When Premier Smallwood learned his trusted financial wizard had use his job to extort a fortune, he was aghast. How had he done it? Where was the money? Here, for the first time, are the facts

ON THE afternoon of April 24, 1954, several hundred Newfoundlanders drove to Torbay Airport outside St. John’s for a glimpse of Dr. Alfred Valdmanis as a scarlet-coated Mountie ushered him off a mainland plane and into a waiting police car.



The turnout was unusually large, but then, Dr. Valdmanis was an unusual celebrity. As the mastermind of Newfoundland’s industrial renaissance, he had been, next to Premier Joseph Smallwood, the most powerful man in the province. Now—charged by his closest friend, the premier himself, with extorting “very large sums of money from various firms with whom he dealt in behalf of the Government of Newfoundland”—he could claim additional distinction as one of the most successful swindlers in Canadian criminal annals.

“The Doctor,” as everyone called him, had come to Newfoundland four years before. Premier Smallwood had hired him to lead the island’s codfish economy down the bumpy road of industrialization. Valdmanis, a brilliant economist, had built three government-owned plants based on Newfoundland’s natural resources. With the lure of government loans, he had brought in a dozen new industries. As head of the million-dollar crown development company, the Newfoundland and Labrador Corporation, he had stimulated exploration by mining and lumbering companies. But all these accomplishments paled before the dexterity with which, in awarding construction contracts to two German machinery firms, he had managed to divert a hefty chunk of the contract money—$470,000—into his personal bank account and escape detection for almost four years.

His conviction, in June, brought him a four-year sentence, but did not close the case. He was convicted only on one charge. A second charge has never been prosecuted—or dismissed. Some critics of Premier Smallwood have cynically suggested that the charge was left pending to keep the press, on pain of contempt of court, from telling the story in detail. Members of the attorney-general’s staff say that they hoped, through the pressure of this second charge, to induce Dr. Valdmanis to reveal what he has done with some $360,000 that has never been recovered.

Valdmanis, who with continued good behavior will be released in the fall of 1957, gives no indication that he intends to divulge any new information. It is evident that some aspects of the case will never be known and that the second charge against him will be dropped. Behind the grey stone walls of the Newfoundland Penitentiary, Dr. Alfred Valdmanis, still boyishly handsome at forty-seven, remains as enigmatic a figure as ever, a brilliant tragic adventurer whose inordinate desires came near to toppling Canada’s most solidly entrenched provincial government

A select group of leaders

The affair is rooted deep in Valdmanis’ past. He was born in Latvia, then a province of Russia. His father was a high-school principal, a serious man who would not allow his son a toy but who taught him to read and write before his fourth birthday.

When Alfred was seven, in World War I, the Germans overran Latvia and took his father away. War with Russia followed, in which Latvia won her independence. But the people paid in years of fear and famine-. Alfred, the eldest of five children, though enfeebled by TB and tension, hustled to help earn the family’s food in his after-school hours.

His school work caught the eye of the government. Faced with a shortage of leaders, they picked seven hundred boys, the brightest in the land, for special training. Every term, those who showed flaws, mental or moral, were weeded out. The trainees lived under constant emotional strain. By 1929, only a dozen were left. Alfred Valdmanis was one. He had schooled his emotions as well as his mind. He had mastered the manner expected of a leader.

He won degrees in philosophy, law and economics. He was sent abroad to learn finance from the finest minds of Europe. He sat in the Reichsbank and watched the Nazi financial wizard, Dr. Hjalmar Schacht, gear the German economy for war. He studied industries in a dozen European countries and set up similar industries in Latvia. He was the boy wonder of European finance and at twenty-nine, his dress suit studded with decorations, he took over Latvia’s Ministry of Finance, Trade and Industry.

In 1940, the Russians marched in. Hundreds of Latvian leaders, including Valdmanis, were thrown in jail. All cabinet members except Valdmanis were shot. Valdmanis somehow survived and in the general confusion was freed the following year when the Germans drove out the Russians. His youth and the fact that he was the only familiar name remaining made him a hero to his people. He led the Latvian underground until 1943 when the Germans captured him. He was tried in Berlin by the secret police, and, he says, sentenced to death.

