So, he began his own bootleg operations and was eventually identified driving around a roadblock set by Prohibition Bureau agents. Olmstead was fired from the force, but established himself more firmly as "the Good Bootlegger" (because his operations failed to feature prostitution, gambling, gun-running, narcotics trafficking, etc.). Indeed, he did not allow his employees to carry firearms.
Largely on the basis of evidence obtained through police wiretapping of his telephone, Olmstead was arrested and tried for violating the National Prohibition Act. The raid occurred at 2 am on Thanksgiving morning. A Federal grand jury returned a two-count indictment against Olmstead in January of 1925 and the following month he (and his attorney!) was convicted and sentenced to four years at hard labor and fined $8,000
In February 1928 the Supreme Court upheld the conviction in the landmark 5-4 case of Olmstead v. United States. The Court ruled:
The language of the [fourth] amendment cannot be extended and expanded to include telephone wires, reaching to the whole world from the defendant's house or office. The intervening wires are not part of his house or office, any more than are the highways along which they are stretched ... We think, therefore, that the wire tapping here disclosed did not amount to a search or seizure within the meaning of the Fourth Amendment.Justices Holmes and Brandeis wrote angry dissents, but Olmstead spent his four-year prison sentence at the McNeil Island Correctional Institute. On 25 December 1935, President Franklin D. Roosevelt granted him a full presidential pardon and remitted the $8,000 fine and court costs. Olmstead credited his wife with the pardon.
Olmstead gave up drinking and smoking and became friends with the judge that sent him to prison. He also worked with prisoners on an anti-alcoholism agenda, taught Sunday school and visited Prisoners in the King County Jail every Monday morning till he died in 1966.