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The rumors about Gatsby in chapter 3 are that he has killed a man in cold blood, he was a German spy during the war, etc. This adds to his mystique. Gatsby has an exorbitant amount of money that allows him to throw elaborate parties that attract the "old" and "new" money, the East and West Eggers.
It is difficult for the "old" money families to accept this "new" money man but yet they attent his parties.
In chapter 4 Gatsby tells a story to Nick about his upbringing in a Mid-Western town that when he elaborates he tells Nick it was San Fransisco. Nick is doubtful and then Gatsby provides proof of his story with a medal he recieved. He still is doubtfull but Nick's quality of tolerance is shown here.
He then goes to lunch with Gatsby where his suspicions of "dirty" money are confirmed. He meets a business partner, Wolfshiem, who supposeldy fixed the 1919 World Series and wears molars for cufflinks. This tells Nick that the people Gatsby does business with are not the most "honest" or gentle associates.
Gatsby again confirms his "owning pharmacies" is a cover by asking Nick if he wants a "side job" to make some money. Nick declines but says if he asked him earlier he would've taken it. Nick admires Gatsby but the more he finds out about the man the less he idealizes him.
Nicks idealization of Gatsby mimicks Gatsby's idealization of Daisy; both visions of perfection fizzle with the more that is learned about their objects of admiration.
The rumors about Jay Gatsby are unflattering to an extreme. Though people come to his parties to participate in the scenes of opulence and wealth that they offer, the guests do not respect Gatsby.
They do fear him, to some extent, but not enough to stop them from spreading rumors about his past, his means of acquiring his wealth, and his character. The rumor of bootlegging is persistently attached to Gatsby, labelling him as a criminal and racketeer, deserving only of the respect such a career demands.
In the novel's second chapter, Myrtle and her sister discuss Nick's neighbor.
Catherine repeats the rumor she heard that “he’s a nephew or a cousin of Kaiser Wilhelm’s,” and “that’s where his money comes from.”
These rumors are rather insidious and cast Gatsby as alien to American culture, suspicious, powerful and potentially dangerous.
Gatsby is not German, but his tendencies toward secrecy and his choice of maintaining a state of isolation serve to create an air of menacing mystery around him.
While his glamour is intact, a negative aura is attached to it. Gatsby is characterized in this chapter as someone who is not universally respected but is rather universally suspected. No one really knows him, yet they judge him harshly.
The idea that Gatsby is hiding something sinister adds to a sense of danger associated with Gatsby. Considering these rumors and ideas around Gatsby, people are not especially surprised to find out that he is shot and killed in his mansion.
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