Six years afterward, testifying in Ottawa before a Senate committee on immigration, Valdmanis claimed he was spared only because he possesses a Swedish award, Grand Commander of the North Star. It was, he said, “the highest decoration that the Swedish government could give to anybody . . . If I did not live any more my wife and children were under the obligation to return the decoration to the Swedish king. Using this as a pretext, the Swedish ambassador . . . intervened in my affair . . . Hitler was extremely anxious to be on good terms with . . . Sweden so my execution was postponed for a week, then two weeks; and at that time postponement of an execution was almost sure to mean that you saved your life.”

It is sad to report, after such a romantic recital, that the North Star is only a second-class order, that the king of Sweden did not know Valdmanis and the Swedish government has no record of intervening for him. No one except Valdmanis knows for sure if his life had really been in danger and, if so, how he was saved. It may have been by his own reputation—for he ended the war in Biebrich-am-Rhein where he was one of the Nazis’ senior economists, in charge of planning production in cement, limestone, lime, gypsum and alabaster. All that is certain is that he survived the Russians, impressed the Germans, and won the confidence of the Allies, first on Montgomery’s staff, then at Eisenhower’s headquarters, and finally as chief planner for the International Refugee Organization in Geneva.

In July 1948, Montreal’s Lady Davis Foundation, set up to aid top-level refugees, invited Valdmanis to Canada. Valdmanis, who says he was on the Communist “wanted” list, was glad to come. In Ottawa, he wangled part-time posts advising the government on immigration and trade, and at Carleton College he taught political economy to students awed by the crisp ring of authority in his voice.

But we can only guess what these years had done to the inner man. By the rigid force of his will he had molded his character, like his Latvian industries, on the most approved, the most efficient plan. He had seen the results of his work, both for himself and Latvia, swept away by the war. Sacrifice had been in vain. Virtue was valueless. “If I ever get in a position to make a large amount of money,” his wife later reported him as saying, just before their trip to Canada, “I’ll make it no matter how I do it.”

He had scarcely arrived in Canada when one of his four children was struck by a hit-and-run driver and nearly killed. Another fell ill with tuberculosis. Most of his friends were dead.

His spirits reached their lowest ebb in the spring of 1950. He had tried to promote a gypsum plant for the Nova Scotia government. He had failed, and, back in Ottawa, it rankled. He looked with contempt on what he considered the petty views of his fellow economists in Trade and Commerce. In turn, they thought him a nuisance with his grandiose schemes for Canadian development. He pined for his lost power, prestige and recognition. The personal drama of Alfred Valdmanis, ex-hero, ex-cabinet minister, was ripe for the whirlwind entrance of another man of destiny, Newfoundland’s Joey Smallwood, ex-pig farmer, ex-broadcaster, and now the brightest star of Canada's newest political theatre.

Smallwood was in something of a predicament. He had promised to cure the chronic poverty of his people by bringing new industry to the island. He had spent a million dollars on a survey of resources but Canadian and U. S. businessmen wouldn’t give it more than a glance. Newfoundland had come into Confederation with a cash surplus of forty-three million dollars and Smallwood was willing to gamble the cash and his own political future on some government-sponsored industries. But he couldn’t find an economist willing to risk his reputation on such an unorthodox escapade.

In May 1950, Smallwood paid a visit to Trade Minister C. D. Howe. One of Howe’s staffers mentioned Valdmanis. “Send him over,” Smallwood said.

The Latvian joined the premier for dinner in his suite in the Chateau Laurier. As Smallwood outlined the challenge, he was sizing up his guest, a medium-sized man with an athletic carriage. He was charming, at his ease, deferential yet reserved in a manner that implied strength of character. He had assurance. His small firm mouth shaped his thoughts with incisive clarity. His eyes--the intent eyes of a visionary or a fanatic--kindled as he described how in Latvia he had solved many problems similar to Newfoundland’s. Smallwood quickened to the latent power of the man. After dinner he hired him at ten thousand dollars a year.

Valdmanis installed a large desk at the farthest end of the biggest office in St. John’s Colonial Building, which houses the provincial legislature. In a province where even the politicians are unpretentious men, he called himself Director-General of Economic Development. Flouting the convention of using green or black letterheads on government stationery, he ordered his resounding title emblazoned in royal purple.

These opening gambits did little to endear him to his civil-service colleagues and the cabinet. It did not seem to help that he could trim them in tennis or bridge and play the piano with style. They were, perhaps, inclined to resent a foreigner anyway, and one whose salary was larger than theirs was particularly suspect. They mistrusted the sincerity of his modest winning manner and noted that his courtliness did not extend to his staff.

