Ponzi's Scheme (24 page)

Ponzi's spirits were so high, publicly at least, that even another attack by Barron could not dampen them. The sage of State Street published a story stating that in the three years ending June 1919, the Universal Postal Union had printed annually only about $200,000 worth of reply coupons worldwide. The most recent year's figures were expected to be no higher. Barron fairly begged for action: “Is no prompt protection to be afforded by the authorities to the poor people in this country who know nothing of finance except as to the promised interest return on their savings?” Ponzi did not even bother to respond, letting his $5 million lawsuit speak for him.

At midday, Ponzi strolled happily through Boston's Public Garden, walking past the elegant swan boats making their lazy laps around the lagoon. Again he was followed by scores of people drawn to his celebrity. He headed to the grand Hotel Bellevue, in the shadow of the gold dome of the State House, for a luncheon with the Kiwanis Club. Following club custom, each man stood and named his business. “Everybody's but my own!” Ponzi cackled when his turn came. Lapping up the attention, he amended his job description to: “Dealer in postal stamps and banker's goats. I'm no financial wizard. I'm a financial lizard and professional goat-getter!” The Kiwanians ate it up.

In a restaurant on Blackstone Street in the city's North End, a sign appeared that day behind the bar: “God made the world and rested. God made man and rested. Then God made Ponzi. Since then neither God nor man has rested.” Longtime saloonkeeper Pasquale di Stasio showed off seventy-five hundred dollars' worth of Ponzi notes, the largest of which was for five thousand dollars, maturing on August 21. He boasted that he would never consider cashing them in early. Though skepticism remained high in some quarters, no one was getting more publicity. The
Boston American
declared that Ponzi was “the most talked of man in America.” The tide had turned again.

While his clerks continued to pay claims, Ponzi paid a visit to the government auditor's office. An exhausted Pride told Ponzi he had never seen so much cash in one place and never expected to again. Tickled, Ponzi offered Pride a princely salary to become his chief accountant. Pride demurred, but he might have been tempted. At the moment, the auditor was feeling better about Ponzi than he was about the attorney general. J. Weston Allen was trying to appoint a second accountant to speed the process, and Pride was hurt. He told reporters that Allen should show him more respect, reminding them that his auditing work on an investigation into a seafood monopoly had propelled Allen from the state legislature to the attorney general's office. Allen backed down, saying he'd meant no offense.

Although outwardly Ponzi seemed a carefree bon vivant, privately his fears were mounting and his stomach was churning. The revived run—more than $400,000 paid on Monday alone—and the continued suspension of income-generating investments were depleting his bank accounts. He knew that the moment he could not pay a claim, his enemies would swoop in and seek a court order shutting down his business and declaring him bankrupt. If that happened, his reputation and his popularity—his two main assets, really—would be destroyed. The big house, the fancy car, and all the trappings would, as his mother feared, disappear as if they had all been a dream.

Ponzi had come too far to allow that, so he resolved to take action on two fronts. In the short term, the lawsuit by furniture dealer Joseph Daniels had frozen bank accounts containing roughly $700,000. Needing that money to survive until new money arrived, Ponzi resolved to redouble his efforts to settle the suit. In the longer term, it was time to speed up plans to launch a huge new company. He would offer stock to the public in a conglomerate combining all the ideas he had been tossing around in his mind—from profit sharing to banking, importing to steamship lines. The Securities Exchange Company would pass into history, and the Charles Ponzi Steamship Company would rise from its ashes. He gathered the reporters to explain his plans.

“After this investigation has shown that I am on the level, if I should open again, such a tremendous amount of money would blow in that I doubt if I should be able to accept such a large amount and continue to pay 50 percent in forty-five days,” Ponzi said. “I am planning an organization for an investment syndicate capitalized at one hundred million dollars, and eventually to be capitalized at two hundred million, in which subscribers would receive conservative monthly interest plus quarterly, semi-annual, or yearly dividends. This capital is to be invested in industrial enterprises by acquiring control, also in a chain of banks throughout the United States and the world, to be operated on a profit-sharing basis, also in an exporting and importing company affiliated with my banks and having under control steamship lines plying between Boston and all foreign countries.”

