Ponzi's Scheme (30 page)

When Gallagher's turn came, the prosecutor came down hard.

“He is a strange mixture of childishness and duplicity,” he declared before demanding a lengthy prison term. “He committed the government to the scheme which he must have known was fraudulent. The postal department regards this as the most flagrant case of its kind. Ponzi made the government an acquiescent observer of his scheme. And in view of the fact of the postal department, and widespread losses, I ask you to impose the maximum jail sentence.”

Judge Hale considered the opposing lawyers' arguments and made a pronouncement of his own: “The court is impressed with much that Mr. Coakley has said. But the court has a great duty to perform to the public as well as to the person immediately before it. . . . Here was a man with all the duties of seeking large money. He concocted a scheme which, on his counsel's admission, did defraud men and women. It will not do to have the world understand that such a scheme as that can be carried out through the United States' instrumentality, without receiving substantial punishment.”

With that, Hale agreed with Gallagher and sentenced Ponzi to five years in prison. Rose fainted when she heard it, even though that was what Coakley had told her to expect. She was quickly revived, then fainted again. The judge's one concession was to order Ponzi to serve the sentence in the Plymouth County Jail, near enough for him to assist in the bankruptcy proceedings and for his family to visit.

Rose cried softly. For what seemed like the first time in his life, Ponzi was silent. He sat deflated, shrunken, a little emperor without a shred of clothing. Before a marshal led Ponzi away, he scribbled a note on a legal pad. Reaching over the rail separating him from the crowd of spectators, he passed it to the clutch of reporters in the front row.

It read, “Sic transit gloria mundi.” The scholars in the press corps duly translated: “Thus passes worldly glory.”

As long as Rose remained by his side, Ponzi kept smiling, even
after his business closed and his legal troubles began.

The Boston Globe

EPILOGUE

P
onzi settled quickly into his new home: Cell 126 at the Plymouth County Jail, a concrete monolith with a million-dollar view of the Pilgrim landing site at Plymouth Harbor and, beyond that, Cape Cod Bay. He returned to the jailhouse routine familiar to him from Montreal and Atlanta: wake at dawn, dress in prison grays, work in the prison library, lights out at 8:30
P.M.
Still, he retained his refined tastes, ordering engraved stationery—“Charles Ponzi, Plymouth, Mass.”—as if the jail were his summer home by the sea.

A few days after Ponzi's guilty plea, a
New York Times
editorial offered a remarkably balanced epitaph on the affair. First, it poured on the condemnation, decrying him as “an egregious falsifier and a wholesale betrayer of simple confidences.” But the
Times
recognized that there was more to Ponzi. “There was something picturesque, something suggestive of the gallant about him, and it is almost possible, though not quite, to believe that he was as credulous as his victims and deceived himself as much as he did them,” the
Times
mused. “Perhaps the disinclination for being harsh in characterizing Ponzi is due to lack of any sympathy for those whom he robbed. . . . They showed only greed—the eagerness to get much for nothing—and they had not one of Ponzi's redeeming graces.”

When New Yorkers went to the polls a few weeks later, election officials came across the names of two unexpected write-in candidates for state treasurer: John D. Rockefeller and Charles Ponzi. It was the company he had always hoped to keep.

R
ose became a regular visitor to the prison, though she needed to get lifts and ride the trolley because authorities confiscated the Locomobile. She filled her lonely days caring for Ponzi's mother and their Lexington home. “The house was never as clean and tidy when we had servants around as it is now,” she preened. Soon the job would get easier; bankruptcy trustees moved to seize and sell the elegant house to help defray the losses of thousands of clamoring creditors. The sale included an auction of all furnishings except a bedroom set the Ponzis had brought from their Somerville apartment. Ponzi's erstwhile chauffeur, John Collins, stood among the auction crowd that trampled the lawn on Slocum Road. He won the bidding for the music rolls from the Ponzis' player piano, as a memento of the glory days.

Some of Ponzi's other friends and associates had problems of their own to keep them busy. Several Ponzi agents not only had to worry about customers to whom they had sold notes, they also had to hire defense lawyers. Although Ponzi's guilty plea ended the federal investigation, that did not satisfy Attorney General J. Weston Allen. He insisted that the state seek punishment, too. Allen filed charges against Ponzi and several of his top agents, including his brother-in-law Rinaldo Boselli; cousins John A. and John S. Dondero; Henry Neilson; Harry Mahoney; and Ponzi's old Montreal cellmate, extortionist Louis Cassullo. All but Cassullo turned themselves in.