But Premier Smallwood saw only a brilliant man who arrived for work every morning sharp at nine o’clock and did not leave until long past the supper hour. Often, Valdmanis would walk into Smallwood’s office at midnight and remain until two in the morning. Here, at last, Smallwood felt, was a man who could match his own working pace, zeal and vision.

In remarkably little time, Valdmanis laid on the premier’s desk a plan to build three government plants. These would be working models to show skeptical investors what could be done in Newfoundland. The west-coast hills were rich in limestone, gypsum and clay, the raw materials for Portland cement, and Valdmanis had walked on foot along two hundred miles of shoreline to pick a plant site at Humbermouth. The gypsum quarries, he figured, could also supply a plaster mill, and the island’s dense birch forest could feed a plywood and furniture factory. Best of all, Vaidmanis saw a way in which the scheme could be managed so Newfoundland would save money and he would be rich.

The cement plant should be the first of the government-built plants --it could supply the cement for future building. There were German firms, Valdmanis said, that would build it, quickly and cheaply. He also knew firms in Europe that might be persuaded to move to Newfoundland. He had many contacts in Europe, he claimed.

They flew to Europe that summer of 1950, the premier, Valdmanis and Attorney-General Leslie Curtis. Curtis had been skeptical of Valdmanis’ claims. His attitude changed as they toured factories in Sweden and Germany. These big efficient plants were clearly doing a world-wide business. Their directors, men of large affairs, greeted Valdmanis respectfully. “Why, he knows everybody !” Curtis marveled.

Valdmanis also knew how some of his German friends were thinking. They headed potential war industries. Their output was restricted. If Russia moved into West Germany, as many feared it might, their firms would be taken over. But in Newfoundland, if war came, the risk would be less. Unfortunately, they were banned from taking capital out of Germany.

A plan to make him rich

Valdmanis worked out a scheme whereby Smallwood would loan Canadian dollars to any companies who wished to emigrate. The loans would match the value of the equipment they landed in Newfoundland. Happily, Smallwood signed contracts that would bring in a leather tannery, a leather goods factory, a cotton mill and a heavy-machinery plant.

This machinery plant, ostensibly Swiss, in reality was a branch of the huge German firm, Miag. It was Miag that Valdmanis now selected to build his cement plant. In the back of his mind for some time a plan had been forming whereby this deal, a three-million-dollar contract, would make him a wealthy man.

Accompanied by Attorney-General Curtis and the premier, Valdmanis walked into the big Miag board room. In fluent German he greeted the Miag directors. As the only man in the Newfoundland party who understood German, all authority for this deal was vested in him.

He sat down at the board table across from the Miag negotiator. He showed no nervousness; this was his element. A few feet away, Smallwood and Curtis were talking in English with several other Miag directors. The negotiations went smoothly. Hearing his name mentioned, Smallwood looked up and smiled.

Still talking in German, Valdmanis said casually to the Miag directors that if the deal went through there would, of course, be a ten-percent commission. As he spoke he smiled at Smallwood. “How do we pay the money?” a Miag director asked. Valdmanis’ reply, as the German recalls it, was:

“You will pay it to me in Newfoundland, in Canadian funds, as you receive the payments on your loan. Mr. Smallwood’s name must not come into it, of course.” Again the two men exchanged smiles with the premier. “--I wouldn’t even mention it to him if I were you.”

With equal aplomb, a like transaction was carried off in the board room of Benno Schilde, another big German machinery firm. Valdmanis awarded them a two-and-a-half-million-dollar contract to build a gypsum plant. The commission was to be two hundred thousand dollars.

Miag started construction on Newfoundland’s cement plant that fall and their resident engineer, Erich Kirmse, handed Valdmanis $55,000 in cash. By the time the government-owned building was completed a year later, Miag’s assistant sales manager, Heinz-Joachim Wilke, had sent another $215,000 in U. S. funds to an address Valdmanis had given him in New York. Benno Schilde began their plant, and their payments a few months after Miag.

Smallwood was delighted to see his dream taking shape in concrete on the shores of Humbermouth. He was told by engineers that if these plants had been contracted in the usual way to North American firms they would have cost several million dollars more. The premier gave Valdmanis unstinted praise for his planning and bargaining. And when a crown corporation was set up to manage the cement plant, he named it the North Star Cement Company in honor of this genius whose life was said to have been saved by a decoration he wore, Sweden’s Order of the North Star.

