All of the stories that Juventus raised have been told about Dutch Shultz. All of them could be true. The consensus of all the stuff I've read about him was that he was a menace to the calm, businesslike atmosphere that Charlie Luciano was trying to put forward through the Commission. He was a pazzo, and he may very well have threatened to kill special prosecutor Dewey, which would have brought greater heat on the Mob than it was already experiencing. Luciano invited him to sit with the Commission and tried to reason with Shultz, but to no avail. So, the Dewey threat could have been the reason for his murder. But he also had lucrative rackets (like numbers) that he was neglecting with his craziness and his highly publicized trials. So, his death could have benefited his competitors--including Luciano. And yes, he was born a Jew (real name: Arthur Fliegenheimer). Apparently he did attempt to convert to Catholicism by walking into a church and convincing a priest to baptize him. But the ceremony never was officially recognized as a true conversion.
As for parentage and Mafia membership: Early American Mafia families were almost like clans whose membership was restricted to men who came from the same villages in Sicily, and were most likely related by blood or marriage. But by the Twenties, the Mafia was enrolling non-Sicilians (like Joe Valachi, who was a Neapolitan) because they needed more hands to do their dirty work. Charlie Luciano welcomed non-Sicilians into membership, and even allowed non-Italians like Meyer Lansky and Dutch Schultz to sit with the Commission--he valued money-making ability over place of origin. Luciano’s successors, Vito Genovese and Frank Costello, were from Naples and Calabria, respectively. The most notable recent non-Sicilian Don was John Gotti, whose grandparents were from Naples. Joe (“Donnie Brasco”) Pistone, in his book, “The Way of the Wiseguy,” says the only requirement now is that a Made Man have an Italian father. Sammy (Da Bull) Gravano, in “Underboss,” summarized it neatly: “I guess the public could say mob guys were racist because they strictly deal with Italians. But I think they’re the most unracist people in the world. They’re just greedy. The only color they care about is green, the color of money.”