Ponzi's Scheme Read online

  Barely a day went by without some kind of promotion or gimmick. Once, Grozier announced that he was sending a reporter incognito to a certain part of the city. The paper would give one hundred dollars in cash to the first person who spoke these words to the reporter: “Good morning, have you read the Post today?” Suddenly those were the first words out of Bostonians’ mouths whenever they happened upon a stranger.

  Then there was the “primitive man” stunt. The Post sent a man named Joe Knowles into the Maine woods, naked and empty-handed, to live completely alone for sixty days. During the two-month adventure, the paper printed dispatches and drawings Knowles made with charcoal on birch bark and left at a prearranged drop point. When Knowles emerged from the woods, wearing deer skins and carrying the tools of a caveman, some 400,000 people crammed the length of Washington Street to greet him. The paper’s circulation doubled that year.

  When Grozier learned that letters addressed to Santa Claus were dumped in the dead-letter office, he began thinking about the unmet needs of the city’s poor children. He created the Post Santa Claus Fund to raise and distribute money and toys to Boston’s needy during the holidays. Grozier measured the fund’s success less by the number of newspapers it sold than by the number of toys it handed out. His soft spot for children showed just as clearly when the Post received letters about lost pets. “I see that this little girl has lost her dog,” he told a young editor one day. The editor knew what was coming next: “Do you think one of our men could find it for her?” A reporter was quickly dispatched.

  The most enduring promotion was Grozier’s 1909 brainstorm to honor the oldest man in every town in the Post’s circulation area. He imported hundreds of the finest ebony canes from Africa and fitted them with polished fourteen-karat-gold heads, on which was inscribed: “Presented by The Boston Post to the oldest citizen of,” followed by the name of the resident’s town. Below that, to make clear that the cane should pass to the next oldest man upon the holder’s death, were the words “To be transmitted.” Grozier wrote to selectmen throughout much of New England asking them to locate the deserving recipients and present the canes, then inform the Post of the selection, ideally with a photo. Eventually, 431 canes were handed out, often with great pomp and ceremony followed by fawning stories in the Post. Holders of the canes variously attributed their longevity to abstinence from, or daily devotion to, alcohol and tobacco. The death of a Post cane holder was cause for another story, as was the token’s passage to the town’s next oldest man. To Grozier, the appeal was obvious: “In many small towns and villages the general store was a place where many men gathered to talk and swap stories. One of the most conspicuous figures in the group was the ‘oldest man.’ Age is a subject of universal interest, no matter whether it is among city folks or country folks. A man who has succeeded in cheating death longer than most of us manage to do it is always an interesting figure.”

  Edwin Grozier knew he needed more than fun and games to win readers. He loved a good murder case. Lizzie Borden’s father and stepmother turned up dead less than a year after he bought the Post, and the early years of the new century provided an endless stream of other celebrated killings. Circulation always rose when murders involved the rich, the pious, an attractive woman, or a spurned lover. A case involving a minister with two beautiful young fiancées, one of whom turned up dead from poison in what looked like suicide, kept Grozier in gravy for weeks. A Post reporter cracked the case when he tracked down the minister’s purchase of cyanide. A close second was when a diver hired by Grozier found the severed head of a beautiful showgirl at the bottom of Boston Harbor. “Missing Head Found by the Post’s Diver,” the headline blared.

  When not covering crime, the paper kept its promise to be a friend to the little guy. Grozier supported the labor movement and shorter work weeks, and fought for lower gas and telephone rates. The paper leaned to the Democratic Party, and Grozier worked to stay in touch with the needs of the common man. It was an approach he had pioneered in New York: “I used to go over among the swarming millions of the East and the West sides of the city; because it was there that we must build up our circulation if it was to be a large one; there, among the masses, not in the narrow strip of millionaires along Fifth Avenue.” In Boston, Grozier was a careful reader of the census, and he recognized that Boston’s surging Irish population would support the Irish nationalist movement. The Post was the first prominent American paper to show solidarity with Sinn Fein, and Grozier personally made large contributions to the nationalist cause.

