Ponzi's Scheme (25 page)

Dressed for the role of banker, in a soft, black suit coat with a chalk stripe, Ponzi sent word to Daniels requesting a meeting. No lawyers, just two business acquaintances working out their differences. Ponzi chose his home turf: Hanover Trust. Daniels was certain this would be the biggest payday of his life. His suit claiming half ownership of Ponzi's business had no merit, but sometimes it pays to be a nuisance, and this appeared to be one of those times. As for Ponzi, he was willing to pay a high price, but he wanted to limit the damage. Daniels made an opening bid of $100,000, but when Ponzi scoffed he quickly dropped to seventy-five thousand. Ponzi knew he could get him for less, and he offered an even fifty thousand dollars. Daniels leapt at it.

Ponzi ordered Hanover Trust officials to bring him ten thousand dollars in cash and a certified check for the balance. He hustled Daniels around the corner to Water Street, where the Locomobile was rumbling in wait. They drove together to the courthouse, where Daniels obligingly signed the papers withdrawing his suit. From there they drove to the Cosmopolitan Trust Company, where $389,000 in Ponzi's accounts had been locked up for a month. But there was a hitch. Cosmopolitan's president, Max Mitchell, had grown attached to Ponzi's money. He refused to empty the account into Ponzi's hands unless an attorney for Daniels vouched for the settlement.

Frustrated but eager to move things along, Ponzi agreed to call Daniels's lawyer, Isaac Harris. Daniels, however, stopped him. True to form, Daniels wanted to cheat his lawyer out of the deal. But Mitchell held firm: no lawyer, no money. Facing a stalemate, Daniels agreed to involve Harris on one condition: Ponzi would have to support Daniels in a lie to the lawyer—Daniels intended to say the settlement had been for only twenty thousand dollars, thus lowering Harris's share. Fine, Ponzi said, just call him.

Lawyers hate to be the last to know anything, so Harris began yelling the moment he arrived at Cosmopolitan Trust. He thought the suit was worth at least a half million dollars, and here Daniels had settled for peanuts. Recognizing that the deed was done, Harris calmed down, mostly after Daniels agreed to pay him ninety-five hundred dollars and Ponzi kicked in another five thousand. With Harris pacified, Ponzi could finally make his withdrawal. He insisted on cash, pocketing thirty-eight ten-thousand-dollar bills and assorted smaller ones. Ponzi walked out of Cosmopolitan like a strapping six-footer.

Daniels claimed victory. “I could have got more if I had presented my evidence to the court, no doubt,” he prevaricated. Seeing an opportunity to needle Harris, Daniels added, “But the lawyers might have got it all. Now I am happy and can sleep tonight.” Best of all, Daniels said, Ponzi had agreed to involve him in the mammoth new company being launched next week.

Ponzi's pockets overflowed with cash. “What a nice picking I would have made for some of the stickup boys,” he joked after depositing the money at the Hanover Trust. It could not have come at a better time: 255 of his investors were massed in Pi Alley. The good news, from the standpoint of confidence, was that only ten were in line to withdraw their principal before maturity. But that was also the bad news. The rest held matured notes on which Ponzi had promised 50 percent interest. Nevertheless, with Daniels's suit settled, Ponzi felt more in control, more certain of conquest, than he had in two weeks.

“I am now on the offensive,” he told the reporters trailing him.

Impressed by his refusal to succumb, the reporters peppered Ponzi with questions about a recent rumor, spread in part by Clarence Barron, that might explain his uncanny endurance.

“Are you a Bolshevist?” one asked.

“No, certainly not,” said an amused Ponzi. “Do I look like it?”

“Are you an agent of the Soviets?” the reporter persisted.

“No, I am not. I am an agent for no man or men. I am for Ponzi and the people.”

“Are you a Socialist?”

“I am not a Socialist,” Ponzi insisted. “I am a firm believer in law and order and [a] hearty endorser of the established government.”

“Washington reports you are representing Lenin and Trotsky.”

Ponzi had had enough. “Washington is crazy if what you say is true.”

Nevertheless, Attorney General Allen was so concerned about the possibility of foreign influence that he sent an assistant, Edwin Abbott, to New York to consult with former secretary of state Robert Lansing. Fanciful as it might seem, the
Post
acknowledged, some authorities feared that Ponzi's operations were part of “a gigantic plan for the financing of Soviet Russia, and a plan which also embraced within its scope a determined effort to disrupt banks and financial institutions of the United States.”

