Ponzi's Scheme (23 page)

The subhead explained:

Publicity Expert Employed by “Wizard” Says
He Has Not Sufficient Funds to Meet His Notes—States He Has Sent No Money to Europe nor
Received Money from Europe Recently

The story, under McMasters's byline and copyrighted to prevent its immediate theft by the
Post
's afternoon competitors, began with a self-congratulatory note: “After this edition of
The Boston Post
is on the street there will be no further mystery about Charles Ponzi. He is unbalanced on one subject: his financial operations. He thinks he is worth millions. He is hopelessly insolvent. Nobody will deny it after reading this story.” McMasters went on to assert that Ponzi was at least $2 million in debt, had sent no money recently to Europe, and had never earned a dollar from operations outside the United States. McMasters also claimed that Ponzi had bribed a policeman for a gun permit and paid leg breakers to keep stories out of the newspapers.

He quoted banker Simon Swig as questioning Ponzi's sanity and denounced “Wall Street ‘experts' who never did anything like it themselves offering ‘sure-thing' explanations of his ‘operations.' ” McMasters made Pelletier out to be something of a hero, claiming that the district attorney had said at their meeting, “See here, Ponzi, I think your scheme is crooked.” To explain why he had gone to the newspaper, McMasters raised the banner of altruism: “As a publicity man, my first duty is to the public.” He wrote nothing about the money Grozier had paid him.

Editorial cartoon by William Norman Ritchie
in
The Boston Post,
August 3, 1920.

The Boston Globe

C
HAPTER
F
IFTEEN

“Y
OU DISCOVERED
THE MONEY!
”

A
nxious investors began gathering in Pi Alley at six-thirty Monday morning, more than two hours before the doors would open at the Securities Exchange Company. The wound had reopened. Ponzi's success in restoring confidence had been undone by McMasters's story in the
Post.
More people than any day the previous week clamored for refunds. The alley soon overflowed. People spilled around the corner into Court Square, next to City Hall. A large detail of police turned out to assist the Pinkertons, some of the officers mounted, some on foot, and a couple on a nearby roof with field glasses, watching for pickpockets.

By ten o'clock several thousand men and women stood in line, shoving and swaying and surging and sweating in the rising heat. Newsboys with armloads of
Post
s roamed through the horde, doing brisk business. Some onlookers loitered in the street just for the spectacle. A few said they were holding on to the notes and their faith in Ponzi. Those who did want their money had to suffer the slow progress to the entrance to the Bell-in-Hand, then through a rear door to a stairway, then through labyrinthine hallways to the Securities Exchange Company. Clerks brought them a dozen at a time through the boarded-up front door—there had been no time to replace the glass that had been shattered the week before—and soon they emerged with checks for their money drawn on Ponzi's Hanover Trust accounts. The wait proved too much for several women, who fainted from exhaustion in the poorly ventilated building and were carried outside to be revived. Soon Ponzi's clerks began pulling women from the line and leading them up a side entrance into 27 School Street.

Speculators returned to work, buying not-yet-matured Ponzi notes at a discount, in most cases paying 90 percent of the original investment. Among them were several Ponzi agents, whose lucrative 10 percent commissions had dried up the moment Ponzi had stopped taking investments. One was Ricardo Bogni, the South End bricklayer who had initially invested after Ponzi had assured his wife that she could bet her shoes on his business. Bogni roamed the alley, eventually buying nineteen notes for a little more than seven thousand dollars before he ran out of cash. He could have made a quick buck standing in line himself and cashing them at a teller's window, but Bogni had complete faith in Ponzi. He was certain he would make a killing once they matured. Several of Ponzi's branches in other cities experienced miniature versions of the Boston run, though most closed and advised investors to travel to School Street for their money.

The uproar and the allegations by McMasters proved too much for Roberto de Masellis, the foreign exchange expert Ponzi had hired a month earlier to improve his accounting system. De Masellis gathered his belongings and walked out. But Lucy Meli and the rest of the Ponzi staff remained at their posts, fighting their own doubts and fatigue, expressing confidence in their boss, and paying claims as fast as they could.

