This Week in Whistleblower History: The Hall Carbine Affair and Defense Procurement Fraud

This week marks the first public unveiling of a fascinating—and still disputed—event in whistleblower history called the “Hall Carbine Affair.”  Arising out of the investigative activities of a U.S. House Special Committee at the start of the Civil War into rampant defense procurement fraud, the scandal involved the government sale and then repurchase of obsolete rifles for the Union Army at grossly inflated prices by the disgraced frontiersman and first Republican party nominee for president, General John C. Fremont, and the young financial wizard, J. Pierpont Morgan.  It is a tale of government contracting fraud and corruption that still echoes today.

The Hall Carbine Scandal During the Civil War

On September 28, 1861, the New York Times reported certain “Extraordinary Statements” from an unnamed source in Washington D.C., that General John C. Fremont had “a day or two since made a requisition of $500,000 to be paid immediately” for military weapons and ordnance in St. Louis.  Citing Brig. General James Wolfe Ripley, the head of the U.S. Ordnance Bureau, the Times further reported that “no authority whatever was known in the Ordnance Bureau for Gen. Fremont’s making the purchases.”  Moreover, Fremont had paid “excessive prices” for many of the weapons, including “$22.50 each for Hall’s carbines, which only cost $17.50 when new,” and had been “rejected from the United States service and sold as condemned property at public auction for $6 and less.”  The government had good reason to want to get rid of these weapons.  Patented by John Hancock Hall in 1811 and adopted as the U.S. Army rifle in 1819, Hall carbines were no longer being manufactured by the start of the Civil War, in part because they had a tendency to explode when fired, amputating the shooter’s fingers.

Nevertheless, despite these flaws, the Times further reported that there was “no evidence from Gen. Fremont’s command” that the Hall carbines he purchased without authorization had been inspected.  As apparent from the U.S. House Special Committee’s subsequent investigative report, issued in June 1862, the Hall carbines purchased by Fremont were part of a batch of 5,000 weapons that the U.S. Army had sold in June 1861 to an arms merchant with Gen. Ripley’s approval for $3.50 each.  Ripley was clearly aghast that these same weapons were being resold back to the government, after modest improvements, for $22.50.

The middleman in this transaction was a twenty-four-year-old banker from New York named John Pierpont Morgan.  Morgan financed the arms merchant’s purchase of the Hall carbines from the U.S. government, took physical control of the weapons after they were “improved,” and withheld their final shipment to Fremont until he got paid the full marked-up price.  According to the U.S. Special Committee’s report, the U.S. paid $113,725 to buy-back the Hall carbines it had originally sold for approximately $17,500 – a profit margin to Morgan and business partners of 550%.  It is unclear from the historical record what Morgan’s cut was from this transaction, but one surmises his profit was significant and helped launch his career as a financier.

Did J.P. Morgan and Fremont Conspire to Commit Fraud?

Open to dispute is whether Morgan knew that General Fremont lacked authority to purchase the Hall carbines at the time of the transaction.  Was he part of a conspiracy to defraud the government?  Historians disagree.  In 1943, historian Gordon R. Wasson published a lengthy study of the Hall carbine affair and argued that there is no evidence that Morgan committed fraud.  Others have pointed out that Wasson’s analysis is suspect because, after exonerating Morgan, he became vice president for public relations at J. P. Morgan.  Also uncertain is whether Fremont was complicit.  At the time of the events in question, Fremont already had a track-record as a “rogue” government agent, having been court-martialed as a Lt. Colonel in 1848 for insubordination during the U.S. conquest of California.  His reputation was rehabilitated following persistent lobbying by his remarkable wife, Jessie Benton, and powerful father-in-law, Senator Hart Benton.

Defense Procurement Fraud Remains a Problem Today

Today, defense procurement fraud continues to be a significant problem and drain on the U.S. Treasury.  A Brown University study shows that in the post-9/11 world, the United States’ reliance on private military contractors has increased dramatically.  “In 2019, the Pentagon spent $370 billion on contracting—more than half the total defense budget of $676 billion and a whopping 164% higher than its spending on contractors in 2001.”  The scale and pace of military contracting spending, together with insufficient oversight, has led to fraud, waste, and abuse.  The False Claims Act, originally enacted in 1863 to address fraud in defense contracts during the Civil War, remains a vital tool to address government contracting fraud.

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