Ponzi's Scheme (26 page)

Success on that front would mean vindication in the eyes of the public and perhaps even the authorities. And that might give him enough of a shield to weather the storm that would surely follow the
Post
's disclosure of his criminal past.

He arrived in Boston early the next morning, Monday, August 9, seeking to focus attention on the question of solvency and to fuel his public image as a man of the people who would not be defeated by the “big men” who ran the city.

Ponzi gathered the reporters around him and announced that he would “call the bluff of all the public authorities and gossip mongers trying to make out that my liabilities are insurmountable.” Specifically, he promised to pay the 50 percent interest on all outstanding notes, regardless of when they would mature, immediately after he proved he had enough cash to cover whatever debts Pride calculated. That would clean the slate completely. Then he turned his fire directly on prosecutors and bankers.

“After I have been proved on the level, I will demand that the public authorities be investigated,” Ponzi declared. “I and the public want to know whether the actions of these officials have been instigated by bankers, or not, to try to cross me.”

Public support certainly appeared high. Ponzi's clerks had to turn away people hoping for a chance to invest in his new business. Boston barber Joseph Bonina stood at the front of the line with five hundred dollars, hoping to be the first shareholder in the Charles Ponzi Company. He was outdone two hundredfold by pharmacist Louis Mantani of Portsmouth, New Hampshire, who had collected $100,000 of pooled savings from that city's Italian immigrants.

Shortly before noon, Ponzi received an invitation from Gallagher to hear Pride's preliminary accounting and to begin checking the accountant's figures. Ponzi brought along his two newest lawyers, Dan Coakley and his partner, former assistant district attorney Daniel McIsaac, who, he believed, would hold the most sway with the federal prosecutor. For the next three hours they discussed Pride's early totals, which looked as though they would be higher than Ponzi had hoped.

While they met, Ponzi sustained the most direct attack yet on his business, from the public official he least expected to skewer him.

I
t had been weeks since Ponzi had met with Bank Commissioner Joseph Allen. Ponzi had walked out of that meeting certain he had charmed and bamboozled the banking bureaucrat. But Ponzi had dangerously underestimated this Mr. Allen. While Attorney General J. Weston Allen had publicly thrashed around with his investigation, the bank commissioner had employed a stealth offensive designed to starve Ponzi of the lifeblood of his company: cash.

Upon concluding that Ponzi's game was fixed, Joseph Allen had been quietly, carefully watching Ponzi's accounts at Hanover Trust, waiting for the opportunity to pounce. Two days earlier, on Saturday, Allen's bank examiners had informed him that Ponzi's main account at the bank, the one opened in the fictitious name Lucy Martelli, had dipped dangerously close to the breaking point. Even after Ponzi had deposited the money he had taken from Cosmopolitan Trust and Tremont Trust, the ceaseless withdrawals of the previous two weeks had left only about thirteen thousand dollars in the Martelli account.

Ponzi had tried over the weekend to replenish the account by transferring money from a bank in Manchester, New Hampshire, but in his haste he had made two mistakes. Ponzi believed the Manchester account held $275,000, so he wrote himself a check for $200,000 and deposited it in the Martelli account. When that check bounced, he wrote a second for $150,000. But Ponzi had only $146,000 in the New Hampshire account. By the time his second check bounced it was too late for him to write a third. Allen had already begun moving against him.

Knowing that Ponzi's Martelli account was on the verge of depletion, Allen had stationed examiners at Hanover Trust on Monday morning with orders to act as his eyes and ears. They watched as several dozen Ponzi investors walked from Pi Alley and School Street around the corner to Washington Street, then into the bank to cash their checks from the Securities Exchange Company. By early afternoon the examiners were certain that Ponzi's Martelli account was deeply overdrawn. They called Allen with the news: The Martelli account is busted.

At fifteen minutes before two in the afternoon, with the temperature approaching ninety-two degrees, Joseph Allen dialed the Hanover Trust Company from his State House office. He ordered the treasurer, William McNary, to immediately stop paying checks drawn on Ponzi's accounts. Ponzi was the biggest stockholder and depositor in Hanover Trust, a man with a seemingly bottomless pit of money. Even if the Martelli account was overdrawn, Ponzi still had $1.5 million in Hanover Trust, locked in a certificate of deposit. McNary told the bank commissioner he would not comply with his order.

