When he learned the FBI had been put on the case he felt the time might have come to turn himself in. The FBI, "G-men" had gained a reputation as meeting violence with violence. With the killings of a number of crime figures to their credit, the FBI was quickly becoming feared as a "trigger-happy" crew that was willing to shoot first and ask questions later. Shultz made the decision to turn himself in before the FBI came close enough to take any shots. At the trial his defense consisted of the position that he was advised that he should not pay taxes on income obtained through illegal activities. When he found that he owned back taxes he made the offer to pay $100,000 as restitution for this oversight. He made clear that he wanted to settle accounts, but the government refused his offer. The jury came back with a deadlocked decision and the government pushed for a new trial. The new trial was to be held in the small town of Malone, New York. Shultz began to channel all his energies toward hammering out a solid defense and seeking support for his cause by moving to the town of Malone. With his close eye off his interests in New York some of his followers began to question what would happen if he were found guilty and sent to prison. To protect their own future some of them approached members of the Commission and allowed them to take an active role in dealing with Shultz's neglected interests. One had to look out for his own future interests and with Shultz out of the way it appeared that the Commission would soon move in anyway. It could pay to have some friends and partners with the Commission just in case Shultz was convicted this time around.
Shultz in the meantime was making every effort to gain the support of the population of Malone. When he moved in, prior to the trial, he made civic contributions and allowed money to flow around the community in an attempt to gain support for his cause. His attempts to gain support finally landed him in the local jail. But the search for support continued even from there as many of the local citizens gained wealth from Shultz's activities. A somewhat fictionalized version of these activities are outlined in the novel "Billy Bathgate" and provides some insight into the personality of Shultz. The trial was held and the same defense was offered. This time, however, Shultz's new made friends reached a unanimous verdict of - Not Guilty. Shultz had managed to pull off what Capone, Gordon, and even Johnny Torrio had found impossible, he had beat the government in a federal tax case. The news of the outcome came as quite a surprise back in New York. Many of his own people working in conjunction with members of the Commission had been carving up his interests assuming that he would not be back to assume control. His bookkeeper, "Bo" Weinberg, had made information available to Commission members and was running the day by day operations under their direction. With the return of Shultz, Weinberg had much to fear in the form of retaliation. Spending some time trying to put his organization back in order Shultz did little to bring about a direct conflict with the men who had been holding his interests during his absence.
