Ponzi's Scheme Read online

  The crowd also included a fourteen-year-old boy in short pants named Frank Thomas. He earned $7.20 a week running errands, and he was eager to invest ten dollars with Ponzi. Charlie Gnecco of Medford, six miles away across the Mystic River, was there for his fourth and largest investment of the month, one thousand dollars. And why not? His baby sister, Rose, was happily married to the man in charge of the whole operation. If she had faith in Ponzi, well then, Charlie Gnecco did, too. Carmela Ottavi of nearby Chelsea brought two thousand dollars to add to the six hundred she had invested twelve days earlier. Ponzi’s chauffeur, John Collins, had already thrown in five hundred. Watching the crowd from the front seat of the Locomobile, he resolved to add seven hundred more.

  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 Company, the streets of Boston had been buzzing about it and Ponzi for months. Some people had heard testimonials from men like Fiori Bevilacqua of Roslindale, whose friends knew him by his anglicized name, Frank Drinkwater. In a lifetime of hard work as a laborer and a real estate investor, Bevilacqua had painstakingly amassed the small fortune of ten thousand dollars. In June he had entrusted the entire amount to Ponzi, then spent the next few weeks sharing the news of his impending good fortune. His friends listened, and they came, too. When the Post story hit the streets, the Securities Exchange Company was already averaging more than a million dollars a week in new investments. If the pace held, it would soon be a million dollars 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 the feature story after reading about the million-dollar lawsuit, 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, whom the Post reporter had tracked down vacationing on Cape Cod. The attorney general, as priggish as he was ambitious, answered vaguely that one of his assistants, a young prosecutor named Albert Hurwitz, was dutifully investigating Ponzi. Two other public officials also took note of the Post story: Boston’s corrupt district attorney, Joseph Pelletier, and the state’s incorruptible new bank commissioner, Joseph C. Allen, who had only recently been named to the job by Governor Calvin Coolidge.

  Collins eased the Locomobile to a stop, hopped out, and hustled to the back door. It swung open and the man himself alighted from the car, stepping onto the wide running board, then planting his feet on the sidewalk. If the crowd had expected a large man, it would have been sorely disappointed. Ponzi was five foot two, shorter than some of the arm-weary newsboys selling their papers in the crowd. He weighed just 130 pounds fully clothed after a heavy meal.

  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, a dimpled chin, and full lips that curved upward in a barely suppressed grin. Usually he did not suppress it, and the resulting smile seemed almost too big for his face, as though painted on by a child. On his head was a jaunty golfing cap—a smart weekend fashion statement, more casual than his usual straw boater. Under the hat was a crown of brown hair flecked with gray, slicked down and razor-parted on the left side, with a low pompadour in front. The only signs of age were starbursts of wrinkles around his lively brown-black eyes, seemingly etched not by worries but by a lifetime of laughter. He wore a new Palm Beach suit, impossibly crisp given the sultry weather, with a silk handkerchief peeking from the coat pocket like a fresh-cut daffodil. His polished shoes clicked and clacked on the stone sidewalk. A starched white collar was held in place by the knot of his dark moiré silk tie, which sported a dazzling diamond-topped pin. His right hand gripped a gold-handled malacca walking stick, similar to one favored by a showman of an earlier age, P. T. Barnum. His left fist held the handle of 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 two 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 of numbers was something of a habit with him. Emerging with Ponzi from the car was a stern-faced, heavily armed bodyguard from the Pinkerton National Detective Agency, which rented out its agents when they were not busting “Red menace” unionists or chasing bank robbers.

  Security had lately become a concern for Ponzi, whose business was generating so much cash it made him fear that he was a ripe target for thieves. To reinforce the Pinkertons, Ponzi had obtained a gun permit three months earlier from the police department in Somerville, where he’d lived before moving to Lexington. A small, blue steel pistol, a .25-caliber Colt automatic, rested snugly inside a vest pocket. Another pocket held contents he was much more eager to wave in public: a bank statement, in his name, for $1.5 million.