Had Ponzi been a Red agent, he'd have been the most beloved Communist in the country. Even Rose drew hundreds of curious women in her wake when she spent the afternoon on a downtown shopping trip. When she presented a check, the department store salesman acted as though he were in the presence of royalty.

“Are you . . . ? Are you . . . ?” he stammered.

“Yes,” Rose said, blushing. “I am his wife.”

The staid
New York Times
sensed the pendulum of public opinion shifting in Ponzi's favor. “Charles Ponzi retains his cheerfulness as well as his liberty,” the paper said in its first editorial on the phenomenon. “In Boston . . . public distrust seems to be shifting from Ponzi to his critics and assailants, and the once long and excited line of those who wanted his notes paid, with or without 50 percent interest for forty-five days, has fallen away to nobody at all.” The
Times
's only caution involved Ponzi's refusal to reveal his methods, warning that “continued concealment on his part must continue to have the unkindest of interpretations.”

Most of the Boston papers all but conceded the success of Ponzi's operations without endorsing his methods. The
Globe,
for instance, donned a puritanical and decidedly racist cloak to warn readers about the moral costs of collecting money without working for it. “There may be regions of the tropics where this is possible, but it will be observed that the people who thrive in those latitudes are not very prolific in anything except offspring,” wrote the
Globe
's editorial figurehead, known as Uncle Dudley. “In those parts of the planet which nourish high-grade human stock there is no such thing as living without working. If anyone does so, it simply means that he is living on the labor of someone else.”

The
Post,
meanwhile, conceded nothing. Richard Grozier was as certain as ever that Ponzi was a fraud, and he was determined to prove it.

A crowd of Ponzi investors awaiting their money in Pi Alley.

Albin O. Kuhn Library & Gallery, University of Maryland, Baltimore County

C
HAPTER
S
IXTEEN

“I
FEEL THE STRAIN—INSIDE.
”

P
onzi left Slocum Road early on the muggy morning of Saturday, August 7, eager to visit his nemesis Simon Swig at the Tremont Trust Company. With Daniels's suit settled, Ponzi could withdraw the $185,000 that had remained locked in Swig's safe even as the banker had publicly called Ponzi an unbalanced crook. Ponzi wanted to wish Swig a sarcastic “good morning” as he demanded his money.

But Swig was nowhere in sight, so Ponzi had to settle for his son Benjamin, the bank's treasurer. Benjamin Swig counted out eighteen ten-thousand-dollar bills and various smaller ones and dumped them into a bag, which Ponzi jammed into his pocket just as he had done a day earlier at Cosmopolitan Trust. He hurried to Hanover Trust and deposited the cash, which would more than cover the day's payments to the 265 people crammed in Pi Alley. Collectively they held Ponzi notes worth $127,000. After meeting briefly with Hanover officials, Ponzi slipped upstairs to an empty office to do some thinking.

While Ponzi closeted himself away, investigators held a flurry of meetings in the offices of Dan Gallagher. The federal prosecutor had so trumped his state counterpart, Attorney General Allen, that the
Post
flatly stated that Governor Coolidge “is far from satisfied with the way in which Mr. Allen has been conducting the case.” Allen's embarrassment increased in the afternoon when he had to traipse to Gallagher's office to deliver the transcripts of his meetings with Ponzi.

In the meantime, Ponzi's rival and imitator, the Old Colony Foreign Exchange Company, quietly capitalized on the attention being paid to Ponzi. Without fanfare, and without drawing attention from investigators, Old Colony continued to accept deposits from investors who otherwise would have preferred to deal with Ponzi.

Ponzi's private recess upstairs from the bank gave him a chance to reflect on his situation. He wanted desperately to launch his new company, but the more he thought about it the more he realized that it would be impossible until he proved to the world, and particularly to his investigators, that he could satisfy all the liabilities of the Securities Exchange Company. If he immediately began collecting investments in the Charles Ponzi Company, he would fuel suspicions that he was robbing Peter to pay Paul, and then the investigations would only intensify. Also, his resuming business, regardless of whether he operated under the banner of a new company, might trigger a confrontation with the authorities and prompt them to shut him down immediately.

