geeky
The scandal concerned an oil reserve in Wyoming that was covered by a teapot-shaped rock formation. For many years, measures were taken to ensure the availability of petroleum reserves, especially for the Navy's use. In the early 20th century, after naval ships converted from coal to oil for fuel, several oil-producing areas had been designated as Naval Oil Reserves by President Taft. In 1921, Harding issued an executive order that transferred control of Teapot Dome Oil Field in Natrona County, Wyoming, and the Elk Hills and Buena Vista Oil Fields in Kern County, California from the Navy Department to the Department of the Interior. This was not implemented until 1922, when Interior Secretary Albert B. Fall persuaded Navy Secretary Edwin C. Denby to transfer control. On February 23, 1923, Harding issued Executive Order # 3797, which created the Naval Petroleum Reserve Number 4 in Alaska. The reserve system was intended to keep the oil under government jurisdiction rather than subject to private claims. Management of these reserves had become the subject of a turf war between the Navy and the Department of the Interior. The strategic reserves issue was also a subject of controversy between conservationists and the petroleum industry, as well as those who favored public ownership versus private control.
Harding's Secretary of the Interior, Albert B. Fall, had been a US Senator from New Mexico. He came to his new position with significant political and legal experience, as well as heavy personal debt. Ideologically, he was an avid supporter of the private ownership and management of reserves.
Fall contracted with Edward Doheny of Pan American Corporation to build storage tanks in exchange for drilling rights at Elk Hills. It later came to light that Doheny had made significant personal loans to Fall. Fall also negotiated leases for the Teapot Dome reserves to Harry Sinclair of the Consolidated Oil Corporation and its subsidiary Mammoth Oil in return for guaranteed oil reserves to the credit of the government. Sinclair had also personally made concurrent cash payments of over $400,000 to Fall. The leased Navy petroleum reserves were located at Teapot Dome in Wyoming and at two other locations in California to private oil companies. The leases were negotiated at low rates and without competitive bidding.
The lease terms were very favorable to the oil companies. Secretly, Fall had received a no-interest loan from Doheny of $100,000 (about $1.32 million today) in November 1921. He received other gifts from Doheny and Sinclair totaling about $404,000 (about $5.34 million today). It was this money changing hands that was illegal, not the leases. Fall attempted to keep his actions secret, but the sudden improvement in his standard of living raised suspicion.
In 1922 and 1923, the leases became the subject of investigation. In April 1922, a Wyoming oil operator wrote to Senator John B. Kendrick, and complained that Sinclair had been given a contract to the lands in a secret deal. Two days later on April 15, Kendrick introduced a resolution calling for an investigation of the deal. Republican Senator Robert M. La Follette, Sr. of Wisconsin led an investigation by the Senate Committee on Public Lands. At first, La Follette believed Fall was innocent, but his suspicions deepened after his own office in the Senate Office Building was ransacked.
Democratic Senator Thomas J. Walsh of Montana, led a lengthy inquiry. No evidence of wrongdoing was initially uncovered because the leases were legal. But records kept disappearing mysteriously. The troubling question remaining unanswered was how Fall had become so rich so quickly and easily. During the hearings, Fall said "Sir, if you have a milkshake and I have a milkshake and my straw reaches across the room, I’ll end up drinking your milkshake."
Money from the bribes had gone to Fall's cattle ranch and investments in his business. Finally, as the investigation was winding down with Fall apparently innocent, Walsh discovered evidence of Doheny's $100,000 loan to Fall. This discovery broke the scandal open. Civil and criminal suits related to Teapot Dome continued throughout the 1920s. In 1927 the US Supreme Court ruled that the oil leases had been fraudulently obtained. The Court invalidated the Elk Hills lease in February 1927 and the Teapot Dome lease in October. Both reserves were returned to the Navy.
In 1929 Fall was convicted of accepting bribes from Doheny and of conspiracy. He was jailed for one year, making him the first Cabinet member to go to prison. Remarkably, Doheny was later charged with bribing Fall, but was acquitted of the charge.
The Teapot Dome scandal was regarded as the "greatest and most sensational scandal in the history of American politics" up until Watergate. It damaged the public reputation of the Harding administration. An excellent book about the Teapot Dome scandal is Laton McCartney's 2008 book The Teapot Dome Scandal: How Big Oil Bought the Harding White House and Tried to Steal the Country.