In the early part of the 20th century large oil reserves were discovered at Elk Hills, California and Teapot Dome, Wyoming. In 1912 President William Taft decided that this government owned land and its oil reserves should be set aside for the use of the United States Navy.
On 4th June, 1920, Congress passed a bill that stated that the Secretary of the Navy would have the power "to conserve, develop, use and operate the same in his discretion, directly or by contract, lease, or otherwise, and to use, store, exchange, or sell the oil and gas products thereof, and those from all royalty oil from lands in the naval reserves, for the benefit of the United States."
In March 1921 President Warren Harding appointed Albert Fall as Secretary of the Interior. Soon afterwards he persuaded Edwin Denby, the Secretary of the Navy, that he should take over responsibility for the Naval Reserves at Elk Hills and Teapot Dome. Later that year Fall decided that two of his friends, Harry F. Sinclair (Mammoth Oil Corporation) and Edward L. Doheny (Pan-American Petroleum and Transport Company), should be allowed to lease part of these Naval Reserves.
Attempts were made to keep this deal secret but rumours began to circulate when it became known that Albert Fall was spending large sums of money. On 14th April, 1922, the Wall Street Journal reported that Fall had leased Teapot Dome to Harry F. Sinclair. President Warren Harding defended Fall by claiming that "the policy which has been adopted by the Secretary of the Navy and the Secretary of the Interior in dealing with these matters was submitted to me prior to the adoption thereof, and the policy decided upon and the subsequent acts have at all times had my entire approval."
Robert La Follette and John B. Kendrick called for a Senate investigation into Albert Fall and the Naval Reserves. President Warren Harding died suddenly on 2nd August, 1923 and was replaced by his vice-president, Calvin Coolidge.
Hearings on the Teapot Dome oil lease began on October 15, 1923 before the Senate Committee on Public Lands and Surveys. Senator Thomas J. Walsh, a Democrat from Montana, led the committee's investigation. Over the next few months, dozens of witnesses testified before the committee. On January 24, 1924, Edward Doheny admitted that he had lent Fall $100,000.
Seven days later the Senate passed a resolution stating that the leases to the Mammoth Oil Company and the Pan American Petroleum Company "were executed under circumstances indicating fraud and corruption". Albert Fall and Edwin Denby were now both forced to resign from office.
On 17th October, 1927, Harry F. Sinclair appeared on trial charged with conspiracy to defraud the United States. The trial ended prematurely two weeks later when the government presented evidence that Sinclair had hired a detective agency to shadow the jury. The judge declared a mistrial. Sinclair was tried for criminal contempt of court. Found guilty and he was sentenced to six months in prison.
Albert Fall was now charged accepting a bribe from Doheny. On October 7, 1928 the trial began in the Supreme Court of the District of Columbia. Even though the trial concerned Fall accepting money from Doheny, the judge allowed M. T. Everhart's testimony showing the financial relationship between Sinclair and Fall. That testimony was used to show that Fall had lied to the Senate committee when he declared that he had not accepted any money from Sinclair. Fall was found guilty and sentenced to one year in prison and a $100,000 fine.
First. Against the policy of the Secretary of the Interior and the Secretary of the Navy in opening the naval reserves at this time for exploitation.
Second. Against the method of leasing public lands without competitive bidding, as exemplified in the recent contract entered into between Secretary Fall of the Interior and Secretary Denby of the Navy and the Standard Oil-Sinclair-Doheny interest.
Third. Against the policy of any department of the Government of the United States entering into a contract of any character whatsoever, whether competitive or not, which would tend to continue or perpetuate a monopolistic control of the oil industry of the United States or create a monopoly on the sale of fuel oil or refined oil to the Navy or any other department of the Government.
For the following reasons:
There exists no emergency or necessity which would warrant the opening of the naval reserves at this time for exploitation in order that the Navy might be supplied with the various grades of oil required by it, there being already above ground and in storage in the United States the greatest amount of oil that has been in storage in the history of all times.
The prices of fuel oil at the seaboard are lower than they have been in years, and there is an abundant supply.
The oil industry of the United States is just now convalescing from the greatest depression it has ever suffered, the daily production now being the largest in its history, and therefore, the turning over of Government lands to the large pipe-line interests for exploitation will have the direct result of depressing the price of crude oil without in any way relieving the people of the onerous and burdensome high prices of refined products.
In the spring of 1922 rumors reached parties interested that a lease had been or was about to be made of Naval Reserve No. 3 in the state of Wyoming, - popularly known, from its local designation, as the Teapot Dome. This was one of three great areas known to contain petroleum in great quantity which had been set aside for the use of the Navy - Naval Reserves No. 1 and No. 2 in California by President Taft in 1912, and No. 3 by President Wilson in 1915. The initial steps toward the creation of these reserves - the land being public, that is, owned by the government - were
taken by President Roosevelt, who caused to be instituted a study to ascertain the existence and location of eligible areas, as a result of which President Taft in 1909 withdrew the tracts in question from disposition under the public land laws. These areas were thus set apart with a view to keeping in the ground a great reserve of oil available at some time in the future, more or less remote, when an adequate supply for the Navy could not, by reason of the failure or depletion of the world store, or the exigencies possibly of war, be procured or could be procured only at excessive cost; in other words to ensure the Navy in any exigency the fuel necessary to its efficient operation.