Equally impressed, a U. S. steel corporation offered Valdmanis fifty thousand dollars a year and a vice-presidency. Smallwood raised Valdmanis’ salary to $25,000 a year, an extraordinary sum in this low-salaried island. The premier, whose own salary was less than $10,000, countered criticism by vowing that Valdmanis was “worth his weight in gold to Newfoundland.”

In September 1951, Smallwood took off again on a month-long sales tour of Europe. “Fishing in troubled waters,” he called it. With Valdmanis as guide, he signed contracts for another eight industries. Stopping off on the way home at London’s Savoy Hotel, he told British reporters with a wide gamin’s grin, “We’ll dot Conception Bay with factories . . . People are beginning to catch on. After all, you don’t say no to Santa Claus.”

This was too much for Mr. Smallwood’s Conservative opposition in the Newfoundland legislature. His new factories were doomed to fail, they declared. The birthright of the province had been squandered by Joey Smallwood on a bunch of foreigners. Santa Claus, indeed!

The Liberal premier grasped joyfully at this criticism. His term of office had two and a half years to run. Just about the time he’d be coming up for reelection his new industries would be passing through that embarrassing period when the ledgers are usually balanced in red ink. The criticism was all he needed to call a snap election. “We should go back to the people,” he said, “and seek a special mandate to go ahead with . . . this great program of economic development.”

The Conservatives, taken off guard, broadened the issue of development to include its $25,000-a-year director general. A Conservative MP from St. John’s, W. J. Browne, told the House of Commons in Ottawa that Joey had embarked on a mad venture into “national socialism” with the aid of a gentleman--“who in a book written in 1943 by Gregory Meiksins, was called ‘the Quisling of Latvia and a Nazi collaborator.’ ”

In St. John’s, it was charged that Valdmanis was “flooding Newfoundland with Nazis.” A New York Zionist paper, The Day, was quoted. An article headed ALFRED VALDMANIS, LATVIAN NAZI AND MASS MURDERER OF JEWS CARRIES ON HATE PROPAGANDA IN CANADA, claimed that “Valdmanis visited Hitler three times in Berlin . . . and demanded that the Jews in Latvia . . . he liquidated.”

“These are terrible things they’re saying about you,” Smallwood said to Valdmanis. “Are they true?”

Valdmanis denied them vehemently. He was upset. The election had been an unforeseen complication. If Smallwood lost, he, Valdmanis, would not only lose his high-paid job, he would be in no position to collect the money still owed him by Benno Schilde. He had many friends among the Jews in Latvia, he told Smallwood. These charges were typical of Communist attempts to discredit prominent anti-Communist patriots.

The premier telephoned Ottawa. He asked Lester Pearson, external affairs minister, if he would check with the RCMP, who have access to allied secret-service reports, and find out if Valdmanis’ accusers were telling the truth. Smallwood says Pearson called back and said that according to RCMP information Valdmanis was clear.

With no more hesitation, the premier sprang into the fray. He branded the attack on Valdmanis as “foul, malicious and utterly false.” Valdmanis, he said, had been checked by British Military Intelligence, the RCMP, and twice by U. S. Army Intelligence. The second U. S. investigation, in charge of a Jewish colonel, described Valdmanis as “an extremely self-sacrificing individual.” “Some day the people of Newfoundland will raise a monument to him (Valdmanis),” Mr. Smallwood proclaimed. “ ... If I lost him I would not want to be premier.”

Whatever Newfoundland citizens might feel about losing Valdmanis, the thought of losing Joey was unbearable. In every district except St. John’s, they voted him back to power. Valdmanis was still in scoring position.

Now Smallwood put his Santa Claus bag away and began his big pitch to bring in not merely outside industry but outside capital too. He set up a government company and gave it timber, mineral and water rights over thirty-two thousand square miles of land. Its aim was to get dams, logging camps and mines operating, not with the government’s money but by deals with private firms. Valdmanis sold shares in the venture—the Newfoundland and Labrador Corporation -to two large investment firms, Harriman Ripley, of New York, and Wood Gundy, of Toronto. This unique partnership of private and public capital held an empire as big as New Brunswick and Prince Edward Island. Its chairman was the fabulous financier, Sir William Stephenson, who formulated policy from New York. But the real ruler was Dr. Alfred Valdmanis, who, in addition to his government post as development director, was the corporation’s president, its executive officer.

