The brisk little Italian immigrant promised you 100 per cent interest in ninety days. Some people actually got it
Seen from the high oval windows of Boston’s City Hall on that sultry June morning in 1920, the line of stiffbrimmed straw hats bobbing along School Street resembled a roiled, wheat-colored stream. Among the straws were dark blotches of cloth caps, women’s brighter hats, and even the official visors of the police. On the honky-tonk outskirts of Scollay Square the stream grew denser and contracted into the cleft of Pi Alley. Then it flooded left down City Hall Avenue past the blank, rusticated side of City Hall and left again beyond the pigeon-spattered statue of Mayor Josiah Quincy. The stream dissolved into a jabber of individuals who stormed up the dark stairway of Twenty-seven School Street, just below City Hall, to wedge themselves, seething and shoving, along the corridor and into the office of the Securities and Exchange Company.
For all its imposing name the Securities and Exchange Company consisted of one man, the dapper, dynamic five-foot three-inch Italian immigrant and financial wizard known as Charles Ponzi, who, it seemed in that Boston summer, had conjured up the secret of perpetual money. He had started the Securities and Exchange Company with a few hundred dollars borrowed from two discreetly silent partners, Louis Casullo and John Dondero. Lend me your cash, he promised in the prospectuses that he mailed out, and in forty-five days you will get it back with 50 per cent interest; in ninety days you will get it back doubled. And since the previous December, when fifteen investors lent him $870 and the following month happily drew out $1,218, he had been keeping his promise. In December Ponzi had paid only 40 per cent interest. By February he had raised the rate to 50 per cent for forty-five days, 100 per cent for ninety. Seventeen new investors paid him $5,290 that month. The good news spread, and in March, no Bostonians left $28,724 at the unpretentious office on School Street. April brought 471 hopefuls with $141,671. Four times that number paid almost a half million dollars in May, and during June, 7,824 persons trudged up the stairs to the Securities and Exchange Company to pay in $2.5 million in cash and receive forty-five- or ninety-day notes in return. In the latter part of the month Ponzi claimed to be receiving $500,000and paying out $200,000 a day, and traffic in School Street had come to a standstill.
It was all very simple, the money wizard explained, merely a matter of knowing how to take advantage of the various and varying exchange rates in different parts of the world. He had conceived his scheme, so he said, when he received a business letter from Spain enclosing a reply coupon — issued as a convenience by international postal agreement—which was exchangeable at any United States post office for a six-cent stamp. Ponzi was struck by the fact that the coupon in Spain had cost the buyer only the equivalent of one cent. As he told a Eioston Post reporter interviewing him in his lush Lexington mansion at the height of his dollar-checkered career, “I looked the coupon over. I thought about its value on this side of the Atlantic and its value on the other side. I said to myself: ‘If I can buy one of these stamps in Spain for one cent and cash it for six cents in the United States just because the rate of money exchange is higher here, why can’t I buy hundreds, thousands, millions of these coupons? I’ll make five cents on every one—of this particular kind - so why not?’ Then … I investigated the rate of exchange in many of the other foreign countries. My original theory, ‘Why can’t I make money this way?’ grew more real. Then it became a fact.”
Ponzi explained to the reporter that his operations were being conducted in nine unspecified foreign countries. His agents were bundling international reply coupons in massive quantities back and forth among these countries, although he had now | stopped redeeming foreign coupons in the United States. The scheme might not, he admitted, be considered ethical, but it was positively legal. And the idea was foolproof. He said he had just set up thirty new branch offices throughout New England and was preparing to open an office in New York.