Burnishing his man-of-the-people image, Ponzi insisted that the profit sharing would extend to all aspects of the business and include not just stockholders but also his workers. And lest anyone suspect he was tiring of Boston, he declared that the city would be the company's world headquarters, “as Boston is my city.” Ponzi hoped to begin taking investments in the new company by the end of the week, no later than the following Monday. He did not explain his haste, but it was clear that he hoped the torrents of fresh cash from prospective stockholders would be more than enough to cover all the liabilities Pride tallied. Ponzi would use some of the new money to pay the last outstanding notes of the Securities Exchange Company, and with the remaining loot Ponzi could start anew as a millionaire banker, shipping magnate, import-exporter, and perhaps even anti-Prohibition politician. It would take steel nerves and split-second timing, a prison-defying leap from the carousel to the brass ring. But it was Ponzi's big chance. He was determined to take it.

Ponzi's more immediate plan was a very public night out with his family. He took Rose, his mother, Rose's sister Mary, and her husband, Rinaldo Boselli, who worked as a Ponzi agent, to Keith's Theater on Washington Street. In his hired box on the right side of the stage, he nearly burst with pleasure when the lights went down and the screen filled with the movie footage the Fox crew had taken of him, Rose, and Imelde in Lexington. Seeing Ponzi in the box as well as on the screen, the audience cheered.

When the lights came on and a violinist took the stage, Ponzi went for a walk and a cigarette. The theater's assistant manager, Bart Grady, found Ponzi in the lobby and told him that one of the night's performers wanted to meet him: former heavyweight champion “Gentleman Jim” Corbett, who had moved from the ring to the stage with a comedy act.

“The man that licked John L. Sullivan?” Ponzi said. “I want to meet him.”

Grady took Ponzi to the big man's dressing room, which Corbett shared with his comedy partner, Billy Van. Ponzi sat on an upturned trunk and looked in awe at Corbett, who stood a foot taller than he.

“Tell us about it, Ponzi,” said Corbett as he applied his makeup. “I was a bank clerk six years and you must have stumbled on something the bankers missed.”

“Yes,” Ponzi agreed. “Maybe it was an accident the bankers didn't want to see. They don't want people to get money. I told people to come and take it, and the newspapers get sore because the people don't come fast enough. I am all alone in this.”

“Well, if they pick on you, let me know,” Corbett said.

While Ponzi stared at Corbett's meaty arm, Van spoke up: “Sure, Ponzi, sign up with Jim and I. Jim's got the punch, you've got the brains, and I'm me. We'll knock 'em dead with our act.”

Ponzi thought about that a minute. “Maybe I will,” he said. “I'd like to be an actor. I had a chance to go in the movies. Now I got a chance to go onto the stage. I think pretty soon I'll take a vacation and go with your act.” He seemed serious.

Ponzi returned to his family and laughed at Corbett and Van's act. After the show he was mobbed by people hoping for a glimpse of him, and then it was time to go home.

A
fter the excitement of the day before, Ponzi spent much of Wednesday, August 4, quietly laying plans for his new company. Fewer than a hundred people milled about in Pi Alley when the doors opened, and a majority of them were there to collect on matured notes. Ponzi kept up appearances, dressing this day with unmistakable symbolism in clothes fit for an angel: white Palm Beach suit, white cap, white socks, and white shoes.

Ponzi's imperturbable poise impressed some of the
Post
's competitors, who took glee in rubbing Richard Grozier's nose in Ponzi's relentless survival. Several papers rooted once again for Ponzi, apparently to embarrass the
Post,
especially when Gallagher, the federal prosecutor, and Attorney General Allen were quoted as saying McMasters's story contained little of evidentiary value. Ponzi's only comment for investigators was to publicly decline Allen's suggestion that he reveal his assets to speed the accounting process.

“The exposé by the man who was employed by Ponzi for a few days as publicity agent has fallen into greater discredit,” the
Boston Traveler
intoned, “as investigating officials repudiate its value.” Ponzi himself had disproved McMasters's claims of insolvency, the
Traveler
said, by continuing to pay claims “with ready cash to refute its assertions.”

