Ponzi's Scheme

by Mitchell Zuckoff

  “Get away from here!” Ponzi shouted.

  “One of your guards said you wanted to see a reporter,” one of the newspapermen said.

  “I made two statements today—that’s enough,” Ponzi answered. He pulled out his blue steel pistol and began waving it in the air.

  “My guards’ power is limited, but mine is unlimited,” he yelled. “When I shoot I hit. Get away or there’ll be some tall shooting.”

  Of all Ponzi’s concerns, none had shaken him more than his belief that Rose had been unaware of his prison record and would now think less of him. But early the next morning, Thursday, August 12, he learned the truth: Rose confessed that she had known all along and had loved and married him regardless. Relief swept over him. He regained the composure he had lost the night before.

  His personal fears resolved, it was time to confront the rest of his worries. Since Monday, Ponzi had been thinking about the preview he had been given of Pride’s audit. Even with the Securities Exchange Company’s maddening bookkeeping system, the diligent accountant had calculated that Ponzi’s liabilities were about $7 million, maybe more. Ponzi had spoken briefly with Pride again on Wednesday, and it appeared that this would be the figure facing him at the showdown set for Friday in the federal prosecutor’s office.

  During the two weeks since Pride had begun his tally, Ponzi had done everything possible to marshal his resources. He had closed his far-flung bank accounts, pooled his money in Hanover Trust, and gathered the certificates and titles to the stocks, bonds, and real estate he had purchased during his shopping spree. Repeatedly, he’d tried to cash his certificate of deposit by selling it at a discount to another bank, but there had been no takers. Ponzi had also sought help cashing the certificate from Thomas W. Lawson, a legendary Boston stock speculator and longtime enemy of Clarence Barron’s. Lawson’s fame derived in part from a book he’d written called Frenzied Finance, about stock market abuses. An endorsement from Lawson would go a long way. But Ponzi was too late. Weeks earlier, Simon Swig of Tremont Trust had approached Lawson for his opinion on Ponzi, and Lawson had concluded that it was almost certainly a swindle. Even if Lawson had agreed to help Ponzi turn his certificate of deposit into cash, his assets totaled only $4 million—$3 million shy of Pride’s number.

  As the Friday deadline approached, Ponzi’s slim hopes of closing that gap disappeared. His last chance was his plan to temporarily “borrow” assets in the vaults of Hanover Trust. But the bank commissioner had unwittingly foiled that far-fetched idea by seizing the bank and locking its doors. Time was fast running out.

  If Ponzi had any doubts about what would happen next, he needed only to look at the screaming headline atop the front page of that morning’s Post:

  ARREST IN PONZI CASE MAY BE MADE TODAY

  Below were four photographs that made Ponzi cringe. Two were twelve years old—the grim-faced mug shots from his Montreal forgery arrest. Below those were two recent photographs of the smiling Ponzi, but a Post illustrator had added a mustache on one “for the purpose of comparing it with his Canadian pictures,” the caption read. Inside the paper was the latest sketch by Ritchie, titled “Ready to Burst.” Cartoon images of four men—Gallagher, Pride, and the two Allens—stood atop the federal building and the State House using spears to poke holes in a balloon labeled “The Ponzi Get-Rich-Quick Bubble.”

  Ponzi knew what he had to do. He dressed in a somber suit with a chalk stripe, a fashion choice that reflected his decision as much as it fit the cloudy weather. Speaking briefly with the reporters camped out on Slocum Road, Ponzi gave no indication of what he had planned, addressing only suggestions that he might run and the disclosures about his record.

  “I am not going to flee,” he said, “but will stay here and face the music. I am going to prove that I am on the level now. The past has nothing to do with the present.”

  He went back inside but a short time later slipped out a back door, ducked into the Locomobile, and pulled down the window shades for the ride to Boston. It was a long enough ride for him to think about how miserable he’d felt in 1908 when two Montreal police detectives had surprised him at his apartment and placed him under arrest. He also had time to recall his shock in 1910 when the immigration inspector had seized him for smuggling aliens. This time, a decade older and wiser, he was determined to change the script. Ponzi wanted to remain as much in control as possible under the circumstances, deciding when, where, and by whom he would be taken into custody.