Each morning at eight o’clock his Japanese chauffeur brought him from Lexington in a cream-colored Locomobile limousine to his School Street office. Each morning an ever larger crowd was waiting for the cocky little man with the bouncing step and elegant manner. Police cleared the way for his car. Men cheered him, and office girls blew him kisses. He smiled and bowed, tipped his hat, and sometimes on getting out of his car made a little speech. He exuded jauntiness, from his pointed shoes to his wide, pointed lapels, from the razor-sharp crease of his trousers and his sleeves to the pearl stickpin in his striped moiré tie. Nonchalantly he swung a gold-headed Malacca cane and smoked a Turkish cigarette in an ivory and gold holder. His manner and his manners never failed. “A born aristocrat,” his young wife said of him. For his thirty-eight years and certainly for the hard rows he had already hoed in life, he looked amazingly fresh. There was no sign of a wrinkle on his high forehead. He had a wide mouth above a jaw of almost Mussolini set. His eyes were genial and sympathetic. His voice was soft and convincing, withjust a trace of an Italian accent. Face and voice inspired trust and among some a permanent devotion.
Ponzi was born in Parma in 1882. His family was upper-class and his father a general in the Italian army (or so he said). As a boy he attended a boarding school founded by Napoleon’s ex-empress, Marie Louise. When he was eighteen, he became a student at the University of Rome, but spent more time in cafés and at theatres and fashionable parties than in libraries and at lectures. In November, 1903, after three years of this gay nocturnal existence, his Roman uncle sent him to America with a oneway ticket and a thousand lire (then worth about two hundred dollars).
Having lost all but two and a half dollars to a cardsharp on the voyage over, Ponzi wandered from Boston to Pittsburgh, New York, Providence, Montreal, and various points in the South, passing fourteen years in such employments (when he was working at all) as dishwasher, waiter, clothes presser, shop clerk, and Italian interpreter. His English had become almost glib by the time he turned up in Massachusetts again in 1917.
In Boston he took a job typing and answering foreign mail for the J. R. Poole Company, merchant brokers, at sixteen dollars a week. On February 4, 1918, he married Rose Marie Guecco of Somerville, a secondgeneration Italian-American half his age, the daughter of one of the Guecco brothers, fruit dealers in Boston’s Italian North End. He quit his job with Poole in September to go to work for his father-in-law. But in January of 1919 the fruit firm went bankrupt, with liabilities of eleven thousand dollars and assets of six thousand dollars. Ponzi tried to convince the Gueccos that if he could have the use of the six-thousanddollar assets, with his knowledge of importing and exporting he could double the money and more than pay all their debts in a year. The dubious Gueccos refused. Ponzi at that time had a little upstairs back room in the School Street building of the Tremont Trust Company, where he liked to tuck himself away and scheme his schemes. There it was, in August, 1919, that he received his letter from Spain and evolved his Great Idea.
As the summer of 1920 wore on, the lines to School Street lengthened. The persistent and impatient crowd that blocked off School Street traffic all day long was made up of people from the city fringes—the Italian North End, the lodging-house South End, and the small suburbs. Periodically Ponzi distributed free coffee and doughnuts to them. Whenever he saw a pregnant woman or an elderly one in the hot sun, he would take her inside ahead of the others through a side door. Tucked visibly behind the twin-pointed handkerchief in his coat pocket he carried a certified check for a million dollars. With that sum, he told people, he could live in all the comfort he wanted for the rest of his life. Anything he got above that million he intended to use to “do good in the world.” The money now came into his office so fast that it filled all the desk drawers and spilled over into a dozen wastebaskets. Sixteen clerks, hired to do nothing but sort out the cash, tallied it and stacked it in closets until it reached the ceiling. When Police Commissioner Edwin U. Curtis sent three inspectors down to Twenty-seven School Street to investigate, Ponzi talked two of them into buying his notes. Others were investigating, too: the chief post-office inspector, state and federal attorneys, and Suffolk County’s District Attorney Joseph C. Pelletier, who was later disbarred for his part in a blackmailing scandal. Ponzi welcomed them all, and none could see anything illegal in the Security and Exchange Company.
Ponzi now brought his mother, Imelda, over from Italy and provided her with a French maid. As his finances expanded he bought into the Hanover Trust Company, where he had first deposited his money, and became a director. As an ironic reminder of his clerical days he took over the J. R. Poole Company. He invited a group of New York financiers to the Copley Plaza at his expense and conferred with them about his newest plan to organize a $200million corporation with a chain of “profit-sharing banks” in which depositors would share with stockholders in the net profits. His earnestness was convincing, contagious. A highly respected judge, Frank Leveroni of the Boston juvenile court, became his lawyer. With what would seem redundancy he hired a long-time Boston advertising man, William H. McMasters, as a publicity agent.
