In the late 1920s, Roger Touhy, or more likely his brother Tommy, burglarized the KK headquarters office in Indianapolis, blew the safe and released the names of the membership to Father Joseph Weber. Touhy was offered $25,000 to return the list but turned in down.
The Indiana Klan was a branch of the Ku Klux Klan, a secret society in the United States that practiced racism and terrorism against minority ethnic and religious groups. The Indiana Klan rose to prominence beginning in the years after World War I when rising levels of eastern and southern European immigration began to increase. They continued to rise in power under the leadership of Grand Dragon D.C. Stephenson who led the Indiana Klan to break away from the national organization in 1923. The organization reached its highest point of power during the years that followed, and by 1925 over half the members of the Indiana General Assembly, the Governor of Indiana, and many other high ranking members of the government were all members of the Klan. Scandal erupted that year when Stephenson was accused and convicted for the rape and murder of Madge Oberholtzer. When the governor refused to pardon Stephenson, he began to expose many of his fellow conspirators in the Klan, destroying their reputations and effectively destroying much of the Klan's power.
In 1920 Joe Huffington was chosen by Imperial Wizard William J. Simmons of Atlanta, Georgia to start an official Indiana chapter of the Ku Klux Klan. Huffington left for Indiana and setup his first headquarters in Evansville, Indiana. In Evansville, Huffington met D.C. Stephenson who quickly became one of the leading members of chapter. Stephenson was a leader among the local Democratic Party and ran in the Democratic Congressional primary of 1920 as an anti-prohibition candidate, but lost. Stephenson quickly became wealthy from the position in the Klan and his influence became very important to the organization. Entrance in the Klan cost $10, plus dues, and the recruiter personally kept $4 of each registration. It is estimated that Stephenson made between two and five million dollars from his position in the Klan. Indiana had already had significant vigilante activity among White Cap groups dating back to the American Civil War, and many former white caps entered the Klan.
Stephenson was a very active recruiter for new members. He did not preach racist rhetoric, and rather left that to subordinates. He instead spoke of the society as a brotherhood and focused on what he considered the noble aspects of the organizations, such as helping the poor and defending morality. His stance, especially on morals, helped him gain the support of many churches in the state. His populism led to a rapid growth in the Klan's membership.
In 1922 a new Imperial Wizard came to power with the support of Stephenson. As a reward, Stephenson was granted the position of Grand Dragon of the Indiana Klan, and twenty-two other northern states. His success further emboldened him and in 1923, he led the Indiana Klan in breaking away from the national organization and forming a rival group. The Klan became influential in the politics of the state, and an endorsement from the organization could practically guarantee victory at the polls. This led to many politicians at all levels of government to join the Klan in order to gain their support. The Klan became so powerful, and Stephenson so influential, that by 1925 he began to brag, saying "I am the law in Indiana."
The Klan's primary enemies were Catholics who the Klan alleged were behind secret plots to overthrow the government and exterminate Protestants. Another enemy was people of foreign birth, especially those from Catholic countries. A third, and lesser enemy, were blacks. Blacks in Indiana were not heavily targeted, as in the south where segregation was more rigorously enforced. On the lower end of their list of enemies were adulterers, gamblers, prohibition violators, corrupt politicians, and undisciplined youths.
Through the government, the Klan's primary goals was aimed at eliminating parochial schools, and removing all Catholic influence from public schools. The Klan was unable to attain either goal, but attained support for their agenda from key leaders. Samuel Ralston delivered an anti-Catholic speech in 1922 which the Klan reproduced and spread across the state. With their support, he was elected to the United States Senate in 1923.
At the height of its power the Klan had over 250,000 members, which was over 30% of state's white male population. The highest concentration was around the central part of the state. Klan membership was discouraged in some parts of the state, like New Albany, where city leaders denounced the Klan and discouraged residents from joining. Other cities, like Indianapolis, were almost completely controlled by the Klan, and membership to public office was impossible without their support. Multiple street fights occurred in Indianapolis between the Klan and minority groups. The statewide native white male population who belonged to the Klan ranged from 27–40%.