Although less money was flowing than at the height of the run, the relentless withdrawals continued to drain Ponzi's formerly bulging account. By the time the doors to the Securities Exchange Company closed in the late afternoon, Ponzi had paid out another $313,000, bringing the total for the week to more than $1 million. In the meantime, Ponzi and Lucy Meli realized that at least one of their employees had turned the run to his own advantage. Louis Cassullo, Ponzi's former Montreal cellmate, had capitalized on the chaos by issuing forged Ponzi notes and getting straws to cash them for him. Ponzi and his trusted gal Friday realized what was happening, but Ponzi feared that refusing to cash any notes presented at his tellers' windows would renew the run and cost him more. So he paid the counterfeit notes even as he hastened his plans to open his new business.

That night Ponzi returned to the theater with Rose, accompanied by two of his lawyers, Frank Leveroni and Sam Bailen, and their wives. This time Ponzi took a step closer to a career on stage, joining Corbett and Van in an impromptu skit in which they bantered about the joys of becoming rich. Corbett and Van pretended to buy Ponzi notes; then Ponzi pretended to redeem them, using stage money.

O
nly fifty-seven people showed up in Pi Alley on Thursday, August 5, and some of them begged to invest before being turned away. Still, $168,000 would go out the door before the day was out. The biggest withdrawal was for forty-five thousand dollars by Ponzi's pals Louis and Charlotte Blass. The Blasses had bought the note on June 24, so it was not due until Sunday. But Ponzi paid it anyway, for the full amount due at maturity. What were a few days among friends?

Meanwhile, Pride's audit continued while Gallagher traveled to Washington to meet with his boss, the lantern-jawed United States attorney general, A. Mitchell Palmer, who took a moment from his hunt for Communists to hear an update on the Boston financier.

With the investigation plodding along and School Street quieting down, the newspapers struggled to find news to satisfy their readers' insatiable interest. The
Globe
won on this score with a front-page story about Ponzi's humble days in Mobile, Alabama. The story was innocuous enough, nothing more damaging than Ponzi had described himself about his rags-to-riches rise. But newspapers delving into his past held a distinct danger. If they dug deeply enough, Ponzi's prison days in Montreal and Alabama might be exposed. Panic would ensue, and collapse would be certain.

The lowlight of Ponzi's day was a long lunch at the Copley Plaza Hotel with the New York moneymen who claimed to be interested in buying his company. Their leaders were John Castwell, who identified himself as director of the Bolivian Wood Company, and Joseph Herman, who claimed to be an associate of the late South African magnate Cecil Rhodes. The longer they talked, the clearer it became that they would not be Ponzi's salvation. The New Yorkers' $10 million offer was contingent on Ponzi revealing his “secret,” and the payment would come only after they had taken their profits. Questions also soon began to be raised about whether the men were working a con of their own. When Herman's and Castwell's names became public, a Boston banker remembered them as fast operators with whom he had refused to do business with a year earlier.

While Ponzi wasted time with the New Yorkers, Bank Commissioner Joseph Allen discovered the first sign of weakness in Ponzi's financial armor. A week earlier, Allen had demanded daily reports on Hanover Trust, with particular attention paid to Ponzi. Contained in one of those reports was a strange piece of information: Accounts under Ponzi's control, but established in other people's names, had been credited with more than a quarter million dollars in loans from Hanover Trust. Already suspicious of Ponzi, Allen had to wonder: If Ponzi was as rich as he claimed and as carefree as he appeared, why was he borrowing money from the bank he controlled? And why was he doing it in “straw” accounts held in other people's names? Was it possible that he had nowhere near the $7 million in liquid funds he so often claimed? Was he using straw accounts to mask his true peril? Was he, as the
Post
story maintained, insolvent and teetering on the brink of failure? Allen ended the day by dispatching two bank examiners to Hanover Trust with a mission: Find out what Ponzi is up to, and find out fast.

W
hen he awoke the next morning, Ponzi knew he could wait no longer to deal with Joseph Daniels, the furniture dealer whose million-dollar lawsuit had helped to create his current predicament, for good and bad. Though Daniels's suit had incited the
Post
and the authorities, it had also drawn investors by the thousands. But it had lingered unresolved long enough. Ponzi did not mind borrowing money from his customers to pay other investors, having long since abandoned the idea of making money on postal coupons. But now he was forced to borrow from banks, and that was another level of risk entirely. His biggest remaining asset was the $1.5 million certificate of deposit in Hanover Trust, but that was still three weeks from coming due. In the meantime, Ponzi needed immediate access to the bank accounts frozen by Daniels's lawsuit.