The bubble expanded, glittering, iridescent, irresistible now even to the covetous from State Street and Beacon Hill. Some plungers put down as much as $25,000, though most people bought a few hundred dollars’ worth of Ponzi notes in return for handfuls of small bills. By the last week in July Ponzi was taking in several hundred thousand dollars a day. His name was in headlines in newspapers all over the country; he became something of a national hero. Newsreel cameramen flocked to his Lexington home and recorded him strolling across the lawn with his wife and his mother. There were armed guards at the mansion entrances and rumors of millions locked away in vaults in the cellar.
Although city, state, and federal officials in their overlapping investigations had turned up nothing against Ponzi, a less official but much more efficient investigation was being carried on in the editorial office of the Boston Post . Young Richard Grozier, the assistant editor and publisher, was convinced that Ponzi had never bought so much as a dime’s worth of international reply coupons and that he was merely taking in money at one wicket to pay it out at the next. If nobody else was able to show Ponzi up, Grozier determined the Post would.
On Sunday, July 25, Grozier discussed Ponzi and his scheme with Clarence W. Barren, the Boston financier and publisher of the financial daily The Boston News Bureau (later Barron’s Weekly ) Barron admitted that it was theoretically possible to make money by manipulating international reply coupons, but said he was sure it would be impossible to turn over more than a few thousand dollars that way. To talk of running them up to Ponzi’s ten million dollars was, Barron said, ridiculous. He added that it was odd for Ponzi to put his own funds into banks paying only around 5 per cent when he was offering 50 per cent to other people. Not even if Rockefeller made an offer like Ponzi’s would anyone with any financial sense put his money into it. The wizard of School Street was, in Barron’s opinion, just another goldbrick salesman.
Monday morning the Post headlined Barron’s views on the front page. The result was a run on the Securities and Exchange Company. A line of a different temper and intent soon choked School Street, but Ponzi, jaunty and self-assured as ever, saw to it that everyone in the line who wanted his notes cashed got his money back. By afternoon he had turned the run into a stampede of new investors. Meanwhile, he calmly admitted that his story of the coupons was just a blind. Its purpose, he said, was to keep Wall Street speculators from catching on to his moneymaking methods, which were his secret. He told Grozier that no investigation could hurt him, that he had money enough to pay off his investors in full any time. In spite of Grozier’s warning columns in the Post , Ponzi continued to prosper. Crowds welcomed him as he walked down Washington Street along Newspaper Row past the Post building. When someone shouted, “Three cheers for Ponzi,” they were given with a roar; and as they died down he shouted back, to their laughter, “Three groans for the Post !” “Who’s the greatest Italian that ever lived?” someone else called out to him. “Columbus,” Ponzi called back, “because he discovered America.” “But you discovered money!” came the reply, with many cheers. McMasters, the advertising man retained by Ponzi, told reporters that Ponzi was planning to give the city an Italian hospital and had already pledged $100,000 for an Italian orphanage. Ponzi himself said he was considering running for mayor or governor, not stressing the fact that he was still an alien.
Late Monday afternoon, July 26, 1920, District Attorney Pelletier announced that Ponzi had agreed to suspend accepting any more investment money until his books could be audited. The district attorney did not hint at any fraud and was careful to say that there was no charge against Ponzi; it was just that his operations had become so vast that an audit was in the public interest. Meanwhile Ponzi, unperturbed, continued to pay any notes that fell due and to redeem later notes at face value.
By the time the deposits closed on Monday at Twenty-seven School Street, 30,195 persons had paid in $9,582,591 since December, 1919, for a promised return of $14,374,818. The average investor had put down $300. Some of those from the little streets, however, had turned in their life’s savings. The confidence record seems to have gone to a Quincy woman who sold all her real estate and invested $33,000. Richard Engstrom, who had sold Ponzi his Lexington house, turned in $20,000. Judge Leveroni proved his faith, if not his acuity, by investing $5,400.
