Wall Street Crime And Punishment: Philip Musica, The Swindler Who Could Have Been President

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall that chronicles the bankers, brokers and financial ne’er-do-wells whose ambition and greed takes them in the wrong direction.

In December 1935, F. Donald Coster sat amid the splendor of a luxury Manhattan hotel suite, surrounded by the leaders of the Republican Party. His Washington-connected hosts were eager to evict Franklin D. Roosevelt from the White House and assumed that a prominent and successful business executive like Coster would stand in stark contrast to the borderline-socialist New Deal policies that Roosevelt was inflicting on the country.

Coster was treated to generous glassfuls of the finest Kentucky bourbon, a selection of the finest Cuban cigars, and the most narcotizing flattery that a politician could weave. Coster was appreciative of the attention, he told his hosts, but he did not see himself as a viable candidate for the presidency.

Three years later, Coster was being sought again — this time, however, by law enforcement. Nearly 36 months to the day of his presidential courtship, he sat at the window of the study in his Connecticut mansion as a convoy of federal marshals drove slowly up his winding driveway. Their arrival wasn't unexpected, and he spent the morning drowning his apprehension with a series of highballs while fingering a revolver he placed in his bathrobe pocket.

To understand this catastrophic fall from grace, one needs to realize that F. Donald Coster did not exist — he was the creation of a man who devoted his life to riding roughshod over the law, the figment of a warped imagination who became a three-dimensional embodiment of everything that was rotten in the human experience.

F. Donald Coster was a grand mask worn by a less-than-grand character named Philip Musica.

A Youth Gone Very Wrong: The genesis of Philip Musica’s life journey is hazy — some sources put his birthplace in Naples, Italy, in 1877 while others credit him with a New York City birth. It's known he was the oldest son of Antonio Musica, an Italian immigrant who established a grocery business in New York’s Little Italy.

The young Musica dropped out of school at the age of 14 to help with his father’s business. Musica had an extraordinary knack for running a business, and while still in his teen years he expanded his father’s operation into a successful importer of Italian food. Part of his success came from making the system work to his advantage — he dealt directly with vendors in Italy rather than go through a wholesaler middleman, thus pocketing more revenue.

But part of Musica’s success came in locating the corrupt cavities within the system and filling them to his advantage.

During this era, the dock officials in New York weren't shy about taking bribes and Musica greased their palms in return for creating phony bills of lading that significantly lowered weights to his Italian food imports, thus saving Musica from paying hefty tariff fees and enabling him to make more revenue than his honest by-the-book competitors.

The scheme enabled Musica to move his family from a squalid apartment to a dignified mansion, but he was ultimately betrayed by one of his dockside collaborators. Musica and his father were indicted on fraud charges in October 1909, but the youth pleaded that he was solely responsible, which resulted in the elder Musica having the charges against him dropped.

Musica was fined $5,000 and sentenced to a year in a reformatory. He only served five-and-a-half months after President William Howard Taft commuted his sentence. How the young Musica was able to swing a presidential commutation is a mystery that still defies explanation.

Hair Today, Gone Tomorrow: Reunited with his family, Musica was eager to move away from the grocery business and into another endeavor. His father had been a barber in Italy prior to emigrating, and Musica was aware of hairstyling trends, particularly how women in the era used fancifully designed hairpieces. Indeed, good-quality hair sold to wigmakers for upwards of $80 a pound.

Musica founded a new company called U.S. Hair, but fell back on bad habits. Rather than sell the finer-quality hair, he directed his mother to sweep up near-valueless clippings from barbershop floors and pack them into crates, with a thin layer of expensive hair blanketing the top of the container.

Musica quickly realized a small fortune from this scam, and he took it one step further. He dispatched his mother to her homeland to obtains loans from Italian bankers, using faked invoices as collateral. Musica set up offices in European cities under the pretense of obtaining hair, but the same scam was pulled around the continent.

By July 1912, Musica was at the helm of a company with $2 million in capital and an alleged $600,000 in assets, though in reality, all he had was near-worthless human hair gathered from European barbershops.

The audacious Musica arranged for his company to be listed on the Curb Exchange, the forerunner of the American Stock Exchange, and U.S. Hair went public in October 1912 at $2 a share, which quickly soared to $10.

