trust’s books were examined after Mills’ death, it was discovered that Rodman had been the closest company executive to work with Mills. An examination of his account showed that he had also been helping himself to the Trust’s money, to the tune of $38,000. That doesn’t sound like much unless you allow for inflation and realize that today, it would be more like $72 million. When confronted with the missing funds, Rodman tried to claim ignorance and innocence. Unfortunately for him, his own “loan” was proof of enough wrong-doing, and no one bought that he didn’t know what Mills was up to.

Just this story alone would have kept the papers busy for a while, but there was an extra added twist to the story. M.T. Rodman was not only the Secretary of the Brooklyn Trust Company; he was also the Deputy Treasurer of the City of Brooklyn. Had he also been raiding the city’s coffers? Investigators looked at the city’s books, and came to the horrified conclusion that he had also been stealing from taxpayers. This was much worse than robbing a rich Trust Company; this was literally taking the bread out of children’s mouths, and the coins out of the average citizen’s purse. Perfidy!

Now how did anyone get to have two jobs that were so closely aligned and so set up for ethical issues or a conflict of interest? In his job as Deputy City Treasurer, he would have sums of money to be deposited in the bank. He dutifully recorded the amounts of the deposits in the City Treasurer’s books. But the City’s bank was the Brooklyn Trust, HIS bank. So he would take the city’s money out of his right pocket and record the amount to be deposited in their account at the Brooklyn Trust. The amount recorded went into his left pocket, as a deposit to the Trust. Unbeknownst to anyone, there were always a few dollars that didn’t make it over to the left pocket. Since Rodman was the one who kept both sets of books, no alarm was ever raised. It was the perfect crime.

Who was this man, and how was he placed in positions where he had no supervision and no checks and balances? Investigative reporters, as well as the law, wanted to know. Reporters found out a lot about M.T. Rodman, but they never seemed to find out what his initials stood for. In all of the information I found out about this case, his full name was never used. Not once. He came from upstate, from Oriskany Falls, and then moved to Utica. According to sources there, he became a bank teller, a job more equivalent to today’s loan officers than today’s tellers. He then moved to Ohio, were it was said he ruined his stepfather financially, although no details were given.

From Ohio, Rodman came back to New York and settled in Manhattan. He worked as a clerk at the General Post Office for a while, and held the same position at the office of the Sub-Treasury. He then went into business, joining the financial firm of Bodman, Fiske & Co. They failed and went out of business. He was employed as the cashier at the Croton Bank, and that too, failed and went under. Somehow, he ended up in Brooklyn and was hired by the Brooklyn Trust as Secretary, where it was his job to record all financial transactions.

No doubt, this was in this capacity that he met and impressed Cortlandt A. Sprague, the City Treasurer. Sprague appointed Rodman Deputy Treasurer, placing Rodman in the perfect position to go into business for himself. The reporters did not miss the fact that several businesses failed when Rodman was placed near their money. The resulting stories in the Eagle and other papers caused great uproar from the public.

The auditors had finished with the books, and it appeared that Rodman had taken over $203,000 from the City of Brooklyn, and $55,000 from the Brooklyn Trust. There was a new name for this sort of activity; the press announced that the city had been “Rodmanized.” Everyone from the mayor down to the man on the street wanted to know why Rodman had not been arrested. Rodman probably wondered as well, but decided that it would be best to wonder somewhere else. He and his wife took a late night hansom cab headed for parts unknown.

The next day, wherever he was, Rodman found out a warrant would be issued for his arrest; so he came back to Brooklyn to protest his innocence. He was holed up in his house, in his bed, suffering, and his doctor told the press, from a “nervous affliction.” He was arrested at his home, and taken to the Raymond Street Jail, the city’s notoriously awful prison. At his arraignment, the prosecutor wanted $100,000 bail, but the judge knocked it down to $50K. Rodman said that he had no money, and was seeking the aid of friends to make bail. In the meantime, he was remanded into custody.

No one came to bail him out. Languishing in the foul prison, Rodman became extremely ill, and only then did he make bail. Meanwhile, another development had come to light. Investigators found it hard to believe that no one else was aware of what Rodman was up to. Ethelbert Mills had found in Rodman a fellow thief, one who allowed his boss to steal all he wanted, because Rodman wielded the pencil and tally that would make the money impossible to trace. Mills in turn, rewarded Rodman’s help and trust by allowing Rodman to make his own steady withdrawals.

Mills and Rodman were partners in crime at the Brooklyn Trust. What was going on over at City Hall? Investigators from the district attorney’s office and the State Treasury Commission began looking at the Brooklyn Treasury books. They found Rodman’s trail all over it, and not even hidden all that well. Yet the City Treasurer, Cortlandt A. Sprague, had seen or reported no irregularities from the man he had appointed himself. The investigators began to dig deeper. And lo and behold, they found evidence that Cortland A. Sprague had been covering for Rodman, all right, all the while helping himself to the City Coffers from the day after he took office. It was looking as if Cortland A. Sprague was the biggest crook of all!

Next time: Defalcation was a participatory sport in the halls of power in Brooklyn in the year 1873. It seemed like everyone who had access to money was taking it home with them. Something had to be done, so as the investigations continued, and new miscreants and misdeeds were found, trials were pending for M.T. Rodman and Cortlandt A. Sprague. Both were ex-city officials now, and the prosecutor and average citizen alike were looking forward to seeing them pay for their crimes. But would they? Please keep reading.

(Photograph: Raymond Street Jail, New York Public Library)

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