Only his lack of personal popularity marred Valdmanis’ prospects. He remained aloof, austere, formally polite or icily restrained. Perhaps he did not realize the danger of enemies. Perhaps he was simply unable to give of himself. Behind his back, people called him führer, dictator, czar. Finance Minister Gregory Power, a lean dark saturnine man, did not even attempt to disguise his distrust; more than once he urged Smallwood to get rid of Valdmanis. Once, in Smallwood’s absence, the acting premier, Attorney-General Curtis, seriously thought of firing the economist. But, he concluded, the premier would only re-instate him and he would draw the ire of his chief to no purpose.

Smallwood would brook no criticism of his right-hand man. Like ex-U. S. president Harry Truman, he gave to his friends an unreserved loyalty. By now, he and Valdmanis were intimates, though between them Smallwood kept a certain distance. Valdmanis never addressed him as anything but “Premier,” and Smallwood referred to Valdmanis as “Doctor.”

In truth, Smallwood had little time or patience save for results and he felt he had only to look around him to see the results Valdmanis had wrought: a dozen new industries paying out wages, bringing in money; a dozen mining companies scouring the hinterland for minerals. Valdmanis, he was sure, was a great man. He gave him absolute authority. In 1952, when a U. S. correspondent asked the premier how his industrial program was shaping up, Joey replied, “Hell. I don’t know. Ask Valdmanis!”

Valdmanis was now the industrial boss of Newfoundland. He seemed to have everything that a man could reasonably ask: a devoted family who lived in a fine house he had bought them in Montreal, an expensive apartment in one of St. John’s best residential districts. He also had a fortune in graft secretly tucked away in a New York bank.

Latvians throughout Canada looked up to him, and to keep his influence alive he bought a Latvian-language newspaper published in Toronto. His assistant, A. Graudins, was a Latvian, as was his secretary, Olga Leikuks, a trim and attractive blonde who had idolized Valdmanis from afar as a schoolgirl in Latvia. It was Valdmanis’ constant ambition, the great dream of his life, to return to a free Latvia as president.

In the meantime, he had the respect of the German community that was growing in size and influence on the island due to his efforts; when they wanted something they called “the Doctor” who saw that they got it. He had even more power, more latitude of action, than he had had as Latvia’s finance minister. People spoke of the “Small wood-Valdmanis government.”

Yet Valdmanis seemed troubled. In 1951 in St. John’s he was arrested for drunk driving. He was remanded twice and then the case was dropped. But for such a self-controlled man, who claimed to practice strict moderation, it was an early significant sign of weakness. More and more his temper flashed from behind the façade of self-mastery. He became indiscreet. Once, he parceled up $25,000 in bills and sent them through the mail to his wife in Montreal, insured for the limit the post office would allow: fifty dollars.

His wife, perhaps, suspected that something was wrong but did not know; she was not his confidant. She was a sweet, gracious, trusting woman who could not believe what was becoming increasingly plain—that Valdmanis had too much money for even a man in his position. His brother, Osvald Valdmanis, who had followed him to Canada and was then working in Montreal, would sometimes ask him, “Alfred, where do you get all the money? We know you make a big salary, but surely it does not buy all these things?”—referring to the style in which Valdmanis lived, the gifts he bought, the expensive car he drove. Valdmanis would mention vague stock-market speculations.

In Smallwood’s office, Valdmanis would sometimes raise his hands to his head in a gesture theatrical, yet distraught. “I’m tired, my Premier,” he would blurt. “I cannot sleep. I think sometimes I am going mad.” He was subject to violent headaches. He used huge amounts of Aspirin. He regularly took sleeping pills. On one occasion he called up his brother and said he was going to shoot himself.

Whatever it was that distracted Valdmanis so desperately, it was slowly destroying his judgment, that superb capacity for clear cold analysis. He made his first grave error early in 1953. Sir William Stephenson, for personal reasons, resigned as the corporation’s chairman and Valdmanis accepted an invitation to take his place. He decided also to quit as the government’s economic director and to move the corporation’s head office from St. John’s to Montreal. It seemed a harmless decision but it had two fatal defects: it encouraged Valdmanis to overestimate his importance while weakening the source of this importance-—his value to the premier.

Premier Smallwood had been disappointed that Valdmanis had not brought his family to St. John’s. Valdmanis explained that one of his children had a spinal condition that needed the constant care of a specialist. Smallwood felt that the explanation was less than the whole truth and, when Valdmanis told him he himself was quitting St. John’s, the premier was vexed and disturbed. Again he could not dispute the reason; Montreal was indeed a logical base for a big-time promoter. But in his heart the premier felt that Valdmanis was deserting him, that having started these new industries he was now running off leaving him, Smallwood, to struggle alone with their problems.