  At a time when “No Irish Need Apply” remained the practice in certain Brahmin quarters, Grozier supported the candidacy of David I. Walsh in his successful effort to become Massachusetts’ first Irish Catholic governor. Grozier further ingratiated the Post with Irish Bostonians by treating interviews with the city’s Catholic cardinal as front-page news.

  Though Grozier calculated his positions carefully in terms of circulation, he also took unpopular positions based on his sense of fairness. Boston’s Irish and blacks were often at odds, competing for scarce resources, but the Post refused to favor one group over the other. William Monroe Trotter, editor of the Boston Guardian, a black newspaper, once said that Grozier ran his newspaper under a policy of “identical justice, freedom, and civil rights for all, regardless of race, creed, or color.”

  The combination of aggressive news coverage, community appeal, and dedication to fair play, along with a healthy dose of razzle-dazzle, worked beyond all expectations. In time, Edwin Grozier’s Post outsold the Globe. And in a much smaller city, its circulation exceeded that of Pulitzer’s New York World. But the Post’s status as Boston’s premier newspaper would soon be tested as never before.

  Mug shots of young Carlo Ponzi from his 1908 arrest in Montreal.

  The Boston Globe

  CHAPTER FOUR

  “A LONG CIRCLE OF BAD BREAKS”

  Back on the bumpy streets of Montreal, Ponzi learned that his reputation was worse than his prison-issued suit. Not only was he a convicted forger and an ex-con, but his name remained linked to the fleecing of depositors and the collapse of Banco Zarossi. Hardly an impressive résumé for a would-be financier. Cordasco the padrone had taken to calling him “Bianchi the Snake.” He slept at a friend’s home and earned a few dollars working odd jobs, but his future in Montreal was ruined. He gathered his belongings and began planning a return to the United States.

  Seventeen days after his release from prison, Ponzi boarded a southbound train with five other Italians, young men newly arrived from the old country, none of whom had proper papers and none of whom spoke English. As the train approached the New York border, a United States Customs inspector named W. H. Stevenson came aboard and questioned Ponzi about his companions. Ponzi insisted they were strangers to him. He told Stevenson that he had run into an old schoolmate at the depot, and the schoolmate had asked him to look after these men. Ponzi mentioned nothing about whether money had changed hands, telling Stevenson merely that he had generously, innocently agreed to his old chum’s request. Ponzi did not mention that the old friend was Antonio Salviati, his fugitive former colleague at the Zarossi bank, who was still wanted for allegedly pocketing money a customer intended to send home to Italy. Regardless, the customs man did not believe Ponzi’s story. Stevenson called an immigration inspector, who ordered all six men taken into custody as suspected illegal immigrants. Ponzi faced the most serious charge: smuggling aliens into the United States.

  Ponzi was back behind bars. His thousand-dollar bail might as well have been a million, and he languished for two months in the Plattsburgh, New York, jail before being brought to trial. He insisted he was innocent, telling whoever would listen that he had done what any decent person would have done in his situation. After a heart-to-heart talk with a prosecutor, Ponzi got the impression that a guilty plea would cost him no more than a fifty-dollar fine or a month in jail. Fearing that an innocent plea and a guilty verdict would result in serious time, Ponzi bough
t the deal and pleaded guilty. But his luck turned from bad to worse. The judge stunned Ponzi by sentencing him to two years in a federal prison and fining him five hundred dollars. The five undocumented Italian immigrants testified as witnesses at Ponzi’s trial and afterward were set free.

  Ponzi was soon back on a train, this time headed for the United States federal penitentiary in Atlanta.

  To his surprise, Ponzi traveled to Atlanta in style, more like a chief executive than a felon. With deputy U.S. marshals as his escorts, Ponzi went south with a berth in a Pullman sleeping car. He enjoyed his meals in a dining car and lounged in the plush seats as farms and cities rolled past the windows. His small entourage stopped in Washington and enjoyed lunch at a restaurant that Ponzi considered pretentious, then took an afternoon constitutional on the grounds of the Capitol. By the time they reached Atlanta, the marshals had grown fond of the charming convict. They brought him to a bar for a last bracing drink before prison, but to Ponzi’s disappointment the only libation was flat, sour-tasting near beer.

