Bubble, Bubble No— Toil, No Trouble


Laggard city and state and federal officials now began to bestir themselves. Everyone, it seemed, wanted custody of Ponzi at once. He was arrested by a United States marshal on August 13 at his Lexington home. The house itself was impounded and searched in vain for hidden vaults and the bookcase shelves that, according to common talk, were stacked with Liberty Bonds. Before the examination of Ponzi’s company books was finished, the School Street office had been shut down, but the auditor estimated there were liabilities of over seven million dollars and assets of less than four million. His estimate was optimistic. Few of the investors in the Securities and Exchange Company ever saw more than a fraction of their money again.

Ponzi’s fall brought about one of the most tangled legal situations Massachusetts had ever known: criminal trials and civil trials; bankruptcy hearings; hearings before bank examiners; suits by Ponzi and suits against Ponzi. The Hanover Trust never again opened its doors; its president, Henry Chmielinski, a leader of Boston’s Polish community and founder of the Polish Daily Courier , was ruined. Another bank that had lent Ponzi money, the Tremont Trust, collapsed later, as four other banks eventually did. More of Ponzi’s past began to leak out. After he had served his time in Montreal, he had gone to Georgia. It seemed that there, in 1910, he had been sentenced to two years in the federal penitentiary for smuggling alien Italians inlo the country.

Now, on November 30, 1920, Ponzi was indicted in Boston’s federal court for using the mails to defraud. Massachusetts wanted to try him for larceny. At a retaining fee of $100,000 he engaged Daniel H. Coakley, one of the deftest and least scrupulous lawyers in Massachusetts (Coakley was disbarred a couple of years later as a result of the same scandal that brought down Joseph Pelletier).

In spite of the fee and in spite of a reputation for slipping his clients out of apparently impossible situations, Coakley advised this client to try to avoid further state prosecution bypleading guilty to the federal charge. Pon/i’s face was livid and his voice high-pitched as he stood up in court to admit his guilt. Rose, among the spectators, fainted twice. Her husband was sentenced to five years in the Plymouth County Jail, used by the federal government because it had no jail of its own in Massachusetts. Ponzi became the most famous prisoner the old brick county jail had ever held. At times he seemed more a commuter than an inmate, travelling back and forth to Boston with the sheriff to attend innumerable bankruptcy proceedings, hearings of receivers, and various civil suits brought against him. For some months he was in the Massachusetts General Hospital, recuperating from a stomach operation. In the jail he was a model prisoner, spending his spare time studying law. For all Coakley’s scheming, Ponzi while still at Plymouth was indicted by the Commonwealth of Massachusetts on twenty-two counts of conspiracy and larceny. During his long state trial he defended himself with considerable ability, maintaining that often persons who had the means took a chance because they heard of large profits. “But,” he told the jury, “the promise of a profit is not larceny; it is merely a promise, and a promise may or may not be kept according to the circumstances.” Acquitting him on four counts, the jury disagreed on the rest, making another trial necessary.

Of the fifteen million dollars that Ponzi had taken in, eight, at least, were never accounted for. When his assets were finally distributed, his noteholders received twelve cents on the dollar. Yet even while he was in jail, many of those he had bilked remained loyal to him, still believing that if the authorities and politicians had let him alone, he would have paid all the money he had promised.

Apparently Ponzi himself did not regard his Securities and Exchange Company wholly as a swindle. Carried away by euphoria as the wave of green bills surged over the counters, he had come to think that once he had accumulated sufficient capital to buy his way into the international financial world, he could make enough to pay off his investors. One of the silent partners, Louis Casullo, had taken a prudent trip to Italy with over a million dollars, and the other, John Dondero, had disappeared with a trunkful of money. But Ponzi had stayed on to the end, confident that he could overcome any crisis, hypnotized by his own wizardry. Just before the debacle he was negotiating for a merger —or so he thought—with the Bank of America in California.


After three and a half years at Plymouth Ponzi was released on parole and at once rearrested by the Massachusetts authorities. He was tried again in February, 1925, convicted as a “common and notorious thief” (in the quaint phraseology of the Massachusetts statutes), and sentenced to seven to nine years in a state prison. Pending his appeal he was released on $14,000 bail. A month later he disappeared.

He turned up in Florida in the middle of the land bubble. Using the name Charpon—a partial anagram of his name—he organized the Charpon Land Syndicate and was soon selling underwater lots at ten dollars an acre, sight unseen, to buyers who in that hectic mid-twenties summer of pyramiding trades needed no more assurance than a blueprint. After this swamp went down the drain, Ponzi was indicted for fraud. The court in Jacksonville, Florida, found him guilty and sentenced him to a year. On June 3, 1926, he jumped his bail.