  “There’s Ponzi!” someone shouted when he stepped from the car. On that cue the masses moved as one. They surrounded him and his guard, some pleading for a moment of his time, others content to pat him on the back, and some thrilled simply to lay eyes on the Merlin of money. A few skeptics mingled among the believers. One was loudly labeling the Securities Exchange Company a bogus get-rich-quick scheme when Ponzi arrived.

  “I’d like to see the man who could do it—” the doubter shouted.

  Faced with the challenge, Ponzi called out, “Well, I’m doing it! I’m the man!”

  The words emerged in a mellifluous tone, accented only slightly by his native Italian. Ponzi sometimes spoke in staccato bursts, but more often he had a pleasing, charismatic voice—women heard a mildly insistent suitor; men, a trusted friend. It was a voice that would have fit rising movie star Rudolph Valentino, if only his films had sound.

  Ponzi kept moving—past two uniformed policemen at the doors of the Niles Building and up the narrow flight of stairs to his cramped second-floor offices. Along the way he had to push into the stairwell past people who formed what one observer called “a swirling, seething, gesticulating, jabbering throng.” Some kind of commotion was happening down the hall from his office, but Ponzi paid it no mind. He stepped through a glass-paneled door into a small anteroom his company used as a waiting area. There, each investor was met by one of the sixteen 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 four-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. Often they were three particular girls: Angela Locarno, her sister Marie Locarno, and their friend Bessie Langone. In return for cash, the investors received promissory notes, receipts really, that guaranteed the original investment plus 50 percent interest in forty-five days. The receipts bore Ponzi’s ink-stamped signature, which led many to call them simply “Ponzi notes.” Lately the waves of cash had come crashing over the counter so quickly that the bills were dumped into wire baskets, to be sorted when the tide rolled out. At slower times the cash was funneled from the clerks directly to a man named Louis Cassullo, an unpleasant acquaintance from Ponzi’s past whom Ponzi neither liked nor trusted. Where Cassullo was concerned, Ponzi applied the old adage about keeping friends close and enemies closer. From Cassullo, the cash was counted, bundled, and deposited into on
e of Ponzi’s fast-growing bank accounts. That is, minus any stray bills Cassullo siphoned off.

  The other half of the room, a space perhaps eight by fourteen feet, was partitioned off for an office shared by Ponzi and a pretty, dark-haired girl named Lucy Meli, his eighteen-year-old chief bookkeeper, secretary, and gal Friday. The walls of the office were bare, and the furniture consisted of three chairs and a single flattop desk, at which Ponzi and his young assistant sat on opposite sides, facing each other. Visitors were surprised to see no adding machines or file cabinets. Despite the enormous sums of money pouring in, the offices of the Securities Exchange Company were dark and dingy, with a few scuffed, mismatched pieces of furniture and the lingering smell of the Turkish cigarettes Ponzi smoked in a five-inch, ivory-and-gold holder.

  As soon 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 Company. Its owners had had the temerity to rent an office on the same floor of the Niles Building as Ponzi’s Securities Exchange Company. Old Colony was promising the same 50 percent in forty-five days, and its organizers were 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 had seen an opportunity to get in on the ground floor.

  Outside the offices of this upstart Ponzi imitator, 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!”

  As Ponzi’s employees described the scene down the hall to him, Ponzi emptied his pockets, searching for a key to a strongbox that held receipts from the previous day. Large sums of ready cash might be needed to handle this Old Colony threat. Out of Ponzi’s pocket came loose cigarettes, several bunches of keys, and a roll of bills so fat it “would have made anyone but a bank teller gasp,” as one witness described it. After finding the strongbox key, Ponzi took a moment to consider the news of his competition.

  As a mother bear knows its young by scent, 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.

  In the meantime, he could at least scare them. Ponzi grabbed the black, candlestick-style 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. Low pay had long been a nettlesome issue among Boston police officers, and Ponzi’s investment offer was a welcome supplement to their paltry incomes. Indeed, the department was filled with newly hired officers, replacements for eleven hundred veteran policemen—more than two-thirds of the force—who were fired nine months earlier by Governor Coolidge for striking over wages and working conditions. Several patrolmen even moonlighted as agents for Ponzi, collecting investments from others for a cut of the take.