Ponzi realized that he needed to begin his new, relatively more conservative venture with a clean slate. And that meant holding off until he'd answered Pride's audit with dollar-for-dollar evidence of his solvency. The question remained: How to accomplish that? Two weeks of investors collecting their principal before maturity had certainly lowered his liabilities, and regaining control of the money frozen by Daniels's attachment had helped as well. But the simple fact remained that his business plan, by design, guaranteed that he would be in the red. Without new investors in either his old or new companies, Ponzi was down to two choices: a fast and highly unlikely sale to the New York financiers, or a raid on the vaults of Hanover Trust.

During the seven hours Ponzi spent alone working out his options, a rumor took hold that he had fled. The story gained momentum when he skipped a two o'clock meeting he had promised to reporters who needed interviews for the Sunday papers. As the dinner hour approached, Ponzi heard his name being yelled by newsboys. “Ponzi is missing!” they cried, repeating the afternoon headlines. Amused, Ponzi wandered downstairs to read for himself about his disappearance. As he stood on the corner of Washington and Water Streets, word spread that the wizard had miraculously reappeared. Swarms of people rushed to see him, and soon more than two hundred surrounded him, pressing him backward against the building. Ponzi spent a few minutes greeting and shaking hands with his relieved fans before ducking into a nearby doorway. He might as well have chosen a lion's den. Ponzi had taken refuge in the
Boston Post
building.

He had already broken his vow never to speak with a
Post
reporter, so why not climb the stairs to the second floor and have a look around? Soon enough he was up to his usual patter, trying to charm the entire newsroom. For a half hour he held court among the paper-strewn desks in the city room, a crowded, messy, poorly ventilated space with the ambience and dimensions of a bowling alley. Then he got down to business.

“Why are you doing this to me?” Ponzi demanded of Eddie Dunn. “Why are you hounding me? Why do you print such lies about me?”

Dunn responded softly. “I'm ‘hounding' you, as you call it, because I don't think you're honest.”

“I'm not a crook,” Ponzi shot back. “I have met all my obligations. My investors have made money as I promised. Stop trying to take bread from other people's mouths.”

“We are only trying to get at the truth,” Dunn answered. “Let us investigate your affairs in the interest of the public. If you are honest, there is nothing to fear.”

“I've been on the level all my life,” Ponzi said, his emotions rising.

Settling down, Ponzi gave the
Post
a statement about the conclusions he had reached regarding his new company.

“I have decided that it would not be fair to the public to open my new company to receive money on Monday until after these investigations have finally given me a clean bill of health,” he said. “The investigation won't last long, and it will end very happily.” To demonstrate his confidence, Ponzi said, he would instruct his network of agents to take applications from investors, to give him a sense of how much money he would raise. He predicted he would have ten to twenty million dollars in a matter of weeks.

After he left the
Post,
Ponzi told other reporters that one of the first actions of his new business would be to bid on the entire fleet of the United States Shipping Board, for reasons of profit as well as patriotism. “I mean to twist the British lion's tail,” Ponzi said, “by keeping these steamships from falling into their hands.” Investors could expect 1 to 2 percent a month, a far cry from his current deal, and would get only a plain receipt for their money. “This will be all the security the depositors will have,” he said. “They must have faith in me.”

For all his bravado, the pressure was beginning to wear on Ponzi. That night, he let down his guard with a reporter from one of the papers he considered most friendly toward him, the
Boston Advertiser.
He spoke of the relentless phone calls and requests for donations, advice, and time, and he complained of Attorney General Allen's repeated requests for lengthy interviews.

“They call me the ‘Millionaire Kid' and ‘The man with the million-dollar smile,' ” Ponzi said. “I do smile. I smile at home and I smile downtown. But no one knows what I have been through in this fight. It keeps me at a tense strain all the time, and people make such demands on my time I cannot get time to sleep. I smile, but I feel the strain—inside.”

L
ike a boxer gathering himself between rounds, Ponzi spent Sunday, August 8, inside his house, dressed in a bathrobe, never once venturing outside to feel the ninety-three-degree heat or witness the gawkers' cars on their daily parade along Slocum Road.

That, of course, did not stop him from speaking with reporters, and once again he held court, downplaying his liabilities and waving a telegram from Herman and the other New Yorkers claiming they were ready to pony up $10 million. Ponzi said a deal would occur only if they came to Boston with cash in hand and allowed him to continue to run the company—to protect the public. Neither condition was likely to be met.

