Ponzi's Scheme (28 page)

“There isn't much more to be said. The public knows the facts and whether the same are such to make me unworthy of their confidence is for them to decide.”

Ponzi then announced that he would resign, at least temporarily, as a director of the Hanover Trust. He displayed a measure of optimism, however, by insisting that the disclosures about his past would not prevent him from paying off all Ponzi notes “within the course of a few days.”

When he had finished his statement, Ponzi waved off the reporters' questions. He slumped back in the chair. The sparkling energy that had made him a star was spent.

Before the reporters left, Ponzi added two codas that in many ways were the truest parts of his confession. First Ponzi told the reporters that he worried that news of his prison record would lead to his deportation. But even that was not his greatest fear.

Not knowing that his mother had secretly told Rose about his prison past before their marriage, Ponzi said his biggest regret, the biggest mistake of his life, was not having told his wife about his time behind bars. His eyes filled with tears at the thought of losing Rose. Somehow, Ponzi said, he hoped to keep his prison record from her at least a little longer. He told the reporters he had ordered all the newspapers kept out of their house. “I want to keep all this news from my wife,” Ponzi said. “It would kill her.”

“My nerves can't last forever,” Ponzi added before the last reporter filed out. “I've got to go rest. I'm not going to give out any more statements for a while. I'm going to keep away from people—not come downtown.”

If Ponzi thought the worst part of the day was over, he was mistaken. The next blow came at one forty-five in the afternoon, when Bank Commissioner Joseph Allen posted a notice on the door of the main branch of Hanover Trust. Above his signature, the sign read: “Under the authority vested in me by law, I hereby take possession of the property and Business of the Hanover Trust Company.” It was the most dramatic act in the arsenal of a banking regulator, and it was the first time Allen had used the power since taking office six months earlier.

The examination Allen had ordered of the bank's books had revealed problems that went far deeper than Ponzi's overdraft. Under its president, Henry Chmielinski, and its treasurer, William McNary, Hanover Trust had exhausted its reserves and issued unsafe and illegal loans. Loans to companies with connections to bank insiders exceeded legal limits, and in some cases the accounts of those companies carried huge overdrafts. For instance, Chmielinski treated Hanover Trust like a rich relative, secretly borrowing money to finance real estate purchases and a company he ran called the Polish-American Finance and Trading Association. But Ponzi's overdraft was the last straw. Allen described how he had expressly prohibited McNary from tapping into Ponzi's certificate of deposit to cover the overdraft, yet McNary had done it anyway.

Hundreds of people raced to the Washington Street bank. Most came out of curiosity or to catch sight of Ponzi. As word spread a small number of depositors arrived and jostled their way through the horde to rattle the locked doors and demand their money, to no avail. A cordon of police officers surrounded the bank, but the excited mob pushed and pressed against them. After forty-five minutes of shoving, the police regained control and the crowd dispersed.

When Ponzi heard of Allen's move, he issued a statement without his usual vigor. “I learn with regret that the bank commissioner has ordered the Hanover Trust Company to close its doors. I feel that this action on the part of the bank commissioner is merely a new attempt on his part to prevent me from gaining possession of the one-point-five-million dollars which I have in that institution, in the hope that I will not be able to meet my obligations to note holders.” Ponzi continued to insist that he had at least $4 million in assets. That would be more than enough, he declared, to meet his liabilities and move on to his new business. Publicly, he estimated that Pride would find no more than $800,000 in liabilities, though privately he certainly knew that the number would be many times higher.

Ponzi left Barristers' Hall at about five o'clock. As usual, a crowd gathered the moment his Locomobile pulled to the curb to carry him home. He flashed his smile and stepped into the car just as a newsboy leapt onto the running board. Amused, Ponzi bought copies of all the evening papers to read on the ride to Lexington.

As night fell, reporters took their places outside the house on Slocum Road. Around eight o'clock, they heard the sound of a woman weeping inside.