Allen's authority was on the line. He dictated a written order to Hanover Trust insisting that no more Ponzi checks be honored and implying that McNary and the bank's other officers would be held liable for any losses if there were. The order reached Washington Street at two forty-five in the afternoon; this time McNary and bank president Henry Chmielinski complied.

Within minutes of Allen's initial call to Hanover Trust, he had launched the second half of his carefully choreographed attack. Three Ponzi depositors, with combined investments of a mere $750, appeared in court to file an involuntary petition seeking to declare Ponzi bankrupt. Allen denied having orchestrated the bankruptcy filing, but his involvement was unmistakable. Under normal circumstances, Ponzi could laugh at such a petition and quickly pay off the investors. But filed in concert with the bank commissioner's declaration that Ponzi's account was overdrawn, it carried heavy symbolic weight, just as Allen certainly knew it would when he walked into the State House press office to hand a statement to reporters.

“I have directed the Hanover Trust Company not to pay any more checks of Charles Ponzi, the Securities Exchange Company, or any of his agencies, as the account of Lucy Martelli, trustee, against which these checks are charged, is now overdrawn,” it read. “As commissioner of banks I have no supervision over the affairs of Charles Ponzi or the Securities Exchange Company. The moment I learn, however, that he is overdrawing his account in a trust company, which is under my supervision, it is my duty to interfere.”

The reporters instantly understood: Bank Commissioner Joseph Allen, who neither sought nor liked publicity, had acted decisively while federal, state, and local prosecutors—Daniel Gallagher, J. Weston Allen, and Joseph Pelletier—had spent weeks battling one another and keeping a weather eye on public opinion. Even more than the others, Attorney General Allen, already subject to ridicule and second-guessing over his handling of the case, realized he was watching his political future vanish before his eyes.

Hoping to steal back some thunder, the attorney general immediately issued a statement built on the meager findings of the New York trip taken by his assistant Albert Hurwitz. Hurwitz had gone searching for banks Ponzi used to transfer money to and from Europe. He had learned that the banks that fit the description Ponzi had given had done only token business with him, nothing on the scale that Ponzi had claimed. Hurwitz believed he had cracked the case, though in reality it was small potatoes. Ponzi had not been under oath when he had met with Attorney General Allen, and he'd had no obligation to detail his business methods or his banking relationships. Hurwitz's discovery that Ponzi had apparently misled the attorney general was a slender thread on which to hang a charge of larceny by false pretenses. Ponzi could easily say he had misspoken, set the record straight, and move on. But in his moment of political desperation, the attorney general believed he had something to crow about.

What Attorney General Allen's statement lacked in substance it made up for in length, detailing Hurwitz's work and its tenuous findings. Its strongest line demonstrated its flaws: “Although Mr. Ponzi claims that his dealings in International Reply Coupons have been conducted upon a very large scale, aggregating millions of dollars, the investigation has disclosed nothing to confirm his statement.” Allen acknowledged that his investigation was incomplete, but he said he was speaking out because it was in the public interest. What he did not say, of course, was that his statement left open the possibility that his investigation had hit a roadblock or had simply failed. The attorney general's timing was even more suspect because there was no need for urgent disclosure—the public faced no risk, because Ponzi still had not resumed accepting investments.

Attorney General Allen intensified his new offensive by urging Ponzi note holders to visit an office he had set up in the State House to collect their names, addresses, and amounts invested for some undisclosed future use in the investigation.

The moves by the two Allens had their desired effect. By the time Ponzi stepped out of his meeting at Gallagher's office, the presses were already running on the afternoon papers declaring him in crisis. To escape the firestorm, Ponzi rushed to the tenth floor of the Hanover Trust building, where he holed up in the empty offices of the C & R Construction Company, in which he held a controlling interest. By six o'clock, just as the heat of the day had begun to break, Ponzi invited the reporters to join him.

When they arrived, Ponzi sat nibbling on the remnants of a box lunch and sipping ginger ale. A bottle of milk was nearby, no doubt to coat the lining of his ravaged stomach. He was well dressed as always, but reporters noticed something different: His smile had lost its radiance.

