Ponzi's Scheme (4 page)

In America, Carlo became Charles, and at times he found it useful to adopt a new last name: Bianchi, or “white,” which fit his fair complexion. English spellings of Italian names were not yet standardized, and he was also known as “Ponsi,” “Ponci,” and “Ponse.” He grew a mustache that sat on his upper lip like a bottlebrush. With the new names and new look came a new language. Soon he was as fluent in English as he was in Italian and French, and with his new tongue he began seeking jobs more suited to his dreams.

In July 1907, he scraped together a few dollars for a train ticket to Montreal, arriving at the magnificent Gare Bonaventure with no baggage and a single dollar in his pocket. Ponzi walked up Rue Saint Jacques, Canada's Wall Street, past ornate eight- and ten-story bank and insurance buildings that were the skyscrapers of their day. Not two blocks from the train station he saw the sign of an Italian bank, Banco Zarossi. Calling himself Charles Bianchi, he made himself as presentable as possible and walked confidently through the door. Five minutes later he was hired as a clerk. Ponzi/Bianchi was delighted. After four years of menial labor, he finally had a job that complemented his skills and fit his self-image. Never mind that it was just the sort of job he had rejected as beneath him in Italy.

Canada was in the midst of an immigration wave of Italians, many of them brawny young men from the south of Italy who sought jobs in the coal mines of Nova Scotia and clearing forests for the Canada Pacific Railway. Nominally based in Montreal, they would be away from the city for months at a time. They needed a safe place to send their paychecks, but their business held little appeal for the British and Scottish financiers who lorded over Rue Saint Jacques. Banco Zarossi was one of several Montreal banks that had sprung up to fill the void.

The bank's owner, a jolly man named Luigi “Louis” Zarossi, had formerly been in the cigar business. But as soon as he'd entered the world of finance he'd been intent on beating his competitors. It was a daunting task, largely because another Italian bank, located almost directly across the street, was owned by the notorious Antonio Cordasco, the city's richest and most powerful padrone. The padrone system of labor bosses was in full flower at the turn of the century in North American cities with large Italian immigrant populations. At its center were native Italians who formed relationships with companies seeking unskilled laborers, then established themselves, sometimes through force, as the men to see for jobs, housing, loans, travel papers, and everything else they could control. Cordasco was that man in Montreal. He ruled an extensive network of agents and subagents in his native country and Canada who kept business humming, workers coming, and cash flowing. At a parade three years before Ponzi's arrival in Canada, Cordasco had himself fitted with a crown and declared the “King of Montreal's Italian Workers.”

But Zarossi had an idea. Cordasco's bank and others catering to immigrants paid depositors 2 percent interest on their accounts. It was a simple system: the banks invested in Italian securities that paid 3 percent, then gave 2 percent to depositors and kept 1 percent for costs and profits. Zarossi announced that he would pay depositors the full 3 percent, plus another 3 percent as a bonus, for an unheard-of 6 percent. Asked how he could do it, Zarossi tapped into the public's widespread suspicions that greedy bankers paid pennies on the dollar while keeping huge profits for themselves. His largesse was possible, he claimed, because he would share his bank's earnings more fairly with his depositors. Cordasco was furious. Dubious, too. Cordasco considered it impossible to pay such returns. He kept quiet, but he suspected that Zarossi would be paying one man with another man's money, an age-old fraud known as “robbing Peter to pay Paul.”

As months passed and business boomed at Banco Zarossi, Ponzi impressed his boss with his intelligence, his easy smile, and his smooth way with customers. Ponzi was especially solicitous of the bank's female customers, flirting with them and basking in their attention. Even more than the customers, Ponzi liked Zarossi's pretty seventeen-year-old daughter, Angelina. Soon Ponzi was promoted to bank manager, and it looked as though he was finally making something of himself.

As the promised interest came due, Zarossi needed to find ways to make the relatively exorbitant payments. If he paid his depositors 6 percent through traditional means, he would soon be bankrupt. An alternative, albeit illegal, was staring him in the face: the money immigrant workers sent to their families via the bank. Zarossi began dipping into those funds, knowing it would be weeks or months before word got back to Montreal that the money had never arrived. He would buy more time by claiming he had sent the money and the fault rested with the mails or whoever received the money in Italy. If a depositor raised a stink, the bank would send money from its fresh deposits. Zarossi figured the cycle of finger-pointing and late payments could keep the scheme afloat long enough for him to come up with another way to pay. If that failed, he would have enough time to gather his profits and his family, and flee.

