Ponzi's Scheme (12 page)

In the weeks that followed, Ponzi kept busy, talking about his business and taking care of himself and Rose. The death of Rose's father also made him focus more on his own mother. On March 9 he wired ten thousand lire, worth about five hundred dollars, from the Tremont Trust bank to Imelde Ponzi in Italy. Five days later he sent the same amount in his own name to an account in an Italian bank. He began regularly sending similar small sums to his mother and his own accounts in Italy.

Word was spreading and business was growing—in March, 110 investors turned over nearly twenty-five thousand dollars to the Securities Exchange Company. It was more money than Ponzi would have seen in almost a decade of working for J. R. Poole. Ponzi made his uncle John S. Dondero an agent, paying him 10 percent of whatever he brought in. He assigned John A. Dondero to manage the office when he was out and to greet customers when he was in. John A. Dondero was paid thirty-five dollars a week, double what he was earning at the Faneuil Hall markets, plus 5 to 10 percent of investments made when he was working the door.

Things were going so well that Ponzi began to worry that something might go wrong. He began paying off old debts whenever possible, including the two-hundred-dollar loan the furniture dealer Joseph Daniels had given him the previous December. To further satisfy Daniels, in March Ponzi bought more office furniture for his growing business.

Yet Ponzi still had some outstanding debts, and he feared his creditors might try to horn in on his business. He was especially afraid that the Fidelity Trust Company might file an attachment against him that would freeze his bank accounts and other assets. To shield himself, on March 12 Ponzi filed new papers at City Hall declaring that he was the manager of the Securities Exchange Company, in partnership with his uncle John S. Dondero and a second man, Guglielmo Bertollotti of Parma, Italy. Neither Dondero nor Bertollotti knew anything about the supposed partnership. Ponzi chose Dondero for his early confidence and family ties. Bertollotti had been Ponzi's landlord at one time in Italy. Bertollotti was at least seventy when Ponzi last saw him, so Ponzi figured he must be long dead, which made him an ideal silent partner. Ponzi's fears were well-founded. Three days after he filed his new corporation papers, Fidelity Trust brought a lawsuit against him seeking repayment of his debts.

Ponzi took other precautions as well. One afternoon he walked a few blocks from his office and trotted up the granite stairs of Boston police headquarters in Pemberton Square. He stopped outside the office of Commissioner Edwin Curtis.

“Does anyone accept funds for the relief of the widows and orphans of the members of the police force?” Ponzi asked Captain Thomas Ryan, the commissioner's aide.

“There is a Boston Police Relief Association,” Ryan answered, “and that association has a fund and frequently accepts contributions for the benefit of the heirs of its members.”

“Well,” said Ponzi, “you have an excellent police force in Boston, and there are some fine men among them. I desire to make a small contribution to the fund for their relief.” He placed $250 in crisp new banknotes on the counter, alongside his card. “This is my contribution—for the present.”

Ponzi's comment about the “fine men” of the Boston police was grounded in firsthand knowledge. Inspectors from the detective bureau had been dropping by 27 School Street ever since Frank Pope, the state's supervisor of small loans, had urged the police to keep a lookout. Mostly, though, they kept watch on their own investments. Two detectives sent to talk to Ponzi about his operation had been so impressed that they'd pulled out their wallets and invested on the spot. In time, five Boston police inspectors and a lieutenant would hold certificates of the Securities Exchange Company, along with hundreds of rank-and-file officers. Several policemen even worked for Ponzi as agents, collecting the usual 10 percent and, even better as far as Ponzi was concerned, lending his enterprise the respectability of their badges.

Yet the more successful he became, the more perilous Ponzi's life grew. Each dollar he accepted put him deeper into debt. Unless he could figure out a way to carry out his idea on a large scale, or come up with some other way to pay 50 percent interest on short-term investments, he would drown in red ink. He shared his concerns with no one, outwardly maintaining his chipper appearance. If anything, his apparent success seemed to exaggerate his savoir faire. But inwardly the pressure was beginning to take a toll. His guts were churning. Acid was drilling an ulcer in his stomach lining. Yet he was unshakable in his belief that he would find a way out.

On March 24, three months into the operation of the Securities Exchange Company, Ponzi wrote a letter to postal officials asking a few questions it might have been more prudent to pose back in December. Would it be possible, Ponzi inquired, to redeem International Reply Coupons for cash instead of stamps?