“I have played fair with everybody,” he began. “I have paid out to date all I could pay out, regardless of the attacks and impediments thrown my way by the state authorities, meaning Attorney General Allen and Bank Commissioner Allen. I do not propose to take issue with either official until after the investigation. But since it has developed that the above two mentioned gentlemen are not working for the interests of the people, but they are rather furthering the plans of the bankers against the people, I think that the time has arrived to make some revelations. Attorney General Allen, to begin with, has shown very little interest in what I was doing up to the time that I invited an investigation. In my opinion, it is the duty of a public official to prevent an alleged criminal from taking money, not from stopping him when he is paying that money out.”

Reporters read him the attorney general's statement and Ponzi scoffed: “All I told Attorney General Allen was bull and it has kept him busy. If I see him again I will tell him some more bull which will keep him busy for two months.”

When the reporters stopped laughing, Ponzi turned his attention to the bank commissioner, insisting he had more than enough money to cover any overdraft, either from his certificate of deposit or from accounts in other banks. But Ponzi claimed the commissioner's action would force him to stop paying investors at least until he had proved his solvency to Pride.

“That I am solvent there is not the slightest doubt in anybody's mind. Why should then my investors be delayed in receiving payments which are rightfully theirs when I have cash available to pay them?”

Ponzi urged the public to rise up “and demand the removal or dismissal of public officials who not only have proven inefficient in the performance of their duties, but who have also overstepped their authority for reasons which are undoubtedly open to criticism.”

“I am sick and tired of the whole mess,” he declared flatly.

Several times as he spoke, Ponzi was interrupted by the shouts of newsboys on Washington Street, carried ten floors skyward by the warm breeze: “Ponzi stopped!” they cried. “Ponzi stopped!”

Ponzi had grown to like several of the newspapermen who had followed him around nonstop for two weeks. In his moment of need, he appealed to them as little guys just like him. “Don't you fellows knock me, for I am fighting in a desperate game, and if I win you will be benefited and interested as much as me,” he implored them. “I am a fighter and I shall stay with the devils to the end, for I am sure you fellows are no more of the autocracy than I am, and I am fighting the autocracy.”

To lighten the mood, one of the reporters asked Ponzi if he had enough money to buy his supper. Ponzi gave a half smile and produced a roll of cash, with a ten-thousand-dollar bill on the outside.

“I am broke,” he said sarcastically. “They say I am broke and am a criminal. You boys all know me. If I did not have the money to pay all my notes with I would have stopped paying on the twenty-sixth [of July]. I would have flown the coop.”

“Did you have passports?” a reporter asked.

“I don't need passports,” Ponzi answered. “I have not got my second papers [for citizenship] out yet.”

“If you went away you would have go to in the steerage and you could not come back again,” the reporter said.

“Do you think I would care to come back after I had stolen seven or eight million dollars—if I had stolen the money? I could have gone away any time I wished. I did not wish to. I did intend to go to Italy on July Fourth and I bought my tickets three months ahead of that time. But my business was becoming bigger and bigger and I could not afford to leave or get away, so I sent for my dear mother to come over here and she came. I am not going to run away. That is what the officials would like to have me do. I am a fighter and I am going to fight them to the end. And I am going to win my fight.”

As the reporters went off to file their stories for the morning, Ponzi returned home to Lexington. After the day he had endured, it was not hard to persuade Rose to break her vow about never again accompanying him to the theater. He needed to be out in public, to show no doubt, no fear. They both dressed in white as if to prove the point.

They sat together in the back of the Locomobile for the return to Boston, where a box was waiting for them at the Park Square Theatre. On stage was a play called
My Lady Friends.
They were the guests of the show's producer, Harry Frazee, a theatrical manager who owned the Boston Red Sox. Frazee apparently hoped to capitalize on Ponzi's popularity, having forfeited his own eight months earlier by selling Babe Ruth to the Yankees. By coincidence, that very day a devoted Red Sox fan had sent Ponzi a letter. “Dear Charlie,” it began. “For God's sake, buy the Red Sox.” The theater crowd was equally enthusiastic, greeting Mr. and Mrs. Ponzi with sustained cheers.