But events moved more quickly than Zarossi had anticipated. Depositors wanted their interest, immigrants demanded to know what had become of the money they'd sent home, and authorities began investigating the bank for embezzlement. In mid-1908, less than a year after Ponzi came to work for him, Zarossi packed a bag full of cash and fled alone to Mexico City. In the aftermath, one employee killed himself, and another, Antonio Salviati, disappeared when authorities accused him of stealing $944.85 from a customer named Francesco Charpaleggio, who had come to the bank to send money to his family in Italy. The suicide and Salviati's disappearance raised suspicions that the fraud went deeper than Zarossi. Eventually the bank collapsed, costing depositors even more. It was unclear how much Ponzi knew, but as bank manager he made a clear target for investigators.

Yet unlike Salviati, who ran, Ponzi stayed put in Montreal. For several months, though jobless, he watched over Zarossi's family, which included not just Angelina but three other daughters and Zarossi's wife. But by August 1908, Ponzi grew tired of domestic life and feared that he might face arrest, deportation, or both. It was time to hit the road. As usual, though, he had spent whatever money he had earned. The twenty-six-year-old Ponzi made a decision he would long regret.

On Saturday morning, August 29, 1908, he went to the offices of a shipping firm called the Canadian Warehousing Company, a client of Banco Zarossi. Ponzi had been there many times before to collect receipts and to handle other business matters. He raised no suspicions when he walked into the empty office of the manager, Damien Fournier. While no one was looking, Ponzi went to Fournier's desk and found a checkbook from another bank where the company had an account, the French-owned Bank of Hochelaga. Ponzi tore a blank check from the back of the checkbook and left as quickly as he had come.

That afternoon, Ponzi filled out the check in the legitimate-seeming amount of $423.58. He signed it “D. Fournier” and presented it at a branch of the Bank of Hochelaga. He asked the teller for four one-hundred-dollar bills in American currency, but the teller told him that would not be possible. Agitated, Ponzi accepted forty-two ten-dollar bills, three singles, and the rest in coins. Cash in hand, Ponzi left the bank and began outfitting himself for his return to the United States. He went from store to store, buying two suits, an overcoat, a pair of boots, and a watch and chain. He completed the spree with thirty-two dollars' worth of shirts, collars, cuffs, ties, and suspenders from a men's clothing store called R. J. Tooke.

Before Ponzi could leave town, officials at the Bank of Hochelaga began having serious doubts about the signature on the check. At noon the following Monday, Montreal Detective John McCall headed over to Ponzi's boardinghouse, across town from the bank on Rue Saint Denis. When McCall first confronted Ponzi, the detective asked if his name was Bianchi. Ponzi said no, his name was Clement. McCall then identified himself as a detective. Before McCall could say anything more, Ponzi sighed, “I'm guilty.”

The detective and a partner searched Ponzi and found the receipt from the forged check. They also counted out what was left of the money: $218.12. McCall placed Ponzi under arrest and brought him to the city's vermin-infested jail.

Ponzi's years as a sojourner had taught him a few things, and he quickly began calculating a way to improve his accommodations. Pretending to be catatonic, he curled up in a corner, stared at the wall, and chewed a towel to shreds. A guard brought him to the jail infirmary, where Ponzi emerged from his trance and began whooping and climbing a wall to get to a barred window. After a few hours in a straitjacket, he acted as though he were recovering from a bout of epilepsy. It was a crude ruse, but it worked. His jailers kept him in the relative comforts of the infirmary until his November trial.

Ponzi pleaded innocent before the court, but it was a hopeless cause. The testimony of Detective McCall and the bank teller, not to mention Ponzi's sudden shopping spree, made quick work of the trial. Ponzi was found guilty of forgery and sentenced to three years in prison under the name Charles Ponsi, alias Bianchi.

