Former U.S. Attorney General Harry M. Daugherty was frequently accused of illegal activity while serving under President Warren G. Harding. Most notably, Daugherty was suspected of taking bribes and accepting protection money from bootleggers operating in New York and New Jersey. Daugherty's Washington, D.C. housemate and personal assistant, Jesse Smith, committed suicide and Daugherty's brother was sent to prison. Yet Daugherty escaped, not unscathed, but also never convicted of a crime.

Attorney General Daugherty

Harding, whose presidency was rocked by scandal, once said it was not the actions of his enemies that kept him awake at night, but the actions of his friends. Daugherty was one of those friends. Harding, upon taking office in 1921, awarded Daugherty, his former campaign manager, with an appointment to attorney general. Daugherty knew Harding was ill-informed and relied heavily on others to make decisions for him. Daugherty exploited Harding's naiveté, although the extent of Daugherty's exploitation wasn't revealed until after Harding's death in 1923.

American Metal Company

In 1921, American Metal Co. representative Richard Merton made a claim against the U.S. government for $6 million. The money represented stock sale proceeds appropriated by Alien Property Custodian Thomas W. Miller as part of the World War I seizure of German holdings in American companies . Merton was directed to pay $441,000 in Liberty bonds for the "services" of Miller and Jesse Smith. They, in turn, would ensure his claim's approval. At Miller and Daugherty's 1927 bribery trial, it was revealed that Smith received $200,000 in bonds. Another $40,000 in bond proceeds was deposited by Daugherty's brother, Mal, into Harry Daugherty's bank account. Smith committed suicide in 1923 and was never tried. Miller was convicted of defrauding the government and Mal Daugherty later was sentenced to prison for bank fraud. Daugherty's case was dismissed for lack of evidence.

Bootlegging

When members of Congress began to observe that Daugherty was not aggressively pursuing investigations into alleged government corruption, the attention became focused on Daugherty himself. Allegations were made that Daugherty was involved with bootleggers. The allegations were given credence in 1930 when Gaston B. Means, an ex-convict employed by the FBI, testified before a Senate investigative committee that Jesse Smith had charged him with collecting Federal protection money from bootleggers. Means said he would rent two hotel rooms in New York and place a fishbowl on a table in one room. Bootleggers came, by appointment, and dropped their payments in the bowl. Means said he then turned the money over to Smith. Means estimated he collected close to $7 million in graft. However, because Smith was dead, and Daugherty could not be directly connected to the payoffs, Daugherty was never indicted.

The Smoke-Filled Room

Legend has it that Warren Harding would not have been nominated as the 1920 Republican candidate were it not for a shrewd plan executed by Daugherty. The crafty campaign manager knew the Republican leaders were frustrated over not having a solid front runner. Rather than push for Harding's nomination, Daugherty allegedly proposed Harding's candidacy to the Republican party bosses in the wee hours of the morning, when they were exhausted from the selection process and seated around a table in "a smoke-filled room." In reality, Daugherty had traded favors and promised political appointments to delegates who agreed to support Harding. Nevertheless, the phrase "smoke-filled room" became permanently linked with Daugherty and the notion of shady political maneuvering.