3) The charges were dropped, for lack of evidence, lack of witnesses, etc., or... perhaps the most likely explanation given New York City government of the day (Tammany Hall, Jimmy Walker, Judge Crater), someone simply "got bought."
In one of those ghastly coincidences of fate, the 1929 Pathe feature-length musical film "Red Hot Rhythm" (Directed by Leo McCarey) was in general release at the time the studio fire occurred and was being reported. Unintentionally ghoulish title aside, the film was a light comedy in which Alan Hale portrayed a "music racketeer" of Tin Pan Alley who writes songs and fleeces would-be composers by publishing their product and stealing away their profits. Finding himself involved in a love-triangle in which he becomes the victim, he sees the error of his ways and is reformed. Co-starring with Hale was Kathryn Crawford, Josephine Dunn, Walter O'Keefe, Jimmy Clemons, Ilka Chase and Anita Garvin.
Featuring five musical sequences, I can't help but find it a bit curious that although the film is deemed lost -- one sequence has managed to survive, seemingly clipped out of a print at some point early in the film's life and carefully stored away while the rest of the film gradually decomposed and vanished.
The curious aspect is that the excised sequence, photographed in an early color process, consists of a performance of the film's title tune, "Red Hot Rhythm" and features a stylized depiction of chorus girls being menaced and ordered to dance by a long-legged Satanic-like fellow. Dance they do, tapping, stepping and kicking their way up and down a small set of silver steps. As the dancing reaches a frenzied climax, colored streamers appear representing flames swirling about the dancers, and the whole sequence ends with superimposed real flames forming a curtain as the number concludes.
I'll leave you to listen to an audio transcription of this sequence and to draw your own conclusions as to why someone thought to snip these few minutes out of a complete print, quite without knowing that their motives --- if there were any --- would be questioned over three-quarters of a century later. Like the outcome of the arrest of the two Pathe executives, perhaps there are indeed things it's best we don't examine too closely.