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(Photograph by Leslie Jones / Boston Public Library Print Dept. )

Rip-Off Artist

Charles Ponzi, one of the most brazen con men in history, grew a twisted money tree, with its roots in Boston.

The huge blue car moved slowly through the crooked streets of the old city, its owner sitting on the wide rear seat that absorbed the bumps from the uneven cobblestones. Heat and sunlight bounced off the brick and granite buildings, baking the Locomobile limousine and broiling its occupants. The morning air bristled with the hint of a thunderstorm. When the skies broke loose, it would be a welcome relief from weeks of summer heat that had made downtown Boston ripe with the smells of horses, fish, fruit, fresh-cut leather, and tight-wound rope, all seasoned by salt from the nearby harbor.

At the wheel of the hand-polished Locomobile was a young Irish immigrant named John Collins, wearing the hat and brass-buttoned uniform of a newly created job: motorcar chauffeur. His boss, an Italian immigrant, had taken delivery of the dazzling vehicle only three weeks earlier, paying $1,000 in cash above the $12,600 list price to spirit it away from a New York financier for whom it had been custom-built.

In the short time he had been driving the car, Collins had learned well the daily 12-mile route that began at his boss's gracious home in historic Lexington. From there, they rolled east through working-class Arlington and Somerville, into tony Cambridge, across the Charles River, then down Tremont Street to School Street. Occasionally there would be detours, most often to a bank, but on this day - July 24, 1920 - it was straight from home to office.

Collins slowed as he turned down School Street and saw the mob: several hundred men and women, crowded together hip to hip, chest to back. The street was alive with electricity. It came from the horde itself. Each member was a charged electron jittering in the magnetic field created by the man in the back seat of the Locomobile. They parted to allow Collins to steer toward the curb in front of the Niles Building, at 27 School Street, the modest home of his boss's extravagantly immodest firm, the impressively named Securities Exchange Co.

From his seat, Collins's boss could see that some men were holding copies of that morning's Boston Post. The banner headline trumpeted a victory in the America's Cup races by the American yacht Resolute over its British challenger. At a time when anything seemed possible except a legal drink of whiskey, rich men's sports had captured the public imagination.

If one subject interested Bostonians more than rich men's sports, it was the prospect of becoming rich themselves. Undeniable evidence could be found in that morning's Post, just below the yachting story. On the left side of the front page, in bold black letters, was the headline that had filled School Street to bursting:

DOUBLES THE MONEY WITHIN THREE MONTHS

The Post reporter had visited 27 School Street a day earlier and acquired a basic understanding of how the Securities Exchange Co. claimed to create spectacular profits for its investors. The reporter even described the Locomobile limousine and the boss's Lexington home, which, the story informed salivating Post readers, was "furnished with the best" and did "not give the impression of nouveau riche either, for the fine Italian tastes of the owner fixed that."

The man who owned the fine home, the flashy car, the Securities Exchange Co., the adoration of the people on School Street, and anything else he cared to buy was named Charles Ponzi.

The admiring article offered a condensed, sanitized version of the life of the 38-year-old entrepreneur, and the 17 years since he had emigrated from Italy. Then Ponzi explained his business in broad, confident terms, telling how it was built on a modest and unlikely medium: International Reply Coupons, slips of paper that could be redeemed for postage stamps. He described his company's growth - from pennies to millions of dollars in seven months - and boasted of the opening of branch offices from Maine to New Jersey.

Ponzi had capped the interview with a priceless assertion: "I get no pleasure out of spending money on myself but a great deal in doing some good with it. Always, I have said to myself: If I can get $1 million, I can live with all the comfort I want for the rest of my life. If I get more than $1 million, I will spend all over and above the $1 million trying to do good in the world. Now I have the million. That I have put aside. If my business closed tomorrow, I am sure that I will have that amount on which to make my self and family comfortable for the rest of our days." If anyone doubted how secure Ponzi felt, the story continued: "Ponzi estimates his wealth in excess of $8.5 million."

With a maestro's touch, Ponzi had struck a perfect balance between the forces competing to control the new American identity: altruism and avarice. If there was any reason for the people of Boston to be suspicious of Ponzi, they would not find it in the morning Post. The story did mention that federal and state authorities had looked into Ponzi's extraordinary investment plan, but the reporter defused that land mine in a single sentence: "The authorities have not been able to discover a single illegal thing about it." Ponzi could not have hoped for a more sterling endorsement.

