1920 (19 page)

He started a firm called the Securities Exchange Company, which had just the right sound to him. Respectable, trustworthy, and accurate; the company was, after all, exchanging securities. He rented a suite at a prestigious location, the Niles Office Building in downtown Boston, and set up shop. He was unable to afford either the office or the furniture; he had to borrow the money for both. But thanks to a loan from a friend, the office was ready for business in a few days, and its occupant, as he had always been at the start of one of his ventures, was once again optimistic. This time there was reason.

A mere five feet, four inches tall, the little man never lost the bravado of one much larger. Dunn compiled a list of what he believed to be Ponzi's principal attributes: “A confident tone of voice, for example; a tone that indicated its owner knew precisely what he was doing at all times. A dapper appearance, too; an appearance that said—from the well-shined shoes, the pristine celluloid collar above the tightly knotted tie with its small diamond stickpin perfectly centered, the casual breast-pocket handkerchief, and the rakish straw hat—that here is a man who, if he is not already successful, will latch on to success at any moment.”

And he had better latch on to some quickly. Ponzi's first bill for the office and furniture rental would be due in less than a month, and right
now he could not even make a down payment on either. He needed a client, and he needed him fast.

Enter Ettore Giberti, a grocer from the Boston suburb of Revere at whose store Charles and his wife and mother-substitute Rose, née Gnecco, bought their food. Giberti had heard Ponzi brag about the investment opportunities of International Reply Coupons until the subject rang in his ears. Sometimes, he had to admit, he wished Mrs. Ponzi did more of the shopping, but perhaps it was his good fortune that Charles was the customer after all. Giberti, who had a wife, a son, and a net worth of $1,200, was worried about the future. He wanted his boy to go to college, and, God willing, there would be other sons, and perhaps even a daughter or two. Such a joy they would be—but such an expense. And then there was his wife, whom he wanted to see wearing nothing but the finest clothes. As for himself, he wanted to retire before he was an old man, to enjoy life before infirmity caught up with him. Twelve hundred dollars would simply not do, and Giberti could not see a way to make a significant improvement in his financial standing without playing the stock market, which to him was the same thing as gambling. He could not afford to “play” with money that had such important tasks ahead of it.

Finally, he decided to go to the Niles Building and let Ponzi make his pitch with proper documentation in suitable surroundings. Giberti's knock on the door was to Ponzi more than just the sound of opportunity: it was the sound of a fortune about to begin building. With a thumping heart, Ponzi admitted his first customer.

At first, the conversation did not go well. Despite the glib banter he had previously displayed in Giberti's grocery, the dialogue now was different: the grocer was no longer just a food vendor but a potential client, and Ponzi had not yet had any practice in polishing his spiel to the point of making a sale. He feared he was being much too complicated in his explanation of International Reply Coupons, that he was losing Giberti, who had in fact begun squirming in his chair, giving the appearance of a man who would much rather be slicing a rib roast.

So, in a burst of enthusiasm—and irrationality—Ponzi offered Giberti a fifty-percent return on his investment. Just blurted it out. Giberti was astonished. So was Ponzi. Had he
really
promised fifty percent?! Was he
crazy
? Fifty percent was, of course, a possibility, given the vagaries of different countries' exchange rates, but to promise it was quite another matter. As for Giberti, he might have been just a grocer but, like Ponzi, he followed the investment news in the papers and was aware that a fifty-percent profit on an investment was not only out of the ordinary but, as far as he knew, outside the realm of possibility.

Yet Ponzi was his customer, his friend, neighbor; the grocer trusted him. He sat in his chair for what seemed to Ponzi the rest of the afternoon—thinking, calculating, squirming even more than before. Then, despite how fantastic the coupons sounded, or more likely
because
of that, Giberti, a cautious man with his money, decided to hold on to it; he would not make the investment. He thanked his countryman for his time, then prepared to leave.