  Attorney General Allen was greedy to do the honors, having spent nearly three weeks battling accusations that he had bungled the investigation. But Ponzi was loath to give him that satisfaction. Federal prosecutor Dan Gallagher had played straight with him and, more important, the federal prosecutor was a friend and ally of Ponzi’s lawyer Dan Coakley. If the time came to cut a deal, Ponzi wanted Coakley by his side and Gallagher on the other side of the table. He told his driver to take him to Coakley’s office.

  With Coakley in tow, Ponzi went glumly to Gallagher’s office on Devonshire Street, his walking stick hanging limp on his arm and his jaunty cigarette holder nowhere in sight. When Gallagher received them, Ponzi admitted no wrongdoing and asserted his belief that Pride had overestimated his debts.

  “But you have agreed to accept the auditor’s figures,” Gallagher said.

  “Yes,” Ponzi acknowledged. “I have agreed to accept his figures.”

  At that moment, Ponzi knew he was defeated, but he had no intention of remaining that way. He would take his medicine but surely rise again, next time even higher than before. “No man is ever licked, unless he wants to be,” Ponzi told himself. “And I didn’t intend to stay licked. Not so long as there was a flickering spark of life left in me.”

  Ponzi told Gallagher he was ready to turn himself in. Gallagher readily accepted. They left Gallagher’s office and crossed the street to the federal building. Ponzi walked into the office of U.S. Marshal Patrick J. Duane, an eccentric who was dressed, as usual, as if for a wedding, in a tall silk hat, striped pants, and a long, double-breasted frock coat.

  “Mr. Ponzi wishes to surrender,” Gallagher said, beaming. They sat around Duane’s office while a warrant was hastily drawn up charging Ponzi with using the mails in a scheme to defraud. With Ponzi putting himself at Gallagher’s disposal, it made no difference that the charge was almost comical. His only use of the mails had been to send letters to investors urging them to collect their money, which he’d gladly paid when they’d showed up. Gallagher glossed over that fact, focusing the clamoring reporters on Ponzi’s admission that he could not meet the debts Pride had counted. Gallagher even borrowed a phrase from turncoat publicity agent William McMasters, declaring that the financier who had gripped the nation was now “hopelessly insolvent.”

  Ponzi waited quietly in Duane’s office for Coakley to summon a bail bondsman named Morris Rudnick, who dutifully put up the twenty-five thousand dollars in cash needed to secure Ponzi’s freedom.

  Meanwhile, Attorney General Allen continued to collect names and stories from Ponzi note holders who seemed certain to reclaim only a fraction of their investments. They came from all walks of life, young and old, new arrivals and the deeply rooted. Some were on the verge of panic. Others took their expected losses philosophically. A printer from the North End had invested his life savings, four thousand dollars, in the hope of buying a house. “Wife and I were going to buy a real palace if Ponzi doubled my money,” he said. “Guess it’s a dog house now.”

  Still others refused to give up. “You bet he’s all right,” said one man in a North End grocery store. “He could have gotten clean away with it if he’d wanted to. Would he have been fool enough to stick around if he’d been crooked?” Nearby, two children negotiating the sale of a rusty pocketknife spoke the language of Ponzi. “Give you 50 percent,” said one.

  A reporter found Edwin Pride still sifting through Ponzi’s receipts. “Don’t you think Ponzi started out all right—with some sort of a coupon sc
heme?”

  “Well, I don’t know,” Pride said. “Ponzi may have had, and may still have, the best intentions in the world. But I think he ‘played the game’ from the start.”

  By the time Ponzi had entered his innocent plea, made bail, and emerged on the street, some of his vigor had returned. He began swinging his walking stick again, and as he promenaded through Post Office Square, scores of onlookers fell into step behind him. They did not cheer as they had in days past, but it was still one last parade for the biggest little man in town. Ponzi’s starched white shirt glowed bright against his dark tailored suit, and his shoes shone with high gloss as they clicked against the trolley tracks embedded in the cobblestoned street. Office workers rushed to see him. Soon every window in the square was filled with the faces of the curious and the furious. The procession passed in front of a horse-drawn carriage. Its driver surveyed the scene, peering out from under a hat tipped low on his forehead to block the sun. He kept his hands on the reins and a scowl on his face. A boy wearing knee britches, high socks, and a messenger’s cap ran alongside Ponzi’s group, smiling and calling out to the famous man. Ponzi shot the boy a crooked half grin. He still had his fans, and they still hoped he would prove the doubters wrong.