While he relaxed, Ponzi spent several hours telling
Post
reporter P. A. Santosuosso the story of his life. He spun a picaresque tale of his boyhood in Italy, his arrival in America, and his travels before finding his fortune. Notably, though, he left several blanks in his chronology and cloaked the empty spaces in mystery. Ponzi told Santosuosso he had been engaged in “confidential investigations” in Canada. Then, “after three years traveling throughout that country, I was sent South.” Ponzi had conveniently excised his prison years. As the young
Post
reporter pointed out in the paper, Ponzi's supposed vow of secrecy regarding those years “necessarily leaves out a great deal of Ponzi's activities in the story of his life between 1906 and 1916.”

It was no accident that Santosuosso enticed Ponzi to wax poetic about his past. Santosuosso had previously heard portions of Ponzi's life story, and he had noticed the holes in the timeline on those occasions as well. He had begun to suspect that Ponzi was hiding something, and those suspicions had grown more urgent in recent days when a woman Santosuosso knew in the North End had passed along a rumor that Ponzi had spent time in a Montreal jail. Sensing that he was on the verge of a major scoop, Santosuosso had gone to the very top of the
Post
with his suspicions, sharing what he knew with Richard Grozier. They had nowhere near enough information to print a story—not unless they wanted to hand Ponzi the keys to the newspaper—but Grozier told Santosuosso to keep asking Ponzi about his past to see what other clues might shake loose.

As Ponzi regaled Santosuosso on Sunday afternoon with his auto-hagiography, Rose Ponzi walked into the parlor. Her eyes brimmed with tears. Dinner was waiting on the table and here her husband sat, still in his robe, talking to the
Post
reporter. Fiercely private, longing for his attention, Rose had been frustrated for days—she missed their old life, and she abhorred people staring at her in the streets, shops, and theaters of Boston. She turned to Santosuosso and delivered a statement of her own: “I would much rather that he was a bricklayer working eight hours each day and undisturbed by anyone in the evenings and on Sunday than to have all the wealth he has brought to me.”

Later that day, a telegram arrived at the
Post
building from the newspaper's correspondent in Montreal with information that seemed to fill one of the gaps Ponzi had left in his story. A man who went by the name “Charles Ponsi, alias Bianchi,” had been convicted of forgery while working for the Banco Zarossi in Montreal. Santosuosso called Ponzi's home to ask if he was the same man. Ponzi scoffed—that was ridiculous. Santosuosso persisted: Were you in Canada when this took place? Yes, Ponzi said. But what did that prove? Santosuosso pressed on: Did you work at Banco Zarossi?

“I might have,” said Ponzi, ending the conversation.

Grozier, Dunn, and their reporters were tempted to run the story the next morning. But Ponzi had more lives than a cat, surviving the attacks by Barron and the
Post,
the relentless runs, the unceasing investigations, and the McMasters exposé, without breaking a sweat or losing his grin. This time the
Post
was determined to finish the job. Grozier called for his ace reporter, Herb Baldwin, and gave him a mission: Get to Montreal as fast as you can. And bring some photographs of Ponzi. Find out if the forger and the financier are one and the same.

T
he moment Santosuosso posed the question, Ponzi knew he could not avoid being revealed as a forger. And he was certain of one thing: “Exposure spelled ruin.” By denying he was Bianchi/Ponsi, Ponzi hoped to delay the
Post
story for at least a few days. By then, Pride's audit might be complete and, if he could tap a new vein of luck, somehow he might be able to prove his solvency.

His plans on that front had not progressed much further than an unexpected influx of cash or a scheme to “borrow” whatever he needed from the Hanover Trust. But in light of how long Pride's audit was taking—approaching two weeks—there was a growing possibility that the accountant was stymied by Ponzi's admittedly chaotic system of bookkeeping. The index-card system designed by eighteen-year-old Lucy Meli might be having the unintended benefit for Ponzi of frustrating Pride from determining the true extent of his liabilities. If Pride came up with an artificially low figure, Ponzi might have enough money on hand with his $1.5 million certificate of deposit to demonstrate solvency. Or if that was not enough, Ponzi might be able to cobble together cash from several accounts, sell the stock he had accumulated, and secretly “borrow” a bit from Hanover Trust to cover Pride's artificially deflated number. Even without taking money that did not belong to him from the Hanover vaults, Ponzi estimated that his holdings had a collective value of roughly $4 million.