A few minutes before midnight, Ponzi paced along the gravel walkway outside his home. If he could find any solace, it was in knowing that the events of the past twenty-four hours had not disproved his claims about his solvency or demonstrated that he had done anything illegal in building his fortune. Though his credibility was damaged, he still had fervent believers, among them thousands of people who had already profited from the Securities Exchange Company. At that moment, editors of the
Boston Traveler
were preparing an editorial about him, marveling at “the grip which this apostle of rapid finance is able to retain upon thousands of people.” The editors even urged that Ponzi “receive the benefit of every doubt” and likened him to Jean Valjean in
Les Misérables.
Ponzi and the fictional Valjean spent their lives “striving to live down some misdeed, and oftentimes society appears to conspire against them.”

Ponzi had one last flickering hope: He could preserve the life he had built if he could somehow cover the liabilities counted by Pride's audit, which was scheduled to be revealed at noon on Friday.

As he walked, a thought occurred to him, one he wanted to share with the public. He asked his guards to summon two reporters he knew were keeping vigil nearby. But by the time they'd arrived he had changed his mind and momentarily lost his bearings.

“Get away from here!” Ponzi shouted.

“One of your guards said you wanted to see a reporter,” one of the newspapermen said.

“I made two statements today—that's enough,” Ponzi answered. He pulled out his blue steel pistol and began waving it in the air.

“My guards' power is limited, but mine is unlimited,” he yelled. “When I shoot I hit. Get away or there'll be some tall shooting.”

O
f all Ponzi's concerns, none had shaken him more than his belief that Rose had been unaware of his prison record and would now think less of him. But early the next morning, Thursday, August 12, he learned the truth: Rose confessed that she had known all along and had loved and married him regardless. Relief swept over him. He regained the composure he had lost the night before.

His personal fears resolved, it was time to confront the rest of his worries. Since Monday, Ponzi had been thinking about the preview he had been given of Pride's audit. Even with the Securities Exchange Company's maddening bookkeeping system, the diligent accountant had calculated that Ponzi's liabilities were about $7 million, maybe more. Ponzi had spoken briefly with Pride again on Wednesday, and it appeared that this would be the figure facing him at the showdown set for Friday in the federal prosecutor's office.

During the two weeks since Pride had begun his tally, Ponzi had done everything possible to marshal his resources. He had closed his far-flung bank accounts, pooled his money in Hanover Trust, and gathered the certificates and titles to the stocks, bonds, and real estate he had purchased during his shopping spree. Repeatedly, he'd tried to cash his certificate of deposit by selling it at a discount to another bank, but there had been no takers. Ponzi had also sought help cashing the certificate from Thomas W. Lawson, a legendary Boston stock speculator and longtime enemy of Clarence Barron's. Lawson's fame derived in part from a book he'd written called
Frenzied Finance,
about stock market abuses. An endorsement from Lawson would go a long way. But Ponzi was too late. Weeks earlier, Simon Swig of Tremont Trust had approached Lawson for his opinion on Ponzi, and Lawson had concluded that it was almost certainly a swindle. Even if Lawson had agreed to help Ponzi turn his certificate of deposit into cash, his assets totaled only $4 million—$3 million shy of Pride's number.

As the Friday deadline approached, Ponzi's slim hopes of closing that gap disappeared. His last chance was his plan to temporarily “borrow” assets in the vaults of Hanover Trust. But the bank commissioner had unwittingly foiled that far-fetched idea by seizing the bank and locking its doors. Time was fast running out.

If Ponzi had any doubts about what would happen next, he needed only to look at the screaming headline atop the front page of that morning's
Post:

A
RREST IN
P
ONZI
C
ASE
M
AY
B
E
M
ADE
T
ODAY

Below were four photographs that made Ponzi cringe. Two were twelve years old—the grim-faced mug shots from his Montreal forgery arrest. Below those were two recent photographs of the smiling Ponzi, but a
Post
illustrator had added a mustache on one “for the purpose of comparing it with his Canadian pictures,” the caption read. Inside the paper was the latest sketch by Ritchie, titled “Ready to Burst.” Cartoon images of four men—Gallagher, Pride, and the two Allens—stood atop the federal building and the State House using spears to poke holes in a balloon labeled “The Ponzi Get-Rich-Quick Bubble.”