Ponzi panicked. His first sale, and he was about to lose it. But he was nothing if not a quick thinker. He rose from his desk and, before Giberti could depart, he not only assured him of a fifty-percent return on his money, he offered him employment as the first sales agent for the Securities Exchange Company. Giberti was dumbfounded. What did he know about selling International Reply Coupons?

Charles Ponzi, huckster by trade and instinct, pooh-poohed him.
He
knew what it meant to be a sales agent; he had spent much of his life selling, often the “castles in the air” about which his mother had fantasized—but selling nonetheless. He would teach Giberti what to do, and, before Giberti could decline, Ponzi started in on him, spending the next hour or so instructing his first employee in the intricacies of the scam that had not yet become a scam, giving him information about the product and advice about persuading others to buy: “salesmanship and psychology,” he kept repeating; those were the key words, “salesmanship and psychology.”

Giberti began warming to the offer. Yes, he wanted the best for his children, but he wanted the best for himself too; and salesman sounded a lot better than butcher.

Ponzi then assured him that he was in the perfect position to sell the coupons. Dozens of people came into his shop every day; if they trusted his judgment on what cut of meat to buy, why wouldn't they also believe him when he suggested an investment? All right, so it was a bit of a reach,
but for his trouble, Ponzi said, Giberti would receive a commission of ten percent on each sale. How could he possibly lose? Even if the International Reply Coupons turned out to be a bust—and Ponzi assured him there was no chance of that—he now had a second job that required almost nothing in the way of additional time and effort.

When Giberti finally left Ponzi's office, careful not to have made a firm commitment, he was nonetheless smiling. Two weeks later, in January 1920, he returned positively exuberant. So far, in addition to the money Giberti himself had invested, he had talked eighteen of his customers into handing over at least a portion of their savings to the Securities Exchange Company—and he was just getting the hang of it! The result was that, in addition to his own profits, Giberti was able to present $1,770 to Ponzi.

SEC was officially in business. More than that, it was about to become the thriving enterprise of which Ponzi and the two women who depended on him, his wife and mother, always knew he was capable.

Or was it?

MUCH TO HIS SURPRISE, PONZI
suddenly had competition. The Old Colony Foreign Exchange Company had not only joined SEC in figuring out how to make money on International Reply Coupons, but had taken a suite of offices in the Niles Building—and in what Ponzi thought was an inexcusable display of effrontery, had done so on the same floor as his own firm. So appalled was Ponzi that he went to see a fellow Italian on the police force, expressing his fear that people would think these Old Colony impostors, whoever they happened to be, were somehow associated with him, and that such an association could only damage SEC's reputation.

As a favor to his countryman, the cop looked cursorily into Old Colony's methods and the dividends it paid to its investors and determined that its practices, at least so far as he could tell, were perfectly legitimate: Old Colony, providing exactly the same opportunity that the Securities Exchange Company was providing, had done nothing to break the law. And that is the important point to realize at this stage in the development of the Ponzi scheme, a point that too many historians ignore. Such investments as were being accepted in International Reply Coupons were not against the law. It was beginning to look as if, with ultimate irony, Ponzi
would be able to line at least his own street with gold and not break the law. Who would have guessed!

He was still worried, though, about the competition from Old Colony. He assured his friend on the force that the company would eventually turn crooked, and pleaded with him to keep an eye on them. The cop said he would. What he did not say was that he would also keep an eye on Ponzi. There was something about the business of both firms that did not smell right to him, nor to other authorities who were starting to become suspicious by the returns the companies offered and, in fact, had in a few cases already paid. They started to gather information, ask questions of clients.

No sooner had Ponzi begun to fret about Old Colony than all eyes in the Boston financial community suddenly turned toward the newer firm. It had taken out an ad in Boston newspapers, summarized as follows by historian Michael E. Parrish:

For every $10 invested with the firm for ninety days, it promised $15 back. … Potential customers were told that Old Colony intended to buy International Postal Union money orders in some foreign currencies and later redeem them in others, reaping profits from the daily and often substantial fluctuations in exchange rates from country to country. Old Colony assured the curious that its activities were perfectly legal and that all who entrusted their funds to the firm would become very rich, very soon.