From the time of the original withdrawal order, private interests had persistently endeavored to assert or secure some right to exploit these rich reserves, the effort giving rise to a struggle lasting throughout the Wilson administration. Some feeble attempt was made by parties having no claim to any of the territory to secure a lease of all or a portion of the reserves, but in the main the controversy was waged by claimants asserting rights either legal or equitable in portions of the reserves antedating the withdrawal orders, on the one hand, and the Navy Department on the other. In that struggle Secretary Lane was accused of being unduly friendly to the private claimants, Secretary Daniels being too rigidly insistent on keeping the areas intact. President Wilson apparently supported Daniels in the main in the controversy which became acute and Lane retired from the cabinet, it is said, in consequence of the differences which had thus arisen.
The reserves were created, in the first place, in pursuance of the policy of conservation, the advocates of which, a militant body, active in the Ballinger affair, generally supported the attitude of Secretary Daniels and President Wilson.
They too became keen on the report of the impending lease of Teapot Dome. Failing to get any definite or reliable information at the departments, upon diligent inquiry, Senator Kendrick of Wyoming introduced and had passed by the Senate on April 16, 1922, a resolution calling on the secretary of the interior for information as to the existence of the lease which was the subject of the rumors, in response to which a letter was transmitted by the acting secretary of the interior on April 21, disclosing that a lease of the entire Reserve No. 3 was made two weeks before to the Mammoth Oil Company organized by Harry Sinclair, a spectacular oil operator. This was followed by the adoption by the Senate on April 29, 1922, of a resolution introduced by Senator LaFollette directing the Committee on Public Lands and Surveys to investigate the entire subject of leases of the naval oil reserves and calling on the secretary of the interior for all documents and full information in relation to the same.
In the month of June following, a cartload of documents said to have been furnished in compliance with the resolution was dumped in the committee rooms, and a letter from Secretary Fall to the President in justification of the lease of the Teapot Dome and of leases of limited areas on the other reserves was by him sent to the Senate. I was importuned by Senators LaFollette and Kendrick to assume charge of the investigation, the chairman of the committee and other majority members being believed to be unsympathetic, and assented the more readily because the Federal Trade
Commission had just reported that, owing to conditions prevailing in the oil fields of Wyoming and Montana, the people of my state were paying prices for gasoline in excess of those prevailing anywhere else in the Union.
Still another impressive bit of evidence of national apathy presented itself in the Teapot Dome scandal. It had its origin in the early months of the Harding administration. It became the subject of common gossip in Washington, and yet no betrayal of public trust resisted exposure and punishment more tenaciously.
Teapot Dome involved the conservation of the oil resources of the United States, especially those situated upon the public lands. The investigation of alleged irregularities had been in progress for some time, under the auspices of the Senate Committee on Public Lands and Surveys, when the decision was reached to institute court action to cancel the leases granted to private interests at Teapot Dome and Elk Hills.
My old friend Robert M. La Follette of Wisconsin, always alert and vigilant, had introduced and procured passage of the two resolutions - Senate Resolution 282, and Senate Resolution 294 - authorizing the Public Lands Committee to make the inquiry. Out of it came the evidence supporting the inescapable conviction that immense combinations of wealth, large corporations, under leases fraudulently obtained, were systematically robbing the government of the oil stored in the public lands by Nature. The evidence pointed straight to the guilt of a former colleague, A. B. Fall of New Mexico, who had become Secretary of the Interior.
It is not for the President to determine criminal guilt or render judgment in civil causes. That is the function of the courts. It is not for him to prejudge. I shall do neither; but when facts are revealed to me that require action for the purpose of insuring the enforcement of either civil or criminal liability, such action will be taken. That is the province of the Executive.
Acting under my direction the Department of Justice has been observing the course of the evidence which has been revealed at the hearings conducted by the senatorial committee investigating certain oil leases made on naval reserves, which I believe warrants action for the purpose of enforcing the law and protecting the rights of the public. This is confirmed by reports made to me from the committee. If there has been any crime, it must be prosecuted. If there has been any property of the United States illegally transferred or leased, it must be recovered.
I feel the public is entitled to know that in the conduct of such action no one is shielded for any party, political or other reason. As I understand, men are involved who belong to both political parties, and having been advised by the Department of Justice that it is in accord with the former precedents, I propose to employ special counsel of high rank drawn from both political parties to bring such action for the enforcement of the law. Counsel will be instructed to prosecute these cases in the courts so that if there is any guilt it will be punished; if there is civil liability it will be enforced; if there is any fraud it will be revealed; and if there are any contracts which are illegal they will be canceled.
The climax was reached when on January 24 Doheny voluntarily appeared to tell that on November 30, 1921, he had loaned $100,000 to Fall without security, moved by old friendship and commiseration for his business misfortunes, negotiations between them then pending eventuating in the contract awarded to Doheny on April 25, following, through which he secured, without competition, a contract giving him a preference right to a lease of a large part of Naval Re-
serve No. 1, to be followed by the lease of the whole of it, as above recited.
Followed the appearance of Fall, forced by the Committee to come before it, after pleading inability on account of illness, to take refuge under his constitutional immunity, a broken man, the cynosure of the morbidly curious that crowded all approaches to the committee room and packed it to suffocation, vindicating the wisdom of the patriarch who proclaimed centuries ago that the way of the transgressor is hard.
Our contention is that in the bribery case evidence of similar transactions is competent for the purpose of showing the intent; in other words to characterize the end. It will be contended on the part of the defendant that the $100,000 was a loan. You and I feel confident that it was never intended that it should be repaid. Similarly, the Sinclair-Fall transaction in the form it took was a mere ruse.