Ponzi served his sentence three miles from Montreal, inside the looming gray stone walls of Saint Vincent de Paul Penitentiary, a prison with all the charm of the Bastille. Like a passenger in steerage, he slept on a mattress made from a sack of corncobs and husks. His cellmate was a fellow Italian immigrant, a swindler named Louis Cassullo who was serving a three-year stretch. Ponzi sized up Cassullo as a man who would steal the poor box in a church or pick a drunkard's pocket—“one of those prowling, petty, sneaky thieves whose counterparts in the animal kingdom are the hyenas and the jackals.” Their days were spent in an unheated shed where they pounded rock into gravel. In time, Ponzi joked that he had crushed enough stone to pave Yellowstone National Park. Within a few months, Ponzi put his banking experience to work by winning a job as a clerk in the jail blacksmith's shop, after which he won a promotion to the chief engineer's office, and finally to the warden's office.

Despite the softer working conditions, Ponzi stewed endlessly over his situation. He wrote several pleading letters to Cordasco, but the padrone turned a deaf ear. Cordasco suspected that Ponzi was the mastermind of the Zarossi scheme, and he was not about to help. Over time, Ponzi earned the warden's trust as a model prisoner, and his sentence was shortened to twenty months for good behavior.

On July 13, 1910, Ponzi was doing his clerk duties when the warden came to him with a paper to type: his own parole form. Elated, Ponzi was released with five dollars in his pocket and an ill-fitting suit from the prison tailor shop. Longing for the fine Italian garments of his youth, Ponzi considered the suit grotesque. Not that it mattered where he was headed.

Edwin Atkins Grozier, editor and publisher of
The Boston Post.

Mary Grozier

C
HAPTER
T
HREE

“N
EWSPAPER GENIUS
”

L
ike Ponzi, Richard Grozier was a bright, handsome young man with a taste for fine clothes. Also like Ponzi, he was approaching the midpoint of his life with little to show for himself. Unlike Ponzi, however, Grozier had every possible advantage—he was descended from
Mayflower
Pilgrims and had spent his life bathed in wealth and privilege.

Yet in 1917 Grozier was thirty years old, single, and living in his parents' house. He worked, without distinction, for his father's company after nearly flunking out of college and washing out of law school. As the only male heir, Grozier was destined to inherit his family's business and the money and power that went with it. But it looked as though his inheritance would drop in value the moment he took possession.

Richard's father was Edwin Atkins Grozier, editor, publisher, and owner of the
Boston Post,
the largest-circulation newspaper in Boston and one of the largest in the nation. Through relentless work and rare gifts, Edwin Grozier had engineered the
Post
's rise from the brink of bankruptcy to the top of the pig pile of Boston newspapers. By the time he was Richard's age, Edwin had already been one of the most respected newspapermen in the country. Without him, the
Post
would have been long dead, cannibalized by competitors on Newspaper Row.

Some thought the paper might still end up that way, once it passed to his son.

T
he first edition of Boston's
Daily Morning Post
hit the streets November 9, 1831, under the ownership and editorial direction of Colonel Charles G. Greene, whose military title was honorary but whose journalism was sound. The
Post
appeared at a time when Boston newspapers seemed to be opening and closing every few months; fifteen printed their first and last editions between 1830 and 1840. But under Greene's steady hand, the
Post
survived and grew steadily for four decades, establishing itself as a well-written, reliable Democratic voice in an age of partisan newspapers.

Then came November 9, 1872. A fast-moving fire consumed an empty hoopskirt factory on the edge of Boston's financial district, then leapt from one building to the next. Many of the horses that were used to pull the city's fire equipment had recently succumbed to an equine epidemic, so the Great Boston Fire burned for more than two days, consuming 776 buildings and leveling sixty-five acres downtown. The City upon a Hill was a smoldering ruin. Sullenly surveying the damage, Oliver Wendell Holmes was moved to verse: “On roof and wall, on dome and spire, flashed the false jewels of the fire.” The
Post
's offices escaped the flames, but the oceans of water used to protect it ruined almost everything inside. Greene and his son, Nathaniel, reopened the paper in a new location, but it was never the same. When the nation fell into economic depression during the presidency of Ulysses S. Grant, the Greenes decided to sell.