The question was effectively an admission by Ponzi that, even if he could obtain the coupons in enormous quantities at depressed prices, he was stumped after that. He knew of no way to turn them into the dollars he needed to pay his investors. At one point, Ponzi had imagined he could reap huge returns by selling the stamps at a discount to businesses that relied on the mails, but that had proved unworkable. In his letter, Ponzi also wondered whether coupons bought in America, rather than overseas, could be redeemed for cash at United States post offices. The reason for that question was less clear. A coupon bought in America, with dollars, redeemed in America for dollars, would be the equivalent of moving a dollar from one pocket to another.

The letter triggered a visit to Ponzi's office by postal inspectors, who informed Ponzi of the obvious: International Reply Coupons were not intended for financial speculation. No, they could not be redeemed for cash. Ponzi shrugged off the news and went on with his business. A solution to that problem would have to wait.

A more authoritative response came on April 19, when Ponzi received an official and officious response from Washington, signed by W. J. Barrows, a man with the unwieldy title of acting third assistant postmaster-general: “You are advised that International Reply Coupons are issued . . . for use in pre-paying international reply postage. To effect that purpose they must be exchanged for stamps of foreign countries, and I know of no necessity for redeeming American reply coupons in this country. Post office inspectors have reported their interview with you concerning a proposed speculation in International Reply Coupons issued by foreign governments. They are not intended as a medium of speculation, and the department cannot sanction their use for that purpose.”

D
uring the weeks between Ponzi's letter and the postmaster's reply, the Securities Exchange Company experienced explosive growth.

Word of the easy money spread like a financial version of the Spanish flu. It moved from police officers to trolley drivers, from trolley drivers to their passengers, from shopkeepers to waiters, to diners, to their families. Fruit peddlers polished their apples while telling stories of the riches they were expecting. Newsboys in knickerbockers passed the word on street corners, though the newspapers under their arms told no story of the amazing financier. Kitchen girls heard from their fishermen husbands, then passed the news to their upstairs employers. News incubated in the Italian enclaves, then moved among the tribes of Boston, from the Irish to the Jews, the Armenians to the Poles, the Swedes to the Brahmins. Some still had doubts, but human nature was asserting itself; in the absence of hard evidence, too good to miss trumps too good to be true.

Clementi Viscarello ran into cook Antonio de Agostino at Henry Fravega's provision store and mentioned all the money to be had on School Street. So de Agostino invested a hundred dollars and Fravega bet the bank, putting eighteen hundred dollars on Ponzi for himself, plus a hundred dollars each for his son and daughter. Canal Street butcher Amarco Cataldo told customer John Badaracco, who promptly invested five hundred dollars.

South End bricklayer Ricardo Bogni heard about it on the job and brought his wife, Rose, to 27 School Street. Ponzi sensed that Mrs. Bogni was the skeptical one, so he focused his charm on her, displaying sample International Reply Coupons as he spoke. To make her laugh, he told Rose Bogni that the deal was so safe she could sell her shoes and invest the money. Ponzi told Ricardo Bogni that if he took sick or otherwise needed his money, it would be returned no questions asked, though without the 50 percent interest if withdrawn before the due date. When Ponzi was finished, Rose Bogni reached into her purse and pulled out fifteen dollars. Ricardo ran down to their bank and withdrew four hundred dollars, a world of money for them. Soon he went to work for Ponzi as an agent.

Just for show, Ponzi himself took out a few notes, and his own Rose came by the office for a visit on April 17 and proudly deposited her pin money, seventy dollars. A twenty-seven-year-old English immigrant named Abe Rhodes outdid her, investing fifteen hundred dollars the same day. But even he fell short of the North End's Antonio D'Avanzo, who bet two thousand. All three would be back to collect their winnings on June 1.

More than ten thousand dollars a week was surging into 27 School Street. By mid-April Ponzi needed help handling it all. He had been keeping the accounts himself, and sloppily, at that. He had barely any idea how much money he had taken in. When he wanted to check his cash assets, he simply added his bank deposit slips. He had less interest in counting his liabilities. He knew they would exceed his assets.