He remembers telling Valdmanis as much one day. “But, my Premier!” protested Valdmanis. “You know I am at your beck and call any hour of the day or night.”

“Yes,” said Smallwood drily, “on your infrequent visits to Newfoundland.”

Others were noting flaws in the paragon too. When it came Valdmanis’ turn to pick up a restaurant cheque he would frequently contrive to be in the washroom. Often he would neglect to leave a tip for the waitress and Smallwood would reach across the table surreptitiously and place a couple of coins beside his plate. He found it irritating. The honeymoon of the premier and the economist was over.

Early in February 1954, Smallwood received some visitors, several officials of the Newfoundland and Labrador Corporation. The secretary-treasurer, Ronald Turta, drew some papers from his briefcase. He laid them on the desk in front of Smallwood.

The premier picked up the papers. They were expense accounts made out by Alfred Valdmanis and charged to the government-controlled corporation. There were bills receipted by Montreal’s Mount Royal Hotel that included costly C.O.D. trinkets from Morgan’s and Birks. There was a bill for a high-priced car, brand-new, and two months later, a bill for four new tires. Among the furniture bills for the new Montreal office was one for a five-hundred-dollar antique clock.

Smallwood looked up aghast. “Why, he must have furnished the place like an Indian maharajah!”

“I want your resignation”

The disclosure roused a mixture of emotions in the premier. He was hurt that Valdmanis had let him down, indignant at his dishonesty, and saddened by the thought of what he must do.

Valdmanis was due in St. John’s the following day. As soon as he telephoned, Smallwood said curtly, “Come on over. I want to talk to you.” He replaced the phone and asked his secretary to tell Finance Minister Gregory Power to come in right away.

Valdmanis burst into the premier’s office exuding purposeful energy. He greeted the two men jauntily, his hand outstretched to the premier. Smallwood affected not to see it. Valdmanis stepped across the room to shake hands with Gregory Power. Power ignored him. Valdmanis’ eyes became cautious, alert. “I want your resignation and I want it right away,” Smallwood told Valdmanis.

Valdmanis’ letter of resignation, dated February 8, 1954, read as follows:

Dear Mr. Smallwood:

Herewith I beg to tender my resignation ... I fully appreciate the necessity of NALCO’s Chairman having his main residence in St. John’s; on the other hand, and as mentioned in the Press a long time ago, I must now accept a job which will keep me very much on the Canadian mainland and in the U.S.A. Consequently, I cannot continue as Chairman of NALCO.

With all my heart I wish to thank you and Newfoundland for these difficult, but proud, years of co-operation while pursuing your policy of economic development. By the same token, pray, forgive me where I failed.

Faithfully yours,

Alfred A. Valdmanis.

Smallwood said nothing to contradict the impression this letter left. The accomplishments of Valdmanis, in the premier’s view, verged on the miraculous even yet. And as he announced Valdmanis’ letter of resignation, Smallwood could not forbear one final compliment. “Newfoundland,” he said, “will not soon again see so remarkable a man as Alfred Valdmanis.”

Reporters took Valdmanis’ resignation at face value. They noted that in January the doctor had bought a fish-processing plant near St. Andrews, N.B., and had installed his brother Osvald as manager. It was obvious that Dr. Valdmanis was at heart a free enterpriser. But no one seemed really to care. For when this man, whose name was a household word in St. John’s, departed on February 10, only two or three people saw him off at the airport. Perhaps, in the circumstances, he did not mind being unobtrusive.

At this point, the end of a perfect swindle, the curtain should have come down. But Valdmanis himself had dictated a different ending. Offstage, another play of events was fast approaching a climax.

It had begun in Germany. Smallwood had admired the plant of Benno Schilde, the firm with whom Valdmanis had made his deal on the gypsum-plant contract. The premier wanted Benno Schilde to open a branch plant in Newfoundland and, in late 1953, Dr. Hubertus Herz, head of the firm, agreed to put up a plant at Bay Roberts if Smallwood would loan him $150,000.

The loan was made and Valdmanis, to whom Benno Schilde still owed one last “commission” payment of $20,000, saw that now, while Benno Schilde was flush with Canadian dollars, was the opportune time to collect. When the premier left after Christmas for a holiday in Jamaica, Valdmanis, in Montreal, phoned Herz in Germany. Herz was later to recall his words.