  Still, the trip was oddly appropriate considering their destination. The Atlanta Federal Penitentiary was considered the cushiest prison in the land, more like the Willard Hotel than a medieval dungeon. Built a decade before Ponzi’s arrival, it sat proudly on a hill, looking to the world like a fine southern college. Ponzi reasoned that the men who ran the country wanted a haven for themselves in case they ever ended up in prison. “Since it had to be a cage,” Ponzi figured, “it might as well be a gilded cage.”

  Ponzi was given a job as a clerk in the prison laundry, but his linguistic skills soon won him a transfer to the mail clerk’s office. He impressed his boss, prison record keeper A. C. Aderhold, as smooth, smart, and congenial, a clever young man with a gift for figures who kept error-free books without complaint. The only peculiarity Aderhold noticed was what he called Ponzi’s “obsession for planning financial coups.” Aderhold thought his assistant took so much pleasure from plotting elaborate moneymaking schemes that he might someday put one into play simply to see if it would work.

  Ponzi’s least favorite part of the job was translating for Warden F. G. Zerpt the incoming and outgoing letters of a dough-faced Sicilian mobster named Ignazio “the Wolf” Lupo. Lupo represented a new kind of criminal turning up in prisons like the Atlanta penitentiary. He had landed in New York twelve years earlier, in 1898, having fled Italy to avoid arrest for the murder of a customer of his dry goods store. He’d continued to mix fine food and major crime in the United States, opening an importing business while moonlighting in murder and extortion as a boss of the fearsome Mafia group known as the Black Hand. Lupo was suspected of ordering or taking part in numerous killings, most notoriously the 1909 murder of legendary New York police lieutenant Giuseppe Petrosino. Petrosino’s relentless pursuit of mafiosi had made him the scourge of the Italian underworld, whose leaders ordered him shot to death when he was in Italy pursuing leads against the Black Hand. Prosecutors had lacked the evidence to pin the murder on Lupo, so instead they’d nailed him with a thirty-year prison sentence on two counts of counterfeiting. Printing funny money was seldom punished so severely, so the sentence was understood as payback for the violent crimes authorities suspected him of but could not prove.

  Adopting the code of prisoners everywhere, Ponzi took the health-conscious position that any unproven allegations against his fellow inmates were between them and their Maker. Yet, with time to kill, Ponzi found himself feeling a certain kinship with his countryman Lupo. Not only did they share a native tongue; Ponzi believed that they had both been treated unfairly by overzealous, duplicitous authorities, and were both serving excessive sentences for nonviolent offenses. Lupo the Wolf must have sensed Ponzi’s comradeship.

  After being housed with a string of prisoners he suspected were informants, Lupo approached Ponzi one day after a ball game in the prison yard. He was sick of stool pigeons, Lupo said. Would Ponzi become his cellmate? Ponzi agreed—it was always wise to say yes to Lupo—and prison officials approved the transfer, apparently thinking the skinny young mail clerk would make an ideal stoolie. They were wrong.

  Ponzi was wary of Lupo, but he liked his new cellmate. The optimist in Ponzi found Lupo to be good-hearted and straightforward. What Ponzi liked most was Lupo’s stoicism. Even after Ponzi had survived almost a decade of tough living and prison time far from home and family, deep down he was still the soft college boy of his youth. Lupo was tough and fearless, and Ponzi admired him for it. Yet there was little practical that Ponzi could learn from Lupo—the schemes Ponzi conjured in his mind had nothing to do with threats of violence. But another prisoner was an endless source of fascination for Ponzi.

