Edward Donegan was an odd-job laborer in 1919. But in 1920, he became a millionaire within about four months through his bootlegging scheme.
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During National Prohibition (1920-1933), beverage alcohol was outlawed. But alcohol for medical and industrial purposes was legal. Wholesale alcohol dealers were legally permitted to obtain alcohol from distilleries and bonded warehouses with government permits. Beginning around September of 1920 the Prohibition Bureau imposed a rule to prevent the use of false permits. It required the distillery or warehouse to telegraph the permit number to the Bureau’s director. That was to verify its authenticity. No alcohol could be shipped without receipt of this verification.
A clerk, Regina Sassone, received all such requests. Her job was to verify the numbers submitted and reply to the telegrams. Donegan, a married man with children, met Ms. Sassone in early 1920. He charmed her, set her up in a hotel, and became her lover.
In his illegal scheme Edward Donegan sold fraudulent permits to bootleggers for $10 to $20 per case. Sassone would then falsely verify to the distilleries and warehouses that the permits were legitimate. As a result, the alcohol would be released to the bootleggers.
Donegan also used other techniques. When Sassone received a legitimate permit, she would delay her reply. That gave Donegan time to contact the distillery posing as a Prohibition Bureau official. He would explain the problem of red tape and promise to cut that tape for a fee.
If Sassone received a forged permit not of Donegan’s making, he would pose as a Prohibition official. He would threaten to arrest the presenter, but then suggest a bribe for authenticating the false permit.
Edward Donegan operated his scheme for four months in late 1920. During that time he deposited $1,653,797 into his bank account. Today that would be worth well over $21,000,000!
Donegan’s activities were discovered when he attempted to bribe Internal Revenue Service agents. They called upon him about another investigation. He attempted to bribe them with $6,500 and they arrested him.
The prosecutor charged Edward Donegan with possession of stolen property with the intent to defraud the U.S. government. The court convicted Donovan and sentenced him to prison for ten years. John W. Davis, former Democratic presidential candidate, argued his appeal. But the appeals court upheld the conviction and Donegan went to prison.
National Prohibition caused widespread bootlegging of often poisonous alcohol and many other serious problems. So voters rejected it by three to one.
Readings on Edward Donegan
- Kobler, J. Ardent Spirits: the Rise and Fall of Prohibition. NY: Putnam’s Sons, 1973.
- 75 Years of IRS Criminal Investigation History, 1919-1994. Wash: IRS, 1996. (www.thememoryhole.org/irs/irs_75_years.rtf) Edward Donegan was a significant figure in in the history of IRS criminal investigations.