Even after the deposit wickets of the Securities and Exchange Company had been battened down, Ponzi was still a hero to the man in the street, the more so now because he seemed to have the bankers and the big people arrayed against him. He still continued to pay off any notes due, still drove into Boston daily in his Locomobile, as fresh and confident as ever. One day, to relax, he went for a plane ride at the Lynnway Airport. It cost him thirty dollars for thirty minutes, and he gave the pilot a ten-dollar tip and said he planned to buy a plane of his own. However, he had by this time become something less than a hero to his publicity agent. A disillusioned McMasters went around the corner to Grozier to tell him that Ponzi was “as crooked as a winding staircase” and agreed to write the whole story for the Post. It appeared under McMasters’ name in a special edition on the second of August. Ponzi was, according to McMasters, “hopelessly insolvent"; his debts were now between $2 million and $4.5 million.
McMasters’ article started another and more persistent run on the Securities and Exchange Company offices. Again School Street was a bobbing mass of straw hats. Yet even now the little investor kept his faith in Ponzi, the man of the people, the one man who dared stand up to the big bankers and show he could beat them at their own game. Ponzi protested that if only the authorities would let him alone, he would pay i oo per cent interest in ninety days on all the money he had accepted. His supporters passed out handbills up and down School Street, defending their man and denouncing the “unscrupulous bankers” who were attacking him. Speculators edged up and down the lines of those waiting to get their money, offering to buy the notes on the spot at a discount. Ponzi followed, radiating reassurance, warning the impatient that anyone selling his notes then was giving up his certain profits. An employee of a Boston brokerage house declared that his firm had asked an Italian bank if Ponzi had credit, and the reply had come: “To any amount.” That story spread and grew.
By passing out hundreds of thousands of dollars without a tremor Ponzi kept the crowd with him. He paid with checks on the Hanover Trust Company, to which he was now indebted for a quarter of a million. About the same time he acquired a personal poet laureate, one James Francis Morelli, a sometime vaudeville hoofer with a knack for making rhymes. Morelli had a desk at the Securities and Exchange Company and an alleged salary of three hundred dollars a week. One of his efforts advised:
Ponzi thumbed his nose at Grozier’s office as he walked by on his way to the courthouse to bring a fivemillion-dollar libel suit against the Post . But the clouds were gathering. Early in August Massachusetts Bank Commissioner Joseph C. Alien closed down the Hanover Trust Company over the protest of the bank’s officers. Ponzi supporters, undaunted, reviled the commissioner. In spite of the Post and McMasters and the commissioner, Ponzi was still the poor man’s Midas, who could trounce the bankers at their own game.
Abruptly, predictably, and astonishingly— like John EaW5S Mississippi Scheme and the South Sea Bubble before it—the Ponzi bubble burst. Grozier, after receiving an anonymous tip that Ponzi had once been jailed in Quebec, sent a reporter, Herbert E. Baldwin, to Montreal. After two days of poking about in the Italian district and then checking his information at police headquarters Baldwin discovered that the Boston financier was none other than an exconvict, Charles Bianchi, alias Ponsi, who in 1908 had been sentenced to twenty months in the St. Vincent de Paul Prison for forgery.
On August 11 the Post broke the story in banner headlines. In 1908 Charles Ponsi had arrived in Montreal to organize a financial operation much like his later Boston scheme. With Joseph Zarrossi, the owner of a small cigar factory in a settlement of Italian immigrants, he had set up the banking office of Zarrossi & Company. Ponsi, as manager, announced that the company would pay depositors the highest rate of interest in the city. Immigrants flocked to the new bank with their savings. Ponsi paid the interest with the capital of the newest depositors. Zarrossi & Company also accepted remittances to be forwarded to Italy —money that somehow never arrived. When the police and the bank examiners finally closed in, Zarrossi decamped to Mexico. But Ponsi was so successful in placing the blame on his absent partner that he might have gone free if he had not lightheartedly borrowed a blank check from the Canadian Warehousing Company, traced the manager’s signature on it, and filled it out to the plausible figure of $423.68. It was this minor feat of penmanship that sent him to St. Vincent de Paul.