The Klan had a large budget in its years of operation. With more than 50,000 dues paying members in Indianapolis alone, the Klan had access to tens of millions of dollars. A large part of these funds went to helping the poor, but millions were also poured into bribing public officials, paying off enemies, purchasing weapons, and contributing to political campaigns.
In 1922 Klansmen in the Indiana General Assembly passed a bill that created a Klan Day at the Indiana State Fair, complete with a nighttime cross burning. Governor Warren T. McCray vetoed the bill beginning a conflict between him and the Klan. The same year Edward Jackson, the Secretary of State, granted the Klan a state charter. McCray demanded the charter be revoked because the leaders of the Klan did not reveal themselves to sign the document. Jackson refused to revoke the charter. Stephenson ordered Jackson to offer McCray a bribe in hope that McCray would end his anti-Klan stance. McCray was personally wealthy and he refused the bribe. Unable to bring McCray to their side, the Klan leaders set to work to uncover dirt on McCray to force him out office. They uncovered loans solicited by McCray in a questionable way. Because the solicitations were sent by mail, they were subject to federal mail fraud laws. The Klan leaders used their influence to have McCray tried, convicted, and imprisoned for committing mail fraud, forcing him to resign from office in 1924.
In 1925 Stephenson met Madge Oberholtzer, the head of the state's commission to combat illiteracy. The night of the inaugural ball of Governor Edward L. Jackson, she was abducted from her home and taken to an Indianapolis train station. On the train ride to Hammond, she was repeatedly raped by Stephenson. Once in Hammond, she was taken to a drug store where she secretly ate mercury tablets and bi-chloride. Using the illness brought on by the poisons as an excuse, she begged Stephenson to release her so she would not die. He took her back to Indianapolis, and after she refused to marry him several days later, he had her taken back to her home and secretly placed in her bed. When she was found by her parents she was nearly dead and taken to the hospital where she died a short time later, but not before telling her story to several witnesses. The cause of her death was determined to be either the poison or severe bites and cuts received during her rape. Witnesses claimed Oberholtzer appeared as if a cannibal had been chewing on her. Stephenson was immediately arrested and charged with second-degree murder and was convicted and remained in prison until 1956.
Stephenson expected Governor Jackson to pardon him for his support in his election. But by 1926, it became evident that Stephenson was not going to be pardoned. In response he began to talk to reporters from the Indianapolis Times and expose many of the high profile members of the Klan. It was difficult to pin major crimes on members of the organization, but Stephenson told reporters many of the individuals that the Klan had bribed, and who had accepted the money. The mayor of Indianapolis, John Duvall, was jailed for thirty days and later convicted of bribery. Commissioners and other local leader across the state were all forced to resign on bribery charges, stemming to acceptance of support from the Klan. The Governor, Edward Jackson, was also brought up on bribery charges related to his participation in the plot against former Governor McCray. The court found the charges against Jackson true but judged him not guilty: the statute of limitations had expired on his crimes. He ended his term and did not seek reelection. Many other leaders of the Klan were arrested and tried on charges of conspiracy to bribe public officials.
It was quickly revealed that over half the member of the Indiana General Assembly were Klan members. The results of the scandal destroyed the Klan's image as the defenders of justice, and the shakeup left the Klan nearly powerless as members abandoned the organization by the tens of thousands. Historian James Madison says that the Klan "cannot be dismissed as either an aberration or as simply the insidious appeal of a fanatical few. Nor should the Klan be seen as thoroughly dominating the state and accurately reflecting racist, violent, or provincial beliefs shared for all time by all Hoosiers."
Attempts to revive the Klan were made in the 1960s and 1970s, but the organization was never able to regain the membership or power it held during the 1920s.