The eager buyer was the Reverend Ezra D. Winslow, a Methodist minister, staunch prohibitionist, and member of the state Senate. He was also a forger and a swindler. In a scheme that would anticipate stock manipulators of a later day, Winslow sold twice as many shares of the Boston Post Company as allowed by the incorporating papers. He also forged the signatures of more than a dozen prominent men on banknotes for nearly a half million dollars, and pocketed thousands more loaned to him. He exchanged much of his stolen cash for gold, fled to Holland, and by some accounts ended up in Argentina, enjoying his ill-gotten gains in Buenos Aires and working as a reporter for a local newspaper.

The story of Winslow's scam became part of
Post
lore, passed down year after year, deeply ingrained in the memories of its employees. Winslow had ruined the finances and shattered the credibility of the once-proud newspaper. For the next fifteen years the
Post
floundered under transient ownership. By 1891 it was hobbling along with fewer than three thousand subscribers. It had an antiquated printing plant, only a handful of advertisers, and a debt of $150,000. But where creditors saw a newspaper in its death throes, Edwin Grozier saw the opportunity of a lifetime.

E
dwin Grozier was born September 12, 1859, aboard a clipper ship within sight of the Golden Gate in San Francisco harbor. It was a fitting arrival; Grozier men were storied mariners, and the ship's master was Edwin's father, Joshua, who routinely captained voyages from Boston around Cape Horn to California and back. When Edwin was six, his parents brought him and his two brothers to live on the far tip of Cape Cod, in Provincetown, the home of generations of sea captains and their families.

A sickly boy and an avid reader who dreamed of becoming a poet or a novelist, Edwin Grozier attended public schools and graduated from high school at age fifteen. In keeping with family tradition, and to improve his health, he spent the next two years sailing around the world. The teenage wanderer wrote detailed descriptions of the exotic ports he visited and sent them to Greene's
Boston Post,
which was impressed enough to publish them as a series. In 1877, he returned home, spent some time at prep school, then entered Brown University in Providence, Rhode Island. After a year he transferred to Boston University, drawn to Boston by the lure of Newspaper Row.

After graduating he landed a job at the
Boston Globe,
where he worked under the tutelage of the editor and publisher, General Charles H. Taylor, a gregarious Civil War veteran. Grozier was paid ten dollars a week, which he at first considered an enormous sum. Then his ambition took hold. “It was soon raised to twelve, to fifteen, to eighteen dollars,” he recalled. “I wanted more money—because I needed it!” Despite his fondness for Taylor, an offer of twenty-five dollars a week sent Grozier across Newspaper Row to the
Boston Herald
to cover politics. He distinguished himself quickly, in part because he was able to accurately record the long-winded speeches of the day with his uncommon skill at shorthand. During the 1883 campaign for Massachusetts governor, Grozier so impressed the Republican candidate, George D. Robinson, that as soon as Robinson was elected he hired the young reporter as his personal secretary.

But the pull of newspapering was strong. Eighteen months later, Grozier moved to New York and became personal secretary to Joseph Pulitzer, the Hungarian-born editor of the New York
World
and a journalism legend in the making. Pulitzer pioneered a formula of compelling human-interest stories, social justice crusades, and sensational battles with William Randolph Hearst and the New York
Journal.
Under Pulitzer, the
World
became the most profitable and most copied newspaper in the nation. Edwin Grozier had a front-row seat, and he was in thrall to Pulitzer: “I never saw anyone to equal him. His mind was like a flash of lightning, illuminating the dark places.”

For six exhausting years, Edwin Grozier routinely worked eighteen- and twenty-hour days learning the newspaper business top to bottom. Pulitzer recognized and rewarded Grozier's brains and drive with some of the most difficult jobs in New York newspapers. By twenty-eight, Grozier was city editor of the
World,
and six months later he was editor in chief and business manager of the
Evening World
and the
Sunday World.
He did so well boosting circulation that Pulitzer once handed him a bonus of one thousand dollars in gold coins. But Grozier wanted to captain his own ship. His fondest wish was to buy a newspaper in New York, but he did not want to break his bond with Pulitzer by competing against the
World.

While vacationing in Boston in 1891, Grozier heard from friends that the
Post
was on the verge of collapse. It was everything he wanted, in a city he knew and loved, and just right for his meager price range. First, he sought out the
Globe
's Taylor, who was second only to Pulitzer as a newspaper mentor. Grozier came to Taylor's office seeking absolution.