A ten-dollar investment would bring fifteen dollars in return? Old Colony was promising fifty percent! Ponzi had, of course, made precisely the same guarantee, but he had done so in private, in a face-to-face conversation; he could easily talk the neighborhood butcher into waiting another week or two for his dividends if need be, offering arcane but impressive-sounding explanations for the delay. Then he could pay him back out of future investments—which was, of course, precisely the course of action that would lead Ponzi down the road to thiefdom.

But it was something else altogether to make a public vow of such riches. It was, among other things, too much pressure to place on SEC,
which would now have to match Old Colony's figure in just as public a manner, or tumble to the status of also-ran. Ponzi was livid. Had these Old Colony swindlers done their homework? Rates of exchange on foreign currency were constantly varying, and although they were just as constantly favoring Americans, and would continue to favor them for years to come, the percentages were sure to fluctuate. A fifty-percent return simply could not be guaranteed on a regular basis.

Nonetheless, Ponzi authorized his newest salesman, Charles Ritucci, who worked out of the newly opened Plymouth, Massachusetts, office, to print flyers in English, Italian, and Portuguese and paste them onto store windows all over town:

Securities Exchange Company, No. 27,

School Street, Boston, Mass.

NOTICE

Do you want to get rich quick? See our agent, Charles Ritucci, 301½ Court Street, Upstairs in Plymouth Theatre Building, who will explain how you can get fifty percent profit on your investment, payable forty-five days from date of investment. Our bank office in Plymouth opens every night from 6 to 8. Yours
           truly, Securities Exchange Company.

SEC and Old Colony, the two little firms on the same floor of a Boston office building, were paying the highest dividends of any companies in the country, more than United States Steel, more than Ford Motor, more than J. P. Morgan. Even in capitalism's homeland and primary feeding ground, it didn't seem to be the kind of thing that could last.

It might have been Old Colony that took out the first ads, but it was Charles Ponzi and the Securities Exchange Company that seemed most to benefit from them, perhaps because Ponzi had started making money for his clients before Old Colony, and just as likely because he was such a charmer that neither prospective clients nor hard-bitten newspapermen could resist him. Journalists, in particular, found themselves captivated by the dashing little fellow, and Ponzi delighted in the power he so deftly wielded over them.

That power was never more clearly demonstrated than on a day in the early summer of 1920. A reporter for the
Boston Post
made an appointment with Ponzi to talk about a lawsuit filed by Joseph Daniels, a furniture dealer and once a friend of Ponzi, who had loaned him the money to make the initial payments on his office and furniture. Ponzi had repaid him in full, but now that the Securities Exchange Company had become such a success, he was suing for more. It was a fool's mission; Daniels had absolutely no case against Ponzi and would have been advised so by every lawyer he had consulted, if he had bothered to seek counsel in the first place. The most for which Daniels could hope was publicity as an annoyance.

Nonetheless, Ponzi was happy to talk about the matter, was happy to talk about anything with the press, and invited the
Post
reporter to his home. By the time the interview was over, the reporter had fallen completely under Ponzi's spell, the result of which was that he ended up writing a story that resembled a press release more than an exposé.

DOUBLES THE MONEY WITHIN THREE MONTHS

50 Per Cent Interest Paid in 45 Days by Ponzi—Has Thousands of Investors

Deals in International Coupons Taking Advantage of Low Rates of Exchange

A proposition fathered by Charles Ponzi, as head of the Securities Exchange Company at 27 School Street, where one may get 50 percent in 90 days, on any amount invested, is causing interest throughout Boston.

Yesterday his offices were crowded with people trying to loan him money on his personal note.

The proposition has been in operation for nine or ten months, rolling up much money for the man behind it and rolling up much money for the thousands of men and women who are tumbling over themselves to entrust him with their money on no other security than his personal note, and the authorities have not been able to discover a single illegal thing about it.