Almost immediately, Musica’s new scheme fell apart. He found it impossible to maintain the operation on phantom revenue and secured a series of bank loans to keep U.S. Hair in motion. He also borrowed diamonds from several New York jewelers in an on-approval basis — but with the jewels and loaned funds, he conspired to flee the country with his father and two brothers; his mother remained in Italy as the chaos unfolded.

But his lenders realized what was happening, and in March 1913 the Musica clan was apprehended in New Orleans ahead of their scheduled departure on a ship bound to Honduras.

Musica took full responsibility to spare his family from arrest and imprisonment, although he insisted that he was a victim of unscrupulous European partners. Musica’s guilty plea sent him to The Tombs, a New York municipal prison. The stress of Musica’s shenanigans frayed his father’s health and he died of a heart attack.

Injustice In Justice: Within three years of his imprisonment, Musica was released on a suspended sentence. As with his premature expulsion from the reformatory, the circumstances of Musica’s flight to freedom remain murky.

Musica may have become an inside informant on behalf of the district attorney. Historians Sheila D. Foster and Bruce A. Strauch have written that Musica’s collaboration may have resulted in the execution of two prisoners whose lives were endangered by his machinations.

After being released in 1916, Musica was recruited by a special investigator in the office of the New York State Attorney General. He worked under the alias William Johnson and was tasked with responding to the World War I-era hysteria by identifying draft dodgers and ferreting out suspected German spies.

During this time, Musica provided perjured testimony to convict Joseph Cohen, an innocent man accused of murder. Cohen was spared from execution minutes before he was strapped in the electric chair; Musica was indicted for subornation of perjury, but used his connections to have the case dismissed. After his release and exoneration, Cohen was murdered in his own home, and his killers were never caught.

Bootlegger Supreme: With the passage of the Eighteenth Amendment to the U.S. Constitution, the Prohibition era took root in the nation. Musica left behind his William Johnson alias and reinvented himself as Frank B. Costa, teaming with a fellow ex-convict on Adelphi Pharmaceutical Manufacturing Company.

Musica’s Brooklyn-based operation made hair tonic that was legally culled from 5,000 gallons of denatured alcohol per month. However, savvy consumers of the hair tonic realized they could distill the alcoholic content of the hair tonic to make their own bootlegged booze. Needless to say, the Prohibition-era demand for hair tonic was the greatest in the product’s retail history.

Musica quickly amassed a new fortune, but grew uncomfortable with the unsavory business partners who came on board as Adelphi grew. By 1923, Musica informed his Adelphi team that he was quitting the company. When they balked at his desire to depart, he informed law enforcement authorities that the alcohol content of Adelphi’s hair tonic was being used to make bootleg liquor. Musica went on his way as his former partners were arrested.

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Enter Dr. Coster: Musica changed pseudonyms once more, this time becoming Dr. Frank Donald Coster. The faux-doctor had an elaborate back story that put his alleged birthplace in Washington, D.C., his heritage as blue-blood WASP and his education at the University of Heidelberg in Germany, where he earned M.D. and Ph.D. degrees.

At this point, Musica fell madly in love with Carol Jenkins Hubbard, the wife of Wall Street investor Edward Hubbard. Musica methodically undid their marriage in a campaign against Hubbard that included the creation of forged documents implicating Hubbard of embezzling his business partners and a phony letter to his church congregation accusing Hubbard of adultery with a younger woman.

Musica also invented phony criminal charges against Hubbard that he relayed to law enforcement, resulting in Hubbard’s arrest and subsequent nervous breakdown.

Carol divorced her husband and married Musica, unaware of his previous identities and misadventures. The couple settled in Fairfield, Connecticut, a swanky suburb of New York City, where they became the toast of the millionaires who overpopulated the community.

With Adelphi out of business and his former partners behind bars, Musica went back into the (cough cough) hair tonic business. His brothers were now his allies: George (now renamed George Dietrich) and Robert (now renamed P. Horace Girard) were recruited to operate Girard & Co., whose hair tonic had up to 90% alcohol content — and no less a figure than the notorious mobster Dutch Schultz was among his customers. A third brother, Arthur (now George Vernard) was put in charge of a subsidiary business called W.W. Smith & Co.

Girard & Co. was a success, but Musica was itching for the proverbial bigger and better.