  Ponzi darted into a car, but before he could get away two Boston police inspectors flashed their badges. They served him with a warrant from Attorney General Allen charging Ponzi with three counts of larceny. Once again, Allen had to settle for second place. Ponzi delayed his return home for another court appearance. He again pleaded innocent and posted an additional ten thousand dollars’ bond.

  When Ponzi arrived at Lexington, he had little to say to reporters. “I am going to stay home tonight. I am not going away,” he said. “If I had planned to run away at any time I certainly would not have done what I did today.”

  But Rose, who had shunned the limelight her husband had so craved, recognized that this was the moment she needed to speak for them both. Having never told Rose the true nature of his business, Ponzi could not have asked for a more loyal or trusting advocate. They stood together in the garden, her arm linked with his, a brave smile on her face.

  “I love him more than ever,” she began. “My faith in my husband is as unshaken as it was before. Somehow, I am rather pleased with what happened today, for it gives me a chance to show the world and to give added evidence to my husband that I love him.”

  “Of course he is innocent,” Rose continued. “He has been terribly persecuted. Allow him and he will be able to meet every obligation honorably. I suppose that not everybody has the faith in him that I have. That is because everybody does not know him as well as I. To meet my husband is to like him—at least. To know him well is to love him. I would not be able to enjoy life with ill-gotten riches. It is not in my makeup. Yet at the moment I feel almost perfectly contented for I am certain that my husband’s gains were honorably received. He is a big man who will face the danger of having his skin grafted on a woman he did not know, and serve a prison term to absolve a friend. My husband did both, and he is a bigger and more honorable man today than he ever was.”

  Rose capped her speech by calling Ponzi her “ideal.” Hearing that, he pulled her close and kissed her. They went together into the house and closed the door.

  Later that night on Washington Street, the lights were blazing inside the Post newsroom as the staff raced to make the deadline for the next morning’s paper. For nearly three weeks, Richard Grozier and his staff had pursued Ponzi. Now they were ready to beat their chests and yell to the heavens.

  Cartoonist William Norman Ritchie began work on a new sketch showing “Ponzi’s Pot of Gold” smashed atop caricatured bank officials and Ponzi note holders, with a smiling Ponzi looking on from behind bars. That would be followed by a half-biblical, half-puritanical editorial from Richard Grozier urging readers to reflect on the satisfaction of earning one’s keep. The editorial proclaimed that “poverty is not the curse which many think it is, but the blessing which makes men strive to attain a higher standard of living.”

  The most urgent work was the writing and editing of the lead news story for the next morning’s paper, printed under a triumphant banner headline:

  PONZI ARRESTED; ADMITS NOW HE CANNOT PAY—$3,000,000 SHORT

  By the time it went to press, the story was polished as brightly as Ponzi’s shoes. Eschewing the usual dividing line between news and opinion, the story heaped scorn on Ponzi and unleashed pent-up fury that previously would have been potentially libelous. “He was ignorant of business, knew little or nothing of banking, his knowledge of foreign exchange was ludicrous, his statements to newspapers and business men’s clubs were grotesque in their absurdity,” it sneered. “He painted halos around his head, but the facts have shown only sordid swindles.”

  Yet even as it condemned Ponzi, fairness demanded that the Post concede he was something special. Grudgingly, the story acknowledged “his bubbling vivacity, his boundless imagination, his smooth and ready tongue, coupled with a remarkable and winning charm.” Finding a balance between the images of the debonair and the debased, the Post gave Ponzi a backhanded compliment for the ages: “Of all the get-rich-quick magnates that have operated, Ponzi is the king.”