  Ponzi could have called Captain Jeremiah Sullivan at Police Station No. 2, located around the corner from the Niles Building on City Hall Avenue. 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 nine hundred dollars on June 16, and then over the next four weeks had added $1,750 more. Providing for his wife and four daughters, aged eleven to eighteen, would be much easier when his notes began coming due in eight days.

  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 brought 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 Company 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 two thousand?”

  “Mister,” Ponzi shot back, “if you’ve got two thousand you’d better hang on to it for bail. There’ll be a couple of police inspectors down to see you in a few moments.”

  Not waiting for a reply, Ponzi whirled around and returned to his office. Soon, Inspector Cavagnaro strode through the door. He wanted to help, but he explained to Ponzi that he had no evidence of wrongdoing by the Old Colony gang. He had no cause for arrest. Still, Ponzi could be pleased that Cavagnaro’s presence had put the Old Colony crowd on notice that they were 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, one that would make him as rich and respected as the Brahmins who ran this town. At least that was the plan. In the meantime, he could not let anything derail him.

  Investors kept pouring into the office the rest of the day, and by the time Ponzi locked the doors after six 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 summer.

  As Ponzi sat back in the Locomobile for the ride home to Lexington, the basement-level presses of the Post began rumbling to life once more. By coincidence, the newspaper’s offices were only a hundred yards away from the Securities Exchange Company, around the corner on Washington Street, a Colonial-era cow path known as Newspaper Row. 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 morning. 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.

  Postcard of S.S. Vancouver, the ship that brought Ponzi from Italy to America in 1903.

  Peabody Essex Museum

  CHAPTER TWO

  “I’M GUILTY.”

  Ponzi’s moment of succe
ss had been decades in the making. The thirty-eight years that preceded that Saturday in July 1920 were notable mostly for setbacks, misadventures, and persistent failures in pursuit of riches.

  He was born March 3, 1882, in Lugo, Italy, an ancient crossroads town populated by merchants and farmers, in a fertile plain sandwiched between Bologna and the Adriatic Sea. Ponzi’s parents were living with his widowed maternal grandmother in an apartment at No. 950 Via Codalunga, a curving road lined with three-story stone buildings. It was a decidedly working-class neighborhood; down the street was the ghetto where Lugo’s large Jewish population had been required to live since the 1700s. At the other end of the street was the Church of Pio Suffragio, a gloomy sanctuary filled with baroque stuccos of cherubs and frescoes depicting the deaths of saints. Stained-glass windows high on the walls allowed only dim shards of light to fall on the narrow wooden pews. Ponzi’s parents, Oreste and Imelde Ponzi, brought him there to be baptized, anointing him with names chosen to honor his maternal and paternal grandfathers: Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi.

  The family was comfortable but far from wealthy, richer in name and reputation than in savings. Ponzi’s father was descended from middle-class tradesmen and hoteliers but he was employed in Lugo as a postman. The work of delivering mail and selling stamps was steady if not glamorous, and the post office was only a short walk from the family’s apartment. Ponzi’s mother came from significantly more prominent stock—Imelde Ponzi’s father was an official of the Civil and Criminal Court of Parma. More notably in the class-conscious world of nineteenth-century Italy, her father, mother, and grandparents all bore the titles Don or Donna—Don Giovanni, Donna Teresa, Don Antonio, and so on—which placed them among the aristocracy in the duchy of Parma.

  Imelde Ponzi doted on her only child, staking her family’s future on the little boy who resembled her so strongly, hoping he would restore the family to its former social and financial rank. Throughout Carlo’s childhood she dreamed aloud about the illustrious future she wanted for him, building what he called “castles in the air” in her stories of the glory she hoped he would achieve. A favorite notion was that her smart, pampered boy would follow the example of one of her grandfathers and become a lawyer and perhaps even a judge.