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After the Battle of the Little Bighorn, Reno was assigned command of Fort Abercrombie, Dakota Territory. There, in December 1876, he was charged with making unwanted advances toward the wife of another officer of the Seventh Cavalry, Captain James M. Bell, while Bell was away. A general court-martial hearing began in St. Paul on May 8, 1877. Reno was found guilty on six of seven charges against him, and ordered dismissed from the army. Later, President Rutherford B. Hayes reduced the dismissal sentence to two years.
Responding to charges of cowardice and drunkenness at the Little Bighorn, Reno demanded and was granted a court of inquiry. The court convened in Chicago on January 13, 1879, and called as witnesses most of the surviving officers who had been in the fight. After 26 days of testimony, Judge Advocate General W. M. Dunn submitted his opinion and recommendations to the Secretary of War George W. McCrary on February 21, 1879. He concluded, "I concur with the court in its exoneration of Major Reno from the charges of cowardice which have been brought against him." He added, "The suspicion or accusation that Gen. Custer owed his death and the destruction of his command to the failure of Major Reno, through incompetency or cowardice, to go to his relief, is considered as set to rest...."
The court of inquiry did little to change public opinion. Enlisted men later stated they had been coerced into giving a positive report to both Reno and Benteen. Lieutenant Charles DeRudio told Walter Mason Camp "that there was a private understanding between a number of officers that they would do all they could to save Reno." In 1904, a story in the Northwestern Christian Advocate claimed that Reno had admitted to its former editor that "his strange actions" during and after the Battle of Little Bighorn were "due to drink".
In 1879, while commanding officer at Ft. Meade, Dakota Territory, Reno again faced court-martial, charged with conduct unbecoming an officer, including a physical assault on a subordinate officer, William Jones Nicholson. He was convicted of conduct prejudicial to good order and discipline, and dismissed from the service April 1, 1880. Reno took an apartment in Washington D.C., where he doggedly pursued restoration of his military rank while working as an examiner in the Bureau of Pensions.