Ponzi's Scheme (16 page)

As unlikely as it might have seemed, Ponzi was certain he could pull it off, as long as he had enough time.

R
erouting his financial path could wait, though, as Ponzi spent the morning of July 9 anxiously anticipating the arrival of his mother. After canceling his trip with Rose to Italy, Ponzi had wired Imelde Ponzi money to buy two first-class tickets aboard the S.S.
Cretic,
an immense White Star liner previously known as the
Mayflower.
One ticket was for his sixty-nine-year-old mother and the other was for Elena Omati, her twenty-nine-year-old maid. The ship had left Naples for Boston on June 25, and the elder Mrs. Ponzi and her helper were in good company for the two-week trip; merchants, a painter, and an Italian diplomat to Venezuela were among their fellow first-class passengers.

When he arrived at the Boston pier, Ponzi was as giddy as a child on his birthday. He bubbled with unrestrained joy when he caught sight of the black-hulled ship, as long as two football fields end to end, with four soaring masts and a single funnel jutting into the blue summer sky. During his rootless years in America and Canada he had often wondered whether he would see his mother again, whether he would overcome the shame of his dissolute college days and live up to her dreams of “castles in the air.” Now he had done it. He was rich and she was steaming into Boston. Ponzi could not wait a minute more than necessary to see her.

Spreading cash and charm, Ponzi enlisted the help of an immigration official named Joseph Merenda, a fellow Italian immigrant who happened to be a small investor in the Securities Exchange Company. Together they boarded a tugboat that Ponzi hired on the spot to motor him across Boston Harbor to the quarantine building where
Cretic
passengers were undergoing immigration inspections. While waiting to see his mother, Ponzi learned that the ship's steerage passengers were suffering terribly from the summer fortnight at sea. Adding to their troubles, some had arrived penniless. Remembering his own landing with little more than two dollars and a gnawing hunger, Ponzi opened his wallet, handed out cash to help as many as he could, and sent for sandwiches and drinks.

Then he caught sight of Imelde Ponzi, a tiny, regal woman with a halo of white hair and an Italian widow's black wardrobe. Ponzi rushed to embrace her. Tears streamed down his face. He held his mother tight in his arms. Merenda's heart swelled as he witnessed the reunion.

“It is seventeen years since I have seen you,” the old woman told her son.

“Yes,” Ponzi answered through his tears, “but we shall never part again.” He rushed his mother and her maid home to Lexington, to meet Rose and to coddle the elder Mrs. Ponzi with comforts in their new house.

At that moment, Merenda set aside lingering doubts about the promise of 50 percent profits in forty-five days. He had invested only two hundred dollars to date, but now he resolved to deposit as much as he could with Ponzi. As he later told the financier: “I made up my mind that a man doing a criminal business could not bring his mother over from Italy after seventeen years with the possibility of his going to jail. And when I saw you with tears in your eyes and heard the things you planned for her, that put the lock on my belief that your business was all right.”

Merenda not only invested for himself, he bought a Ponzi note for his mother.

Others remained dubious.

A
fter quashing the police strike in the fall of 1919, Massachusetts Governor Calvin Coolidge had turned his attention to what he believed was a rot undermining the roots of the state's financial system. Coolidge had grown concerned that a cozy relationship between state banking officials and the bankers they were supposed to regulate was inviting a crisis. Moreover, Coolidge thought his banking commissioner, the estimable Augustus L. Thorndike, the scion of an old Brahmin family, was more comfortable dining with bankers than overseeing them. When Thorndike's term ended in March 1920, Coolidge decided to fill the five-thousand-dollar-a-year job with a candidate far from the cloistered world of Boston finance and politics. He chose a rural Republican in his own image: Joseph C. Allen.

At forty-two, Allen was tall and trim, with pince-nez glasses perched on a handsome nose, a downturned mouth, and stiff, high collars poking from pinstriped suits. Newly wed to a Smith College graduate fourteen years his junior, Allen was a prominent banker and civic leader in Springfield, ninety miles west of Boston. Born in New York, he had moved to western Massachusetts as a boy and had begun his banking career as a messenger for the Second National Bank of Springfield. He'd risen through the ranks of several banks to become vice president of the Union Trust Company, the job he held when Coolidge tapped him. Allen also served on the Springfield City Council and had run for mayor of the small city in 1912. But he was a banker, not a politician, and the glad-handing necessary to win votes was not his style. In the messy world of Massachusetts politics, Allen was a misfit, a man one reporter described as “quiet, dignified, immaculate, kind.” He liked nothing more than a perfectly clean office with “never a speck of dust on his desk; never a piece of paper misplaced,” the reporter found. The closest thing Allen had to a vice was a lousy golf game. To no one's surprise, he failed to win the Republican mayoral nomination and returned to the more quantifiable world of profit and loss. Which made him all the more attractive to Coolidge. The governor was looking for a banking commissioner without baggage, someone with a pillar-of-the-community résumé and physical and psychological distance from Boston. Joseph Allen fit the bill.