“If you have even the slightest objection, General,” Grozier told him, “I won't consider purchasing the paper.”

Taylor placed a hand on Grozier's shoulder. “Go ahead, Mr. Grozier. I don't mind in the least.” Smiling, Taylor added, “If you can gather up any of the crumbs that fall from the
Globe
's table, you're welcome to them.”

“Thank you, General,” Grozier replied. “But I want to warn you that I shan't be satisfied with crumbs. If I can, I shall go after the cake, too!”

At first, even crumbs would have seemed a feast. Boston was crowded with newspapers. In addition to the
Post
and
Globe,
there were the
Daily Advertiser,
the
Evening Record,
the
Herald,
the
Journal,
the
Telegraph,
the
Transcript,
and the
Traveler.
Soon the
Boston American
would join the scene. While the
Post
had hemorrhaged money and readers, its competitors had grown entrenched with various constituencies—the Brahmins who ruled the city relied on the
Transcript,
for instance.

Grozier was in danger of folding almost from the first edition. To purchase the paper, he had exhausted his life savings and plunged deep into debt. When he took the keys to the
Post
's tired offices he was left with only one hundred dollars in cash. In the meantime, the thirty-two-year-old newspaper owner had a growing family to feed. In 1885, while working for Pulitzer, he had married Alice Goodell, the daughter of a prominent Salem, Massachusetts couple. When they returned from New York to Boston they had a four-year-old son and a two-year-old daughter.

I
n the days of larger-than-life newspapermen, Edwin Grozier seemed physically unfit for the job. One day, a young leather worker walked upstairs to the publisher's second-floor office overlooking Washington Street. The leather worker stepped inside, hoping to be hired as a reporter despite his complete lack of qualifications for the job. He immediately thought he had entered the wrong office. He found the editor and publisher of the
Post
to be “a small, brownish man who sat at a large desk . . . just another undersized party, rather delicate and plaintive-looking, perhaps because he wore a straggly moustache, had a rug over his knees, and peered benevolently at me over the tops of his glasses.” The job applicant also might have noted that Grozier had close-set eyes, curtained by heavy lids.

Yet Grozier would not have minded the unflattering description; he was modest by nature and had no interest in provoking awe, particularly among the reporters he sent scouring the city for scoops. Something about the young man appealed to Grozier, and he offered him a job at eighteen dollars a week. It was the start of a remarkable writing career for Kenneth Roberts, who became a star at the
Post
and the best-selling author of the historical novels
Arundel
and
Northwest Passage.

Edwin Grozier compensated for his lack of physical presence with what Roberts called “newspaper genius.” From the moment he took control of the paper, Grozier operated under a few guiding principles he once articulated: “Of first importance is the securing of the confidence, respect, and affection of your readers—by deserving them. Study the census. Know your field. Build scientifically. Print a little better newspaper than you think the public wants. Do not try to rise by pulling your contemporaries down. Attend to your own business. Do not believe your kind friends if they assure you that you are a genius. But work, work, work.”

He issued a public call to arms in his debut editorial: “By performance rather than promise the new
Post
seeks to be judged. By deed rather than words its record will be made.” He declared that the
Post
“aspires to guard the public interests, to be a bulwark against political corruption, an ally of justice and a scourge to crime; to defend the oppressed, to help the poor, to further the still grander development of the glorious civilization of New England.”

Grand sentiments were one thing, but Grozier knew he had to meet a payroll and the demands of creditors. His first actions on those fronts were counterintuitive: He dropped the paper's price from three cents to a penny—a technique he had learned from Pulitzer to boost circulation—and lowered the cost of advertising. He also called a meeting of his creditors and asked their forbearance; he would pay them in full, he promised, but he needed time and more credit to keep afloat. Impressed by his sincerity, and hoping to avoid the pennies-on-the-dollar payoff that would result from Grozier's failure, the creditors agreed. Still, the early years remained lean, and paydays were sometimes anxious. Grozier never missed a payroll, but more than once his staff gathered at the cashier's window waiting to be paid from last-minute advertising receipts and the pennies turned in by newsboys. Sometimes even that was not enough, and Grozier borrowed to pay his staff.