  Charles W. Morse was a dark model of American prosperity at the turn of the century: physically ugly, amoral, rich beyond reason. Born in Maine to an affluent family, Morse established a shipping company with his father after graduating from Bowdoin College in 1877. The business boomed, and so did Morse’s rapacity and his capacity for shady deals. In 1897 he expanded to New York, where he felt right at home amid the corrupt politicians of Tammany Hall. After lining the pockets of Mayor Robert Van Wyck and Tammany boss Richard Croker, Morse set out to win complete control of New York’s ice business, which, in the days before electric refrigeration, was a multimillion-dollar utility. He formed the Consolidated Ice Company, merged it with the American Ice Company, then sharply boosted the price of ice. Morse was unfamiliar with the scent of food rotting for want of cold, and so he underestimated the intense public reaction to his gambit. An investigation disclosed his bribes to political patrons and ended his brief run as the “Ice King.” But not before he siphoned off a cool $12 million in profit.

  Morse returned to his shipping roots, establishing a virtual East Coast monopoly. Then he bought a dozen or so New York banks and attempted to corner the copper market with a small group of like-minded monopolists. The collapse of that effort contributed to the nation’s 1907 financial panic, which would be remembered as a crisis caused by the soon-to-be familiar demons of irresponsible speculation, widespread financial mismanagement, and inadequate regulation. Morse’s high public profile made him an appealing target for authorities who had slept through the run-up, and he was soon indicted. Convicted of misappropriating bank funds, in January 1910 Morse was sentenced to fifteen years in the Atlanta prison.

  Like his prison mates Ponzi and Lupo, Morse considered himself a victim of overzealous prosecutors, calling his sentence “the most brutal . . . ever pronounced against a citizen in a civilized country.” More convincingly, he added: “There is no one in Wall Street who is not doing daily as I have done.” Morse had no intention of serving out his sentence; he hired lawyers who would help him press his case all the way to the White House. As part of the campaign, he won support from luminaries such as Clarence W. Barron, owner of the Wall Street Journal and hailed as the father of financial journalism. Barron appealed directly to President William Taft for leniency. On a parallel track, Morse suddenly displayed signs of a mysterious illness that his lawyers claimed left him only days from death. Morse’s condition was confirmed by doctors at an army hospital, and his retinue whipped up public support for a presidential pardon on humanitarian grounds. In January 1912, thirteen years before the court-imposed end of Morse’s sentence, Taft granted him an unconditional release.

  Morse left immediately for a European vacation, having regained his robust health almost within moments of Taft’s pen stroke. Later it was disclosed that Morse had poisoned himself by eating soap shavings before each medical exam. The toxins left his system as quickly as the doctors left his bedside.

  From his post as a prison clerk, Ponzi watched with astonishment and admiration as the Morse episode unfolded before him. Even before he knew the details of the death’s-door medical ruse, Ponzi suspected Morse was gaming the system. When Morse was freed, Ponzi learned a lesson he would never forget: The American legal system is kinder and gentler to men with money. If a man is rich, powerfu
l, and well-connected, he can escape prison through the front gate.

  At the moment, though, Ponzi was in no position to put that knowledge into practice. He was too broke to buy his way out of anything. The summer after Morse was freed, Ponzi completed his two-year term, plus an extra month tacked on for his inability to pay his five-hundred-dollar fine.

  Ponzi had had enough of Atlanta, so he headed west to Birmingham, Alabama, for no other reason than it was a city where he had yet to try his luck. Not long after arriving in Birmingham, Ponzi met up with a fellow he had known years earlier during his travels. The man was making a killing by filing false medical claims against coal-mining companies. He had agents in mining camps throughout the region, and whenever a miner got hurt an agent would coax and coach him to exaggerate the injury. A small lump of coal falling on a miner’s shoulder could be turned into a near-death cave-in. If the miner was game, he would eventually end up at a Birmingham infirmary run by Ponzi’s acquaintance. There, the miner would remain laid up for weeks or months, however long it took to document all kinds of imaginary ailments. Eventually the miner would win a large settlement from the mining company, which would of course include medical costs and a generous share for Ponzi’s pal. The infirmary was doing land-office business.