The last time anyone saw Cassullo, in August 1920, he was cleaning out one of Ponzi's safe-deposit boxes in the midst of the furor. Some said he fled to Italy. Wherever he went, Cassullo was never heard from again. Another of Ponzi's old Montreal pals was not so successful in avoiding prosecution. The attention surrounding Ponzi prompted authorities to renew their search for Antonio Salviati, who had skipped out on larceny charges relating to the Zarossi bank failure. Salviati was arrested in late August 1920 in New York, living in a cheap hotel under the alias Dongello Buccini.

In the aftermath of Ponzi's plunge, furniture dealer Joseph Daniels learned that turnabout is fair play. When the profits were rolling in, Daniels had demanded that he be treated as Ponzi's partner, filing the million-dollar lawsuit that had triggered Ponzi's downfall. After Ponzi's arrest, Daniels sang a different tune: He insisted he was wholly unconnected to the Securities Exchange Company. Eventually he was forced to disgorge the money Ponzi had paid him to settle the lawsuit, leaving him no richer from his Ponzi adventure. Ponzi's imitators fared even worse. The copycats from the Old Colony Foreign Exchange Company were shut down immediately after Ponzi's arrest and soon found themselves behind bars.

The banks where Ponzi did business came under closer scrutiny than ever. In late September, the Cosmopolitan Trust Company followed Hanover Trust into failure. Bank Commissioner Joseph Allen had begun focusing on Cosmopolitan when its panicked depositors had made heavy withdrawals in the wake of Hanover Trust's collapse. When he looked closely, Allen found that Cosmopolitan president Max Mitchell and his cohorts were so reckless with depositors' money that they would have embarrassed even Ponzi. Oddly enough, just a week before Allen seized the bank, Mitchell had publicly hailed the bank commissioner for his “fairness, skill and courage.” The Fidelity Trust Company failed three days after Cosmopolitan, in part because of unsound practices but largely because of a run of withdrawals by nervous depositors. Simon Swig's Tremont Trust also suffered a run. Several months later it failed, too. Swig, Mitchell, and Henry Chmielinski, president of Hanover Trust, not only lost their banks; all three ended up in bankruptcy court.

Joseph Allen remained bank commissioner until 1925, seeing Massachusetts through the worst banking crisis in decades. He left the state's financial institutions on solid, solvent footing and took a job as vice president of the American Trust Company. He returned to Springfield and resumed the quiet life he craved. Calvin Coolidge, who by then had ascended to the presidency, remarked that of all the appointments he'd made as Massachusetts governor, his choice of Allen made him the most proud.

Ponzi and his former publicity agent, William McMasters, continued their feud in court. Despite the money he was paid for the
Post
exposé, McMasters sued Ponzi for $4,067.50 he claimed he was still owed for his publicity work. Outraged, Ponzi pressed forward from jail with his lawsuit seeking return of fourteen hundred dollars he had paid McMasters for ads that were never placed. Ponzi gained a small measure of satisfaction when he won both suits. McMasters went on to a career writing fiction, including novels and plays, one of which,
The Undercurrent,
played on Broadway in 1925. He ran unsuccessfully for governor in 1936, and taught journalism at Mount Ida College in Newton, Massachusetts, before his death in 1968.

Clarence Barron continued to revel in his role as a living legend of financial journalism, though the years after his clash with Ponzi were marked by a losing battle with his already expansive girth. He became a regular visitor to the celebrity weight-loss clinic at the Battle Creek Sanitarium in Michigan, where he died, at age seventy-three, in 1928. His death deprived him of covering the biggest financial news story of the century, the stock market crash of 1929.

One year after Ponzi's arrest, his lawyer Dan Coakley and Suffolk County District Attorney Joseph Pelletier faced the music for their long-running sexual extortion scheme. Both were disbarred along with a third member of their ring, Middlesex County District Attorney Nathan Tufts. Pelletier died soon after in what was widely believed to be a suicide triggered by his humiliation. Federal prosecutor Daniel Gallagher, whose closeness to Pelletier tarred him by association, faded from public view.

Meanwhile, although disbarred, the irrepressible Coakley successfully defended himself against criminal charges related to the extortion scheme. He ran unsuccessfully for mayor of Boston, but bounced back to win election to the Executive Council, which confirmed gubernatorial appointments and performed other vague duties. That cushy job ended in 1941 when Coakley was removed from office for selling pardons to criminals. He died, unrepentant, in 1952.