Adding to Ponzi's delight, below the front-page story was an ad for a local bank, the Cosmopolitan Trust Co. The bank was trying to drum up deposits by guaranteeing a generous interest rate: 5 percent a year, compounded monthly. To Ponzi, the ad was a divine gift. For months, he had been comparing his promised rate of return - 50 percent in 45 days - to the paltry sum paid by banks. Here was the same comparison on the front page of the Post.

A working man with $100 to invest, reading that day's paper, faced two choices of seemingly equal reliability but vastly different outcomes. Depositing his hundred dollars in the Cosmopolitan Trust Co. would yield him an annual profit of $5 and change. Or he could entrust his $100 to this Ponzi fellow and walk away with more than $2,500 after a year. If he let it ride for a second year, he would pocket more than $65,000. It was an unimaginable sum at a time when the average yearly income was about $2,000.

Having read the Post and done the math, would-be investors had begun assembling on School Street long before the Locomobile even started the trip from Lexington. They came from all corners of Boston and beyond, with immigrants brushing against Brahmins, Italians mingling with Spaniards, Irish alongside English, Greeks chatting with Poles. Among them were Swedes, Frenchmen, Jews, African-Americans, and Portuguese, new and old Americans.

While some had come because of the Post story, others had heard from friends and relatives of the profits to be found on School Street. Although the Post seemed to have only just discovered the Securities Exchange Co., the streets of Boston had been buzzing about it and Ponzi for months. When the Post story hit the streets, the Securities Exchange Co. was already averaging more than $1 million a week in new investments. If the pace held, it would soon be $1 million a day.

But potential investors were not the only ones focused on Ponzi. The Post story aroused the interest and concern of some of the most powerful men in Massachusetts. Several of them had already begun asking questions. The newspaper's inexperienced acting publisher, Richard Grozier, who had ordered this day's feature story, directed his staff to dig deeper into Ponzi's rise from poverty to prosperity. Similar orders issued from Boston's federal prosecutor, Daniel J. Gallagher, and Massachusetts attorney general J. Weston Allen.

Collins eased the car to a stop, hopped out, and hustled to the rear door. It swung open, and the man himself alighted. If the crowd had expected a large man, it would have been disappointed. Ponzi was 5 feet 2 inches, but what he lacked in size he made up for in style. Ponzi was a human dynamo, handsome in his own way, with a regal nose, dimpled chin, and full lips that curved upward in a barely suppressed grin. He wore a new suit, impossibly crisp given the sultry weather, and held a leather satchel that would prove too small for the bushels of cash awaiting him this day.

Looking around, Ponzi could not help but beam. Much later, when writing his memoirs, he would remember the street looking as though "the 2 million inhabitants of Greater Boston were all there!" All to see him. In fact, Ponzi overstated the region's population by a half-million people, but inflation was something of a habit.

Ponzi kept moving - past two uniformed policemen at the doors of the Niles Building and up the stairs to his cramped second-floor offices. Some kind of commotion was stirring down the hall, but Ponzi paid it no mind. He stepped through a door into a small anteroom his company used as a waiting area. There, each investor was met by one of the 16 clerks and assistants, many of them added to the payroll in recent weeks to handle the torrents of cash.

Moving deeper into the office, prospective investors would be turned over to a team of agents led by one John A. Dondero, a distant relative of Ponzi's by marriage. After making sure the investors had cash on hand or endorsed money orders, Dondero would lead them to a second, larger room, divided roughly in half by a 4-foot wooden barrier topped by iron bars. Between the bars and the counter were slim openings for three tellers. Investors slid their cash to one of the young tellers. In return for cash, the investors received promissory notes, receipts really, that guaranteed the original investment plus 50 percent interest in 45 days. The receipts bore Ponzi's ink-stamped signature, which led many to call them simply "Ponzi notes."

The other half of the room was partitioned off for an office shared by Ponzi and Lucy Meli, his 18-year-old chief bookkeeper, secretary, and gal Friday. Visitors were surprised to see no adding machines or file cabinets. Despite the enormous sums of money pouring in, the offices were dark and dingy, with a few scuffed, mismatched pieces of furniture.

As Ponzi arrived, his overwhelmed workers rushed to greet him with word of trouble. The fuss that he had passed in the hallway was the opening of a competing, copycat investment plan that called itself the Old Colony Foreign Exchange Co. Its owners had the temerity to rent an office on the same floor of the Niles Building as Ponzi's company. Old Colony was promising the same 50 percent in 45 days and was more than happy to steal away the overflow of would-be Ponzi investors who grew tired of waiting in line. The Old Colony promoters had even printed up promissory notes that strongly resembled Ponzi's.