Ponzi arrived shortly before eleven, and his appearance quieted the crowd. The reception was a far cry from the cheers he had grown accustomed to, but it was a sign that although they were frightened, his investors had not lost all faith. He strutted into his office as unruffled as ever, twirling his snappy walking stick like a drum major, as though his biggest concern was where to eat lunch. Reporters trailed him like goslings as he walked through his office offering hearty “good mornings” to his staff. When he reached his desk, Ponzi tossed his straw boater onto it and declared, “My hat is in the ring.”

As the reporters fired questions about McMasters, the investigation, and the run, Ponzi responded true to form. “As far as being insolvent, I absolutely deny the allegation,” he said, beaming his grin at his inquisitors. “People have admired me for my nerve. My smile, which has become so well known through cartoons and photographs, is prompted by a clear conscience. A run does not affect my serenity because I have the money to back it.” He slyly noted that he doubted there was a single bank in the city that could withstand such relentless withdrawals without bleeding to death.

Ponzi said McMasters knew nothing about his business beyond insignificant advertising matters. He suggested that McMasters was motivated by Ponzi's demand that he account for money Ponzi had given him to place newspaper ads announcing the suspension of investments. If not that, Ponzi said, McMasters was the tool of powerful men out to destroy him. “There is a desire to embarrass the investigators, a desire to turn public opinion against me,” he continued. “Should I be able to realize my dreams, such a realization would mean the downfall of an autocratic clique which has been able to prey upon the credulity of the people.” Casting himself as David against the Goliath of established bankers and business interests, Ponzi declared, “The issue now at stake is an issue between a man who wants to do all he can for the people and men who want to take as much as they can from the people without giving adequate return.”

He picked apart McMasters's allegations one by one. Ponzi insisted that Pelletier had never called his business “crooked” and called on the district attorney to dispute McMasters's claim. He branded Swig's comments to McMasters lies, and showed receipts for money orders sent abroad to show he had indeed engaged in foreign transactions. He vehemently denied that he had bribed a police officer for a gun permit. Ponzi scoffed at the suggestion that he had followed McMasters's advice when meeting with investigators, saying, “My dog follows me, never goes ahead.” Ponzi downplayed the likelihood of a libel suit against his former publicity agent—“McMasters hasn't got anything”—but said he would talk to his lawyers about suing the
Post.

He had just one request for his investors: “Come and get your money, but come in an orderly way. I may run out of check books, but I shall not run out of money.

“Let me tell you this,” he added. “I am going to meet all my outstanding obligations and meet them with funds which I have in banks right here in Boston. And when that is done, I shall have millions left.” With a sweep of his hand, Ponzi signaled that the half-hour interview was over. Afterward, one of the reporters marveled how Ponzi, at the center of a firestorm, could remain “as calm and undisturbed as a mill pond.”

Ponzi's line about leading his dog inspired his personal poet, James Francis Morelli, to write an impassioned poem about McMasters titled “Charles Ponzi Says: ‘My Dog Never Leads Me.' ” It began:

He bit the hand that fed him so well, the miserable, contemptible cur.

While with Ponzi he lived on the fat of the land, and returned nothing but a slur.

“Hopelessly Insolvent” are the words he used to imperil the Ponzi investor.

“Millions of Dollars” was the immediate reply of the “people's proud protector.”

As the day wore on and more investors received their money, Ponzi's popularity began to return. The only disturbance occurred when police and Ponzi's Pinkerton guards shut the doors at two o'clock and told the remaining investors to come back the next day, figuring it would take several more hours to pay the investors already inside the building. Several men grabbed planks from the alley to use as a battering ram, but they were quickly repelled by a flying squad of officers. The only arrest was a notorious West End pickpocket named Harry Dwyer who had been working the crowd.

Ponzi was heartened by scores of telegrams offering support and money. Gary Johnson of Houston wrote: “Recent news dispatches state you will reopen and extend business to other cities. You will remember me as a fellow worker and friend in Wichita Falls. If you are opening in Texas would like to represent you. Are channels now open for further investments? If so, will invest my savings with you. Reply [at] my expense.”

Just after four o'clock, Ponzi wandered outside to buy the afternoon papers, generously tipping the first newsboy he came across. As he did, someone in the crowd yelled, “You're the greatest Italian in history!”

