by Ben Vernia | November 13th, 2012
On November 13, 1862, the New York Times contained a very brief note under “General News”:
SALOMON COHNSTAMM and GEO. B. TRACEY, commission brokers, were yesterday arrested by orders from Washington, charged with perpetrating frauds upon the Treasury in the matter of Government claims. They were committed to Fort Lafayette.
What became known as the “Kohnstamm Frauds” case (the New York Times misspelled his name in its first report) played a significant role in the drafting and passage of the False Claims Act five months later, in March 1863.
Kohnstamm was a New York businessman who was charged with submitting false claims for room and board for troops in New York City. His modus operandi: procure blank vouchers signed by German immigrant landlords, fill them in for thousands of dollars and present them to compliant quartermaster officers for payment. Kohnstamm was popular in the city and entertained lavishly. He was arrested for these crimes before a complete case could be assembled against him, and he exploited this tactical mistake, enraging popular opinion against the government and demanding to be released. Kohnstamm’s efforts were in vain, however. He was convicted in May 1864.
Two interesting notes about the case: One key player in the Kohnstamm drama was Colonel Henry Olcott, appointed to investigate the case and others in New York City. Olcott was involved in many of the key fraud investigations of the war. Also, Kohnstamm was tried under an 1823 act which criminalized the submission of false claims. At his trial, Kohnstamm’s counsel argued that he could not be convicted because there was no evidence he personally presented for payment the claims in question. Justice Nelson instructed the jury that this distinction was unimportant, however (in terms favorable to the government which would be unacceptable from a judge today):
Now it is made a question whether Kohnstamm presented this bill to the office or caused it to be presented, which [is] the same thing. It is not necessary that it should be presented by his own hands. He may have done it by an agent. The bill, as you have seen, had an order attached to it to pay the amount to the prisoner. It was presented by somebody or it would not have been paid — and it was paid, not to some unknown person, but to the prisoner. The check was drawn in his favor by name, and according to the evidence, it was deposited to his credit in the Bank of Commerce. He therefore had the avails of it. He received the money upon it. I think that under these circumstances he is chargeable with the presentation of the bill, either by his own hand or by causing it to be presented by some other person. He takes the benefit of the presentation. He receives the payment, and applies it to his own use; and all this is wholly irreconcilable with the idea that he had nothing to do with the presentation of it to the disbursing office. The first two of the questions, therefore, in the case, viz.: The falsity of the bill, and the presentation of it to the disbursing office, and the receipt of the money by the prisoner by the check given in payment of it, will probably not give you much trouble in your deliberations.
A defendants’ liability for causing the presentment of a false claim is one of the enduring themes of False Claims Act cases through the years.