“All hell is breaking loose,” Valdmanis said, “Smallwood’s pressing me for that twenty thousand. You’d better fly over with it right away.”

Herz did fly over, made some discreet enquiries among his Newfoundland employees and among members of the government and finally discovered Valdmanis’ deception. Then he said to Smallwood: “Mr. Premier, I think you should know that since 1951 Dr. Alfred Valdmanis has collected two hundred thousand dollars from the firm of Benno Schilde!”

Smallwood stared at him. He could not believe it. Later that night, Herz told him the details and promised to put them in writing. It was early morning when Herz left. Smallwood sat in his office alone and faced what he has since called “one of the hardest decisions I shall probably ever be called upon to make.” As he afterward said, “I have six brothers and seven sisters, and I never loved one of them as I loved that man.”

It was not only a personal blow, he was facing political death. At two a.m. he had made his decision. He telephoned Superintendent D. A. McKinnon, head of the Royal Canadian Mounted Police in Newfoundland.

“Could you come to my office right away?” he asked McKinnon. “It’s urgent.”

The superintendent dressed and came at once to Canada House. He found the premier pacing restlessly up and down his office. Smallwood explained that he wanted Valdmanis investigated, and why. He hesitated, then said, “I’d like you to do me a favor.”

“Anything in my power,” the Mountie said.

“Find that money. For God’s sake, find that money! If you don’t, not all the water in the ocean can wash me clean. Valdmanis can say he was acting for me. Who would believe that he wasn’t?”

“We’ll do our best,” the Mountie said.

A political life at stake

The investigation — in St. John’s, Montreal, New York and Germany— was conducted with the utmost secrecy. Smallwood and the police were sure that if Valdmanis caught the slightest hint that police were checking his past, he and the money would vanish and with them Smallwood’s reputation. Only the premier, Dr. Herz, his Newfoundland-based manager, and Attorney-General Curtis knew that the fate of Newfoundland’s government might now be resting upon the skill and caution of the RCMP and their allies, the FBI and the German police.

At five a.m. on the morning of April 24, Smallwood routed Canadian Press reporter Stewart MacLeod out of bed to give him this statement:

The RCMP arrested Dr. Alfred Valdmanis in New Brunswick early today ... He is being brought to St. John’s by the RCMP to stand trial on charges preferred against him by me that he extorted very large sums of money from various firms with whom he dealt in behalf of the Government of Newfoundland. These sums run into many hundreds of thousands of dollars . . . My decision to bring about the arrest of Alfred Valdmanis was the most unpleasant duty I have ever had to perform and it will always be for me a matter of intense regret that one with his great talents should have to face such charges.

This statement brought immediate comment from Malcolm Hollett, leader of the Progressive-Conservative opposition party, who said that “the real defendant must undoubtedly be Premier Smallwood and his entire cabinet.” In the House of Assembly, the opposition clamored happily for Joey Smallwood’s resignation.

Smallwood met the issue squarely. “I, and I alone,” he told the legislators, “am responsible for the fact that Dr. Valdmanis lies in jail . . . When I had (him) arrested I took my political life in my hands...”

Outside the House, Smallwood’s nerves showed the strain. “Frankly,” he barked at a journalist, “I don’t give a tinker’s curse what the papers say— the St. John’s papers or the mainland papers—it couldn’t matter less to me ... I certainly have nothing to lose politically over Valdmanis.” Mr. Smallwood was not sleeping well. All the money was not yet accounted for.

Valdmanis, in jail, still had a few cards to play. He wept when he told Allan Kent, of the Toronto Telegram, that he felt “a great hopelessness” about his chance to defend himself adequately. His private papers, he claimed, had been seized by police or had “disappeared.” He complained that none of his friends had called to see him: “I know why they feel they cannot come,” he said with a tired but understanding smile. “Their jobs are important to them and I am the first to recognize it.”

He called his arrest a “misunderstanding,” and he wept again as he pictured his disillusionment on discovering that the charges against him were laid by Premier Smallwood, “the one man I thought I could trust—my friend that I thought would help me out.” He brushed his hands across his eyes and fell silent. Then he looked up with a sad bright smile of apology and said, “You know, when I first came to Newfoundland, the premier told me that I’d do the work and he’d do the talking. I’ve always tried to keep it that way—but I just don’t know where I am now.” He waxed ironic: “You know, I’ve had one election fought over me in Newfoundland. Now I guess I’ll have another.”