“No,” Ponzi answered with a laugh. “I am the third greatest. Christopher Columbus discovered America and Marconi discovered the wireless.”

The fan cried out, “You discovered the money!”

Before Ponzi could respond, a clerk directed his attention to an elderly woman who was crying. Rose Perchek had two notes worth $450, but the lines were too long for her to get inside before the doors closed. Ponzi wrapped an arm around her shoulders and led her through the mob. As they walked into the building a man with a freshly fat lip grabbed Ponzi by the arm.

“Mr. Ponzi,” he said, “one of your men is assaulting people outside. He shoved me in the face. Look. You hadn't ought to allow such business. Are you going to let them maul people?”

“I am very, very sorry,” Ponzi said. “He hasn't any business to be rough.” He calmed the man and continued into his office with Mrs. Perchek.

“Now, madam,” he asked, “what will you have, cash or check?”

She asked meekly for cash, so Ponzi pulled a thick roll of bills from his pocket and paid her.

“Now,” he told her, winking to the crowd of investors waiting for their money, “you have the money and I'm broke.”

M
eanwhile, Edwin Pride continued his audit, as he had been doing almost nonstop for three days. Pride caused a small stir when he told reporters that he had so far found nothing to suggest that Ponzi had violated any laws, but his work on the mass of index-card files was far from finished. With no real movement on the probe, Pelletier and Attorney General Allen traded barbs over Allen's takeover of the case, with each suggesting the other had not been cooperative. Another ripple resulted when Boston's chief postal inspector, Hal Mosby, said Ponzi had written a letter telling one of his investors to come get his money. Mosby suggested that the government could immediately suspend Ponzi's operations based on its belief that Ponzi had used the mails in a scheme to defraud. But with Pride's report still pending and Ponzi paying all claims, no investigator wanted to step out on that limb. As a
Globe
reporter wrote that night, it remained an open question whether Ponzi was “wiping Peter's nose with Paul's handkerchief.”

While the Boston papers followed Ponzi's every move, one enterprising
New York World
reporter tracked down William “520 Percent” Miller, the Peter-to-Paul champion of two decades past. When the reporter found him, Miller was holding court on a cracker barrel in the country store he owned in Rockville Centre, New York. Shaking his head over what he had read in the papers about Ponzi, Miller said, “I may be rather dense, but I can't understand how Ponzi made so much money in so short a time in foreign exchange.” Though he admired Ponzi's fearlessness, he said he would not change places with Ponzi for $10 million. “I would much rather own this grocery store, where I have few worries and breathe God's free, pure country air.”

Before night fell, Ponzi accepted an invitation to meet with the attorney general. They met for two hours but largely went over territory previously covered. Afterward Ponzi emerged tired but unbowed. Outside the State House, he spotted a
Post
reporter and shook his finger at him. “I shall never say anything to a
Post
reporter again,” he declared, surely knowing he would soon break that vow. “The
Post
is a rotten paper.”

Another reporter asked, “Shall you go on paying claims tomorrow?”

Ponzi shrugged his shoulders, raised an eyebrow, and smiled once more.

“Why not?” he asked before heading home.

P
onzi returned to work the next day, Tuesday, August 3, more chipper than ever. He arrived to a chorus of “Money boy!” and “Million-dollar daddy!” from the assembled throng.

“Well, they didn't break me yesterday,” he answered gaily, “and they won't break me today!”

He joked to the reporters who were now his constant companions that he had just enjoyed a breakfast of coffee and doughnuts because it was all he could afford. Lest the reporters get the wrong idea, he quickly added, “Mountains of money available to pay all claims. All the boys and girls have to do is drop in and get it.” He needled his interviewers, too: “How are your newspapers selling? I ought to have a commission—I need the money . . . to give to charity!”

Ponzi's combination of sangfroid and spirited defense, described at length on the front pages of all the morning newspapers, had, incredibly, begun rebuilding his support and stanching the flow of money. Sensing the shift, he moved to seize the offensive, suing McMasters for two thousand dollars—the money Ponzi said was left over from the amount entrusted to the publicity agent to buy ads. The sum was insignificant, but Ponzi was delivering a message. McMasters understood the game and snapped back. He sued Ponzi for five thousand dollars and denied that his exposé had been spawned by malice.