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Huffington left for Indiana and set up his first headquarters in Evansville. Stephenson was active in the local Democratic Party and had run unsuccessfully in the Democratic Congressional primary of 1922 as an anti-prohibition candidate.
He was more successful with recruiting and organizing new members.
In Indiana, the Klan generally did not practice overt violence but used intimidation in certain cases, whereas nationally the organization practiced political acts against minority ethnic and religious groups.
The Indiana Klan rose to prominence beginning in the early 1920s after World War I, when ethnic Protestants felt threatened by social and political issues, including changes caused by decades of heavy immigration from southern and eastern Europe. It averaged 2,000 new members per week from July 1922 to July 1923, when he was appointed as the Grand Dragon of Indiana.
It is estimated that Stephenson made between two and five million dollars from his position in the Klan.
It was strongly white supremacist not just against African Americans, but also Catholics and Jews, whose faith were commonly associated with Irish, Italian, Balkan, and Slavic immigrants and their descendants.
Building on the momentum, Stephenson set up a base in Indianapolis, where he helped create the Klan's state newspaper, Fiery Cross and he quickly recruited new agents and organizers, building on news about the organization.
Protestant ministers were offered free memberships. From July 1922 to July 1923, nearly 2,000 new members joined the Klan in Indiana each week.
By 1925 over half the elected members of the Indiana General Assembly, the Governor of Indiana, and many other high-ranking officials in local and state government were members of the Klan.
Politicians had also learned they needed Klan endorsement to win office.
That year Stephenson was charged and convicted for the rape and murder of Madge Oberholtzer, a young schoolteacher.