Attorney General J. Weston Allen never achieved his dream of higher office. He ran for governor as a Republican in 1922 but was defeated by Channing Cox, lieutenant governor under Calvin Coolidge. Allen later served as a special adviser in the trial of Sacco and Vanzetti and in several appointed positions for the U.S. Justice Department. He spent the last days of his life as a psychiatric patient at McLean Hospital, where he died in 1941. His top assistant on the Ponzi case, Albert Hurwitz, was named acting district attorney in Suffolk County after Pelletier's removal. Later, Hurwitz became a leader in Jewish philanthropic circles, and his one hundredth birthday was declared Albert Hurwitz Day in Massachusetts.

I
n the aftermath of Ponzi's arrest, Boston newspapers told a handful of stories of people who had lost money in the mania, though reporters' interest in individual victims was scant and short-lived. The stories were written without including investors' names, almost certainly to spare them further embarrassment. A veteran who had twice been gassed in the Great War told how he had hoped to parlay his seven hundred dollars of savings into enough to move to Arizona, where the government had opened a health clinic. Instead he was stuck in Boston with a persistent cough. A Revere woman described how she had mortgaged her home for eight thousand dollars and lost it all. A young couple lamented having trusted Ponzi with twenty-six hundred dollars that they had intended to send to relatives in Italy.

After the collapse, hundreds of Ponzi investors swamped the Massachusetts State House, some weeping and others crying out for blood, to register their names with authorities in hopes of getting at least some of their money back. Yet some among them were philosophical. A tailor told a reporter how his hunger for what he called “unearned increment” caused him to give Ponzi eight hundred dollars against his wife's wishes: “ ‘Jake,' she said, ‘you know yourself you never had any luck. Why, if you were to bet on the sun coming up in the morning, it would be just your luck to have Gabriel blow his horn before daylight. You keep your money in the bank.' ” He ignored his wife. “I gave it to Ponzi. Of course he failed. It's just my luck.”

On the other side of the ledger, a handful of Ponzi winners—those who'd collected their 50 percent interest before the collapse—turned over the money voluntarily. First among them was Joseph Pearlstein, who had learned about the Securities Exchange Company from Rose Ponzi when he'd sold her luggage. “This is dirty money,” Pearlstein said. “I don't want it.”

For the most part, Ponzi's investors suffered their losses, licked their wounds, and moved on with their lives. For the next ten years they received small reminders of their gullibility and greed each December. Trustees appointed by the bankruptcy court sent small holiday-season payments to Ponzi's creditors until the money ran out and the case closed at the end of 1930. All told, twenty thousand people who had held Ponzi notes at the time of the collapse received refunds equal to 37.5 percent of their investments.

T
he aftermath of Ponzi's story kept the
Post
and its reporters busy for years, not that there was any shortage of other news. Just a month after Ponzi's fall, the nation learned that players on the Chicago White Sox had taken bribes to lose the 1919 World Series in a scheme hatched by a Boston gambler, Joseph “Sport” Sullivan. The
Post
covered it as closely as any Boston newspaper, though Herb Baldwin was distracted by a series of immensely popular stories he was writing about the fictitious exploits of the newsroom cat, known as Von Hindenburg, “Hindy” for short.

Before moving on to the cat beat, Baldwin had a brief encounter with Ponzi. During an arraignment in federal court, Ponzi caught sight of the reporter who had gone to Montreal in search of his past. “You did a fine job on me,” Ponzi admitted to Baldwin. “If it hadn't been for that story in the
Post,
maybe things would have been a lot different for me today.” Baldwin eventually rose to night city editor of the
Post
before taking a public relations job with the Boston & Maine Railroad. He died in 1973.

Eddie Dunn remained city editor of the
Post
for thirty-five years. When he left in 1953 to open a public relations firm, the
Boston Herald
hailed him as “one of the ablest editors in his craft.” Twice during his
Post
tenure he refused appointment as Boston police commissioner, preferring the city room to the squad room. Though he had helped to engineer Ponzi's downfall, Dunn had a soft spot for his old foe. They exchanged letters now and then, and more than once Ponzi urged Rose to seek out Eddie Dunn if she ran into any problems. When he died in 1961, Dunn was remembered as a friend to three presidents, Theodore Roosevelt, Calvin Coolidge, and John F. Kennedy, and as the city editor who'd overseen the
Post
's Ponzi coverage.