With this half-veiled threat, Valdmanis, though a weary nerve-sick man, had skillfully tried to make himself appear a bewildered henchman taking the rap for a double-crossing boss. Valdmanis still did not believe that his friends in Germany would prosecute and he did not think Smallwood would dare press the charges himself.

In New York, in the meantime, an RCMP sergeant and an FBI man were checking Valdmanis’ bank deposits. They found systematic deposits for $470,000, the amount which Miag and Benno Schilde said they had paid him. Had the doctor simply left this cash in the bank vault, he could still have said he had merely deposited it for the premier. But the thought of losing a possible five-percent interest had been more than Valdmanis could bear. He had invested the money in stock shares. The police found no cash in his safety deposit box, only a sheaf of slips that recorded his purchases of stock.

The RCMP sergeant, Edgar Murray, is a chartered accountant, one of a trio of specially trained headquarters trouble shooters that includes a criminologist and a lawyer. Painstakingly, Murray tracked down every purchase of stock, verifying the fact that Valdmanis had bought it. He did not recover the shares, which may have been sent out of the country, but he managed to account for all but a few hundred dollars of the entire $470,000.

But Smallwood was not yet off the hook. Anywhere but St. John’s, he felt, Valdmanis’ conviction would have been certain. But if he chose trial by jury the chances would be greatly lessened, for St. John’s, a Conservative stronghold, was chock-full of Smallwood enemies.

On the day of the hearings, crowds surrounded the old rock-walled courthouse for a glimpse of the celebrated doctor. The courtroom was packed with reporters, photographers, movie and television cameramen. Valdmanis was brought in. Before Chief Justice Sir Albert Walsh, he bowed his head and whispered hoarsely, “My plea is guilty, your honor.”

Reporters were dumbfounded. Why had he changed his plea? Valdmanis had once more tried for too much. While in custody, he had written to a friend in Germany. He had asked this man to contact the heads of Miag and Benno Schilde. Valdmanis wanted them to say that the money they had paid him—the $470,000—was a legal commission. The letter was intercepted and came to Attorney-General Curtis who saw at once that Smallwood at last was safe. The letter was, in effect, an admission of guilt. Confronted with this overwhelming piece of evidence, Valdmanis decided to try for a lighter sentence by pleading guilty.

Valdmanis was defended, drolly enough, by the man who had led the election attack upon him, Conservative lawyer Gordon F. Higgins. Higgins asked for clemency on the grounds that Valdmanis had a clean record, a brilliant reputation, and a large family to support. “The guilty plea alone is quite a punishment for a man of his background,” he argued.

Chief Justice Sir Albert Walsh thought otherwise. Sternly, he told Valdmanis, “You are sentenced to four years at hard labor in the penitentiary.” Valdmanis bowed his head, blinked and swallowed hard. Then two Mounties led him away.

The important thing now was to get back the money. Valdmanis had offered to make restitution as far as he was able. But his assets were disappointing: $50,000 in stock, a draft for $10,000, a $50,000 stake in the fish plant near St. Andrews, about $110,000 in all. Where was the rest of the money, some $360,000?

The question has never been answered. Valdmanis tells officials of the attorney general’s office that he paid out the money to buy someone’s silence. He will not say who that someone is. He seems willing to co-operate but afraid to say too much.

The Newfoundland authorities are inclined to believe him. Blackmail fits some of the facts. It could produce the desperation that drives a man to overreach himself for if Valdmanis had been content with just a little less, he would almost certainly never have been exposed .

On the other hand, Valdmanis has proven himself a consummate actor. He could well have concocted the blackmail story to cover the missing money which could now be safely hidden or held in trust. There are people who trust him yet, able men who knew him well, who believe that he stole the money not for himself but for Latvia— that he intended, by playing the stock market, to build up a fortune big enough to finance a counter-revolution in the Communist-held land of his birth.

This belief is partly supported by one detail: even as the RCMP were investigating Valdmanis, he was running an open ad in the New York papers; he wanted to hire a trustworthy man, an ex-banker preferred, to manage a large financial estate.

We have our choice of morals as we have our choice of endings. Valdmanis may be a man ruined by a vain belief that security can be banked in the form of money. Or he may be a patriot whose love of power, masquerading as love of country, has dispossessed all other values to leave him morally bankrupt. In either case, the surface irony cloaks a tragedy significant of our times,