Ponzi knew what he had to do. He dressed in a somber suit with a chalk stripe, a fashion choice that reflected his decision as much as it fit the cloudy weather. Speaking briefly with the reporters camped out on Slocum Road, Ponzi gave no indication of what he had planned, addressing only suggestions that he might run and the disclosures about his record.

“I am not going to flee,” he said, “but will stay here and face the music. I am going to prove that I am on the level now. The past has nothing to do with the present.”

He went back inside but a short time later slipped out a back door, ducked into the Locomobile, and pulled down the window shades for the ride to Boston. It was a long enough ride for him to think about how miserable he'd felt in 1908 when two Montreal police detectives had surprised him at his apartment and placed him under arrest. He also had time to recall his shock in 1910 when the immigration inspector had seized him for smuggling aliens. This time, a decade older and wiser, he was determined to change the script. Ponzi wanted to remain as much in control as possible under the circumstances, deciding when, where, and by whom he would be taken into custody.

Attorney General Allen was greedy to do the honors, having spent nearly three weeks battling accusations that he had bungled the investigation. But Ponzi was loath to give him that satisfaction. Federal prosecutor Dan Gallagher had played straight with him and, more important, the federal prosecutor was a friend and ally of Ponzi's lawyer Dan Coakley. If the time came to cut a deal, Ponzi wanted Coakley by his side and Gallagher on the other side of the table. He told his driver to take him to Coakley's office.

With Coakley in tow, Ponzi went glumly to Gallagher's office on Devonshire Street, his walking stick hanging limp on his arm and his jaunty cigarette holder nowhere in sight. When Gallagher received them, Ponzi admitted no wrongdoing and asserted his belief that Pride had overestimated his debts.

“But you have agreed to accept the auditor's figures,” Gallagher said.

“Yes,” Ponzi acknowledged. “I have agreed to accept his figures.”

At that moment, Ponzi knew he was defeated, but he had no intention of remaining that way. He would take his medicine but surely rise again, next time even higher than before. “No man is ever licked, unless he wants to be,” Ponzi told himself. “And I didn't intend to stay licked. Not so long as there was a flickering spark of life left in me.”

Ponzi told Gallagher he was ready to turn himself in. Gallagher readily accepted. They left Gallagher's office and crossed the street to the federal building. Ponzi walked into the office of U.S. Marshal Patrick J. Duane, an eccentric who was dressed, as usual, as if for a wedding, in a tall silk hat, striped pants, and a long, double-breasted frock coat.

“Mr. Ponzi wishes to surrender,” Gallagher said, beaming. They sat around Duane's office while a warrant was hastily drawn up charging Ponzi with using the mails in a scheme to defraud. With Ponzi putting himself at Gallagher's disposal, it made no difference that the charge was almost comical. His only use of the mails had been to send letters to investors urging them to collect their money, which he'd gladly paid when they'd showed up. Gallagher glossed over that fact, focusing the clamoring reporters on Ponzi's admission that he could not meet the debts Pride had counted. Gallagher even borrowed a phrase from turncoat publicity agent William McMasters, declaring that the financier who had gripped the nation was now “hopelessly insolvent.”

Ponzi waited quietly in Duane's office for Coakley to summon a bail bondsman named Morris Rudnick, who dutifully put up the twenty-five thousand dollars in cash needed to secure Ponzi's freedom.

M
eanwhile, Attorney General Allen continued to collect names and stories from Ponzi note holders who seemed certain to reclaim only a fraction of their investments. They came from all walks of life, young and old, new arrivals and the deeply rooted. Some were on the verge of panic. Others took their expected losses philosophically. A printer from the North End had invested his life savings, four thousand dollars, in the hope of buying a house. “Wife and I were going to buy a real palace if Ponzi doubled my money,” he said. “Guess it's a dog house now.”