John A. Dondero was proving a more able salesman than he was an office manager, so Ponzi called an employment agency seeking a young woman with experience—but not too much experience—as a bookkeeper and stenographer. The agency sent him a doe-eyed eighteen-year-old. Lucy Meli was a native of Sicily who had immigrated with her family a decade earlier and still spoke Italian. After high school in Revere, she'd graduated from business school less than a year before coming to work for Ponzi, giving her the ideal combination of youthful enthusiasm and unquestioning trust in Ponzi's word. He promptly put her in charge of the office. With her thick brown hair pulled back in a bun, Lucy Meli set about trying to get the company organized by the principles she had learned in school.

She and Ponzi occupied opposite sides of the same desk, and she looked across at him with respect bordering on adoration. He enjoyed the attention but offered only avuncular friendship in return. Rose was at home in Somerville, expecting him home for dinner, and Ponzi would do nothing to upset that. Meli expressed her confidence by investing her paychecks and her parents' money with her boss, and the Meli family eventually owned nearly two thousand dollars in Securities Exchange Company notes.

Other new faces began turning up regularly at 27 School Street, as Ponzi hired more salesmen. April receipts would exceed $140,000, an average of three hundred dollars each from 471 customers. One of the new salesmen was Percy Lamb.

Lamb, a thirty-three-year-old English immigrant, had been laid off from his job as a foreman in a textile factory in the mill city of Lawrence, near the New Hampshire border. He'd moved to Boston and found a job earning fifty-five dollars a week as a sorter in a wool house on Summer Street, a mile from Ponzi's office. One day an Italian coworker began talking about the money to be made with the Securities Exchange Company. Lamb and his wife went to see for themselves and were so convinced by Ponzi's patter that they placed their life savings—six hundred dollars—in his hands. On April 17, Ponzi offered Lamb a job, matching his sorter's salary and adding the promise of 15 percent commissions. Lamb grabbed it, agreeing to open the Securities Exchange Company's first branch office, to serve the millworkers of Lawrence. Ponzi was expanding beyond his Italian base, using Lamb to reach other immigrant groups and native-born Americans who might be tempted by easy money.

Ponzi was glad to have salesmen like Lamb aboard, but not all his employees were so welcome. Months earlier, Ponzi had run into his old Montreal cellmate, the chronic thief and con man Louis Cassullo. Like Ponzi, Cassullo had bounced around after his release from prison, landed in Boston, and gotten married. Since learning Ponzi was in town, Cassullo had kept tabs on his comings and goings, looking for an angle to exploit. When he heard about the Securities Exchange Company, he wasted no time before heading to 27 School Street, where he made it clear he wanted a piece of Ponzi's action. Ponzi was in a bind. If word slipped out about his prison record, particularly on a charge of bank forgery, his financial empire would come crashing down. “I was in his power,” Ponzi concluded. “And he was my most dreaded enemy. . . . I was going straight. He was still going crooked. Under the circumstance, I had to capitulate.” Ponzi gave Cassullo a job.

Ponzi sent Cassullo on an endless number of fool's errands and wild-goose chases. One was to the wharves of New York to buy a few bottles of Ponzi's favorite after-dinner drink, Hennessy Three Stars cognac, from a French ship in port. Secretly he hoped that Prohibition agents would catch Cassullo with the contraband liquor and take him to jail, but Cassullo returned with the bottles as ordered. When that did not work, Ponzi kept him away from School Street by making Cassullo an advance man, scouting out locations for branches in cities around New England. Ponzi did not particularly want a string of offices, but he wanted Cassullo hanging around even less.

Soon Ponzi had Massachusetts branch offices not only in Lawrence but also in Brockton, Clinton, Fall River, Framingham, Lynn, Plymouth, Quincy, and Worcester. He opened a second Boston branch in the North End, at 196 Hanover Street, next door to the Daniels & Wilson Furniture Company. Then came Manchester and Portsmouth, New Hampshire; Barre and Burlington, Vermont; Hartford, Bridgeport, and New Haven, Connecticut; Bangor and Portland, Maine; Pawtucket, Providence, and Woonsocket, Rhode Island; and Bayonne and Clifton, New Jersey. Agents in Boston and the ever-expanding branches—some little more than a traveling salesman, others modeled after 27 School Street—began doing so much business that they hired subagents, splitting with them the 10 percent commissions that became Ponzi's going rate. And the money kept coming.