The Post ’s account of Charles Ponsi’s Canadian career was flanked by a Montreal rogues’-gallery photograph of a mustached Ponsi and a photograph of Boston’s Ponzi with a mustache painted on. The two looked almost identical. Before running the article Grozier sent two reporters to Lexington to show it to Ponzi, who laughed and said it was all false. The Montreal convict was somebody else, he assured the reporters. He himself had never been to Montreal, had never been arrested, and would bankrupt the Post with libel suits if any such story came out. Nevertheless Grozier, after a telephone talk with his reporter, who was still in Montreal, decided to go ahead and print.
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.
The trail led to Texas. Five days after he left Florida, he dodged the waiting authorities at Houston and shipped as a common seaman aboard an Italian freighter bound for Genoa. On June 28, 1926, when the freighter touched at New Orleans, a Houston deputy sheriff was waiting for him. Florida and Massachusetts both wanted him, but the Texas governor sent him back to Boston.
In February, 1927, he began his term for larceny at the Charlestown State Prison, across the river from Beacon Hill, where his compatriot, Bartolomeo Vanzetti, was undergoing the final year of his imprisonment. While at Charlestown Ponzi continued to study law. He spent much of his time writing vain appeals to the governor for commutation of sentence in order to escape deportation. In 1934 his seven years’ minimum was up, and as his behavior had been excellent, he was freed. Florida had forgotten about him.
Ponzi was now fifty-two years old. Charlestown prison had aged him. What was left of his hair was turning white. His face had sagged, and his dapper figure had grown pudgy, though he still carried himself in the grand manner. Rose was still waiting for him. Through all the years, even the Florida interlude, she had stood by him. Together they went to see the new governor, Joseph B. Ely, to plead against the deportation threat that was now beginning to loom large over Ponzi’s head. While his wife worked as secretary for the owner of the Cocoanut Grove nightclub he spent his days in the law library of the Federal Building, trying to discover some legalism that would let him stay in the country. Meanwhile, he paid a visit to the city room of the Post . There he shook hands with the city editor, talked of old times with some nostalgia but no resentment, and then left. On the way out he walked past the Pulitzer Prize plaque the Post had won for exposing him.
There were no conjuring paragraphs to be found in the law library, and Governor Ely was as adamant as his predecessor had been. On October 7, 1934, the U.S. Immigration Service put Ponzi aboard the Vulcania in Boston Harbor for a single passage to Italy. He still had enough friends to give him a rousing sendofF from the dock. As he went up the gangplank, he raised his arm in the Fascist salute.
Back in Italy he became an English translator for a small export house in Rome. He revisited the cafés of his student days; his photograph, showing him at ease over an apéritif, appeared in the American press.
In his spare time he began writing his autobiography and apologia. Rose had expected that after he found work in Rome he would send for her, but he never did. After two years of waiting she at last lost patience and divorced him. She never remarried.
Shortly after Ponzi’s divorce Mussolini offered him a job in Brazil with Italy’s new airline. From 1939 to 1942 he served as branch manager in Rio de Janeiro. In 1942 he lost his job because, he claimed, of his protests against “wide departures from the organization’s original, strictly honest commercial operations.” A group of airline officials had, in fact, been smuggling currency. They had not included him in their group, and when he found out what they were doing, he tipped off the Brazilian government with the expectation of getting 25 per cent of the fines. Then as an afterthought he offered to come to America to tell the government what he knew about the operation.
The United States government did not want him. As the tide of war turned against Italy the airline closed down. No money came to Ponzi from any fines. For a while he tried unsuccessfully to run a lodging house in Rio de Janeiro. Through the war years he made a meager living giving English lessons while he drew a pittance from the Brazilian unemployment fund.
The year 1949 found him, semiparalyzed and partly blind, in the charity ward of a Rio hospital. Flanked by an old man with a hacking cough and a quiet, senile black man who spent his days staring at the ceiling, he still tried to work on his autobiography. Somehow he had saved up seventy-five dollars, enough to keep his body from potter’s field. He died in January, 1949, leaving behind him his unfinished manuscript, “The Fall of Mister Ponzi.”