Actually, while Puzo did some research, and based many of the characters in “The Godfather” on real people, he freely admitted that he didn’t know very much about the subject first hand. Because of his Italian name, people often assume he had some kind of personal knowledge of the inner workings of the Mob, when in reality, he knew no more than most of us.
Indeed, as many others have noted, Puzo’s books (and the movies they inspired) INFLUENCED the Mafia more than they reflected it. Mafiosi loved his books, which made mob life seem rather grand and romantic, and many of them began to use phrases they’d heard in the movies, to wear clothes they’d seen in the movies, to act like Pacino, Brando and Caan. “Godfather” was never a term used for Mafia big shots before Puzo’s books (the literal term, compadre, was something a Sicilian would call a buddy, NOT a word he’d use to show respect for a feared Mafia boss)… but it BECAME a Mafia buzzword, because of Puzo.
As for the characters in the book… well, some clearly represent real people. Substitute “Bugsy Siegel” for Moe Greene, “Meyer Lansky” for Hyman Roth, and “Frank Sinatra” for Johnny Fontaine.
Other characters are composites. Don Corleone reflected the personality of Carlo Gambino (a murderous don with a sweet exterior, a seemingly genial old man) and Frank Costello (who sent his own sons to college, and studiously kept them out of Mob business).
As for events… in some cases, Puzo described real events (there were many battles within the mob, at one time, over whether to get into the heroin business) AND completely made-up events (the Mob did NOT get Frank SInatra the role of Maggio in “From Here to Eternity”).
BTW, I’m pretty sure HPL is thinking of Joseph Valachi, the first high-ranking Mafioso to testify against the Mob. It was Valachi who first gave the Feds the “family” model of Mafia operations.