Liveblogging the Civil War False Claims Act: News from Albany on the Cohnstamm fraud case

by Ben Vernia | November 26th, 2012

On November 25, 1862, the New York Times reported that Albany, New York, newspapers were reporting details of the nature of the fraud alleged in the case of Solomon Kohnstamm:

In July, 1861, the General Government established a disbursing and recruiting office in this city, under the direction of Lieut.-Col. SACKETT. At that time the regulations provided that subsistence should be allowed to full regiments only. As the necessity for men increased, this regulation was modified to allow the subsistence and mustering in of men by companies, and subsequently individually. The recruiting officers made out their bills for subsistence and transportation furnished by them, which were regularly audited by Col. SACKETT, and if approved a check was drawn for the amount on the United States Sub-Treasury, which was paid to the recruiting officer. Thus far things worked smoothly, all bills were promptly audited and promptly paid. At length, the money placed at the disposal of Col. SACKETT gave out, and a number or bills were presented but not audited for want of funds. Col. SACKETT forwarded a requisition to Washington for $300,000 and in reply was telegraphed that the fends would be sent on to him. Several days passed and the money not arriving, several officers, unable to bear the [???] expenses of subsisting their men, became clamorous for their money, allowing, and with reason that unless their disbursements were promptly recall they could not go on recruiting for want of funds. In this emergency, a well-known down-town banking firm stopped forward and agreed to cash all bills approved by Col. SACKETT at a discount of five percent, upon the aggregate amount. This [???] the system of showing Government claims, which has caused considerable loss to the unfortunate victims, and tended considerably to lessen the credit of the Government. After an interval of three weeks has elapsed, the authorities at Washington discovered that Col. SACKETT and draw upon them for [???], and $300,000 was sort to him. By the time this money arrived the brokers had [???] which swallowed up all [???] funds. In the meantime bills continued to accumulate — and the discount rose to 15 per cent. More funds arrives which were again swallowed up by the Brokers, and a number of bills “not shared,” remained safety stowed away in numerous [???] Col. SACKETT was transferred to another position, and another week elapsed before his successor, Col. NICHOLS took his new position — the bills continue to accumulate [???] Col. NICHOLS a week to organize his Department — [???] to accumulate and no funds arrived. About this time Mr. KOHNSTAM, who is the owner of the [???] where the United States Mustering and Disbursing office is located, No. 79 The clerks in the office were very [???] to take up bills not held by Mr. [???], and on one occasion a Wall-street banker being refused make an outery, and a clerk was removed. During all this time the bills — not shaved — continues to accumulate. Mr. KOHNSTAM became very [???] in his [???]. Every official [???] with the State and General Government. [???] and army officers, were favored with [???]. The latest party of [???] The ornaments embraced models of Honesty, virtue and Sobriety, while the piece De Resistance was a miniature temple of Justice. All this time “unshaved bills continued to accumulate.” The wine flowed freely, and the sparkling bon mot and witty repartee was rapid and sparkling; and when the quests separated it was with the consciousness of having spent a delightful evening. The “unshaved bills continue to accumulate.” The Government bills continued to be unpaid and the rate of discount kept on increasing. Recruiting officers finding that their bills had to thus shaved or go without their money, including all manner of expenses under the head of subsistence, and the Government by its delay in forwarding money to promptly meet these demands, have paid at least sixty per cent, more than they otherwise would have been charged with. At length Mr. KOHNSTAM declined to cash any more bills that were not of a large amount, and it is alleged that fraudulent alternations have been made by which bills for subsistence of fifty men would be altered to three times that amount, &c. This, it is said, is the specific charge on which Mr. KOHNSTAM has been arrested, but when it is just to say he [???] denies and alleges that he has no knowledge of such frauds. In the meantime a special officer is investigating the entire matter, and with a view to bring other equally capable parties to justice. The result of these investigations are kept from the public for the present. These are the facts, so far as they can be made known; others and, more astounding developments must await the fiat of the Special Commissioner.

In an editorial, the Times wrote:

The journals a few days since announced the arrest of two gentlemen well known in this City, on charge of having defrauded the Government. We copy from the Albany Argus an article giving the details of the alleged fraudulent transactions. Some allowance must unquestionably be made for the very strong partisanblas of the journal from which this report is drawn; still the statements are evidently prepared with care, and have every mark of substantial accuracy. The drift of the statement is that the Government neglected to deposit money with its agents here to meet the bills of contractors, recruiting agents and others, as they fell due; that the persons holding these claims, being pressed for money, were compelled to sell them at rates of discount rising gradually from five to sixty per cent.; and that finaally alterations were made in these bills, by the parties who discounted them, so as fraudulently to increase the amounts due upon them. Whatever may be the facts of the case, and wherever the blame may lie, we trust the Government will deal with all such instances of alleged fraud with the [???]to cover up dishonesty in any department of the Government’s operations. A very great clamor has been raised, by partisan opponents, against the frauds said to have been perpetrated upon the Government during this war. It would be strange, indeed, if there were no such frauds, when disbursements are made to the amount of one or two millions a day. It would require superhuman vigilance to watch every channel through which such disbursements are made. The people understand this, and will make all due allowance for the difficulties under which the Government under such circumstances must necessarily labor. There is but one thing which the people will not forgive, and that is an apparent disposition on the part of the Government to cover up and screen such frauds; for this involves a direct and immediate responsibility for them. Let them be probed to the bottom, so that just punishment may fall on the guilty parties.

From experiences such as these. the False Claims Act came to include now rarely-used definitions of false claims, including those prohibiting the delivery of less than the entire property to which the U.S. is entitled, and delivering false receipts for government property.

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