In 1926, he acquired McKesson & Robbins, a pharmaceutical company that had been in business for nearly a century but fell on hard times. He bought the company for $1 million and then turned around to sell $1.65 million in stock in his newly reconfigured firm, whose executive suite was populated by his brothers.

At first, Musica used McKesson as a front for his bootlegging operations, with meticulously fraudulent bookkeeping records that successfully kept auditors clueless to his shenanigans. Incredibly, Musica adapted to the ebb and flow of the pharmaceutical industry, and by 1928 he brokered a deal that resulted in McKesson’s acquisition of 66 wholesale drug firms. The Federal Trade Commission was suspicious of this mega-transaction, but Musica managed to dial down their concerns.

Apotheosis And Wreckage: When Wall Street collapsed in October 1929, Musica saw $1 million of his fortune vaporize. Yet Musica took on new indefatigable energy to keep McKesson afloat, with strategies ranging from reselling low-priced drugs at inflated prices, bartering with cash for product resources and, of course, the continued bootlegging.

Musica had also developed sycophantic allies in the newspapers, and glowing stories of McKesson’s success in the face of an economic catastrophe became commonplace.

Although Musica identified as a Republican, he knew the coming of Democrat Franklin D. Roosevelt’s presidency spelled the end of Prohibition. Before the Twenty-first Amendment to the Constitution repealed Prohibition, Musica converted his bootlegging partners into legitimate dealers in now-legal alcohol, thus ringing in the post-Prohibition era with a cornered market.

In his guise as Coster, Musica was not particularly loved by his workforce, who disparagingly dubbed him “The Duke” for his autocratic manner, or by many of his investors, who didn’t understand how he ran a Canadian subsidiary that didn’t seem to help the company. The fact the Canadian subsidiary benefited the Musica clan rather than the full corporate enterprise was not disclosed until years later.

Nonetheless, the perceived success of McKesson impressed the Republican Party leadership to seek out Musica-as-Coster to challenge Roosevelt. While one might imagine Musica was flattered by the attention, he was shrewd enough to realize that being in a national spotlight could create problems — especially from those who recalled his previous identities and lives.

His fear was justified. By December 1938, Julian F. Thomson, a banker who became treasurer at McKesson, was faced with irrefutable evidence that the company was lethally infected with corruption and fraud. Musica’s downfall was swift — the U.S. Securities and Exchange Commission (SEC) was alerted and the New York Stock Exchange halted trading on McKesson stock.

The McKesson board of directors demanded Musica’s resignation, which he refused to offer. Two days later, Musica and his brother George were arrested, fingerprinted and charged with filing false documents with the SEC. Musica was released on bond, but when his photograph appeared in a newspaper he was recognized by a former colleague at the New York Attorney General’s office as the one-time William Johnson. Although fingerprint records from his incarcerations were too deteriorated to make a conclusive match, other former acquaintances stepped forward to identify Musica from his earlier criminal escapades.

On December 15, 1938, newspaper headlines unmasked F. Donald Coster as Philip Musica. The next morning, Musica was in his Connecticut mansion when he received a telephone call from his attorney informing him that his brother George was taken into police custody and he was targeted for apprehension later that day.

When the convoy of federal marshals arrived on his property, Musica’s St. Bernard began barking furiously over their appearance. His wife Carol went downstairs to survey the scene as Musica went upstairs, locking himself in the bathroom. When the front doorbell rang, Carol sought to quiet the dog and allow the marshals inside.

Suddenly, the house echoed with the abrupt pop of a gunshot. The marshals raced upstairs and forced open the bathroom door. Musica’s body was slumped over a bathtub, the blood from his gunshot-shattered skull pouring into the drain.

Investigators theorized this awkward position was intentional. The bathroom had a plush light-colored carpet and the fastidious Musica did not want to leave it stained while enacting his final exit.

While Musica did not survive his criminality, his company did. McKesson & Robbins morphed over the years and is today’s McKesson Corporation MCK, which posted revenues of $231.1 billion during 2020. It would seem McKesson was the one thing that Musica’s recklessness could not destroy.

If you have any suggestions for this series, email them to philhall@benzinga.com.

(Philip Musica's teenage mugshots from his 1909 arrest. Photographs courtesy of New York City Department of Corrections.)