Ponzi understood instantly that some investors might be confused into thinking that the two companies were one and the same. He also quickly surmised that his rivals had rented the rooms down the hall from a man named Frederick J. McCuen, who ran a struggling business selling and repairing electrical appliances. Weeks earlier, when the mobs had begun to overrun the Niles Building, McCuen had briefly worked for Ponzi in a minor capacity. With Old Colony, McCuen saw an opportunity to get in on the ground floor.

Outside the offices of this upstart, a large man in a Stetson hat was beckoning investors who had come to see Ponzi. "Right this way!" cried the ballyhoo man. "A new million-dollar company!"

Ponzi knew that the Old Colony operators were frauds and scam artists, though he could never say how he knew. Privately, Ponzi assessed the situation and reached a troubling conclusion: "They had me by the small of the neck, and the best that I could do was squirm." Though he could not denounce them directly, he would sic his Pinkerton agents on them to dig up whatever dirt they could find. But that would take time. For now, he could at least scare them. Ponzi grabbed the telephone on his desk and asked the operator to connect him with the headquarters of the Boston Police Department. In recent months, Ponzi had made many friends on the force; by some estimates, nearly three-quarters of the department had invested with him.

Ponzi could have called Captain Jeremiah Sullivan at Police Station No. 2, located around the corner from the Niles Building. But instead he called headquarters to seek help from a fellow immigrant, Inspector Joseph Cavagnaro. The inspector had no trouble finding 27 School Street. He had invested $900 on June 16, and over the next four weeks had added $1,750 more.

Ponzi explained the situation, strongly suggesting that Old Colony was deceiving the public by making investors think they were trusting their money to a firm associated with Ponzi. That could be bad for business, and anything bad for business would be bad for investors like Cavagnaro. The inspector got the message. Ponzi hung up, turned on his heel, and headed out of his office and into the hallway. His anger rising, Ponzi steeled his resolve for a nose-to-chest confrontation with the oversized ballyhoo man.

Halfway down the hall, he caught sight of a tired-looking woman with a baby in her arms. Ponzi's rage vanished. He slowed his quick march to a halt. "Here, let me help you," he said in Italian, their shared native tongue.

She explained that she had grown exhausted while waiting to collect $150 on a Ponzi note that had just come due. Ponzi took the note and gently asked her to wait a moment. He returned to the offices of the Securities Exchange Co. and emerged a few minutes later, money in hand. "Buona fortuna!" he told her, as she walked away. "Good luck."

She was swallowed up in the crowd, just as the ballyhoo man resumed his chants. When he saw Ponzi, the big man turned his come-on into a taunt. "Ah, Mr. Ponzi!" the man called. "Want to put in $2,000?"

"Mister," Ponzi shot back, "if you've got $2,000, you'd better hang onto it for bail. There'll be a couple of police inspectors down to see you in a few moments."

Ponzi whirled around and returned to his office. Soon, Cavagnaro strode through the door. He wanted to help, but he explained to Ponzi that he had no evidence of wrongdoing by Old Colony. Still, Ponzi could be pleased that Cavagnaro's presence had put the Old Colony crowd on notice that it was being watched and that Ponzi had friends in high places. That would have to do, until the Pinkertons could get busy with their investigation. All Ponzi needed was a little time. He had figured out how to turn this soon-to-be-exhausted gold mine into a permanent mint.

Investors kept pouring into the office, and by the time Ponzi locked the doors after 6 that night, he had taken in more than $200,000. That did not include the receipts from his two-dozen similarly overwhelmed branches. It was his best day since he had birthed his brainstorm the previous autumn.

As Ponzi sat back in the Locomobile for the ride home, the basement-level presses of the Post, around the corner on Washington Street, rumbled to life once more. If he had stayed in the city a few more hours, Ponzi could have picked up a copy of The Boston Sunday Post still warm and inky. This time the story about him would be at the very top of the front page, with a headline set in bold type. It would have photos, too, not only of him but also of his wife, his mother, the scene outside 27 School Street, and his fabulous Lexington home.

But the glorious tide that had carried him so far, so fast was threatening to overwhelm him. The Post's Sunday story would not be as flattering as the one that had appeared this day. It would signal the Post's rising doubts about his honesty and rally authorities to intensify their sluggish investigations. Ponzi was about to get a run for his money.

Mitchell Zuckoff, a former Globe staff member, is a professor of journalism at Boston University. This article is excerpted from Ponzi's Scheme, copyright © 2005 by Mitchell Zuckoff. Used by permission of Random House.

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