  The day the story appeared, bail bondsman Morris Rudnick got cold feet and withdrew the twenty-five thousand dollars he had put up to secure Ponzi’s freedom. At about four o’clock that afternoon, Ponzi returned to the federal building, a dour look on his face. At first, he hoped to quickly find a new bail bondsman, but soon he realized he would have to spend the night in jail. He called Rose in Lexington and told her he needed to stay overnight in Boston “on business.”

  Ponzi exited the federal building flanked by federal marshals. With his captors at his side, Ponzi rushed past reporters and photographers and hopped into a taxicab waiting to take them to the East Cambridge Jail. When the cab pulled up to the jail, Ponzi leapt out and ran to the door to escape the photographers he had once courted.

  “You didn’t get me, did you?” he called back to them as he rushed inside. “You didn’t get me.”

  Soon his spirits flagged, and as he shuffled toward the jail’s receiving desk, a frightened look settled on his face. He looked up at a calendar on the wall and shuddered at the date: Friday the thirteenth. Like a deposed monarch stripped of his scepter, Ponzi surrendered his walking stick. In short order he was booked, bathed, and taken to a cell for a dinner brought from a nearby restaurant: breaded veal chops, fried potatoes, a pot of coffee, a bottle of ginger ale, and a cantaloupe. A jailer brought him a briar pipe and a pouch of tobacco, and he smoked as he read week-old newspapers in his cell before falling asleep.

  Ponzi thought he would soon regain his freedom, at least on bail, but it was not to be. Attorney General Allen made it known that if Ponzi were freed again from federal custody, the state would immediately file more charges and ask a judge to set bail so high that no bondsman would bet that heavily on Ponzi.

  So Ponzi spent the next three months holed up in the East Cambridge Jail, awaiting trial on the federal charges. Rose was crestfallen by his imprisonment but remained as loyal as ever. She was certain he would satisfy all his investors, beat the charges, and return to her. In the meantime, one of her sisters moved in to keep her and Ponzi’s mother company in the big house on Slocum Road.

  As the weeks passed, federal and state indictments rained down upon Ponzi. He became the subject of what quickly shaped up as the biggest and most complex bankruptcy proceeding in Massachusetts history. Meanwhile, Pride expanded his work to include a search for hidden assets, but it was a mission doomed to fail. Ponzi had believed that the good times would keep rolling; he had not squirreled away so much as a dime.

  In November, Ponzi faced trial in federal court on two lengthy indictments of using the mails to defraud the public. Federal prosecutors had located scores of people who had received Ponzi letters telling them their notes had matured—any use of the postal system in a fraud scheme was
potentially a criminal act—so the two indictments contained eighty-six separate counts.

  Before the trial began, lawyers Dan Coakley and Daniel McIsaac met with Ponzi and Rose at the jail. For two hours they talked about the best course of action. Time and again, Coakley and McIsaac urged Ponzi to plead guilty. They had spoken with their good friend Dan Gallagher and cut a deal. Ponzi would enter a guilty plea to one of the eighty-six counts against him, and all the rest would be placed permanently on file. He would receive a prison term of no more than five years, but likely would serve only twenty months with the rest waived for good behavior. Once he had served his federal sentence, Coakley said, the state would almost certainly leave him alone. Coakley had never heard of anyone being prosecuted on essentially the same facts in both the federal and the state court, so Ponzi and Rose would be free to begin life anew. The alternative, Coakley warned, was a high likelihood of a guilty verdict and more time behind bars.

  Rose wanted to know if Coakley was making the recommendation because they had no money to pay legal fees. She knew that Coakley and McIsaac had already returned to the bankruptcy trustees the fifty thousand dollars Ponzi had paid them; they would be working for nothing. Coakley and McIsaac pledged to defend Ponzi, fee or no fee, if he decided not to plead. That convinced Rose.

  “I think Mr. Coakley is right,” she said. But Ponzi would not hear of it. He insisted that he was innocent and wanted to fight to the end. He told Rose and the lawyers that he did not care if he was sentenced to thirty years—he would not plead guilty.

  After three months of holding her chin up, Rose could take no more. She gasped, then fainted. When she was revived, tears washed her rounded cheeks. The lawyers left them alone to talk.

  “What difference does it make what the world thinks, as long as I know you’re innocent?” Rose pleaded. “When you come out we’ll start life over again.”