Early in his tenure as bank commissioner, Allen realized that whatever good work he did might be undermined without a cordial relationship with the newspapers covering his agency. He knew he would never be one of the fast-talking, tip-dropping, back-slapping political animals who stalked the marble corridors of the gold-domed State House atop Beacon Hill. So he took the opposite tack. He opened his office to the newspapermen who covered the business world and told them plainly, “I am new to this game. I am not used to being interviewed and quoted. You all can probably take advantage of me. I am asking you to help me in my job, and not hinder me. I am asking you to help the public. What I give the press will be first carefully prepared in my office. I shall then read it to you experienced men and ask whether you think it is best to publish.” It was a frank admission, one that might have opened the out-of-towner to criticism or doubt among hard-bitten Boston reporters. Instead, his candor endeared him to them, and for the most part they gave him a chance to prove whether he could rein in mismanaged banks and protect depositors in the process.

Just as he was getting comfortable in office, Allen began to hear word of the Securities Exchange Company. Ponzi's enterprise was not a bank, but the
Post
story about Daniels's million-dollar lawsuit mentioned that the business was based on currency speculation. Allen wondered whether the public or the banks he regulated might be at risk from a fast-money operator. Not certain of his boundaries, Allen called for an opinion from the state's chief law-enforcement officer, Attorney General J. Weston Allen.

The two Allens were unrelated. The attorney general had a classic Boston pedigree that the bank commissioner lacked. J. Weston Allen was descended from two
Mayflower
passengers, was the son of a former editor of the
Boston Advertiser,
and held degrees from Yale University and Harvard Law School. For more than a decade he had headed a prominent Boston law firm; then he'd served two terms in the Massachusetts legislature before becoming attorney general. He considered the job a stepping-stone to the governor's office and perhaps beyond. At forty-eight he was grim-faced and balding, with a wary eye toward anyone stepping onto his political or prosecutorial turf. He answered the bank commissioner's inquiry about Ponzi with a curt reply: Keep out.

Joseph Allen backed off, but only briefly. On July 15, Hanover Trust officials reported, as required, that they had completed their sale of new stock. Checking around, Joseph Allen learned that most of the new shares had gone to Ponzi, and that was unquestionably within his realm. He called the attorney general's office a second time, this time not to ask permission but, as a courtesy, to announce his plans to investigate Charles Ponzi, his Securities Exchange Company, and his ties to Hanover Trust. The two Allens agreed that the attorney general's office should remain involved, and J. Weston Allen assigned two assistant attorneys general, Albert Hurwitz and Edwin Abbott Jr., to work with the bank commissioner. Their first step was to meet Ponzi.

An invitation was sent to 27 School Street asking Ponzi to attend a meeting at the State House with Bank Commissioner Joseph Allen, the two assistant attorneys general, and a vice president of a Boston bank brought in as an expert on foreign exchange and currency transactions. Ponzi knew that Allen could not compel him to attend, but his pride got the better of him. “I couldn't very well stay away and let him think that I was afraid,” he said later. “After all, his questions were not apt to embarrass me. What he didn't know about coupons and foreign exchange would have filled a good-sized library.”

Ponzi walked into Allen's well-appointed State House office, exchanged cordial greetings, and was thoroughly unimpressed. He thought the bank commissioner underestimated him, viewing him the way “a cannibal greets a missionary.” Ponzi imagined Allen smacking his lips in anticipation of serving him on a platter to Boston's established financial and political powers.

Ponzi sat down and calmly gave his standard speech about International Reply Coupons. He wheedled the foreign exchange expert into endorsing the feasibility of exploiting fluctuating exchange rates with fixed-price coupons. The only questions Ponzi declined to discuss were the identities of his foreign agents and the countries where they bought and exchanged coupons. “I was almost ashamed to match wits with them,” he said later. “It was like stealing candy from a baby. But they were the challengers. And I couldn't very well let them get away with their lollypops.”

Hurwitz, the assistant attorney general, found himself enjoying Ponzi's company. Like Ponzi, Hurwitz was an immigrant and an outsider, a Russian Jew who had arrived in the United States in 1892, when he was eight years old. Not much taller than Ponzi, with a long face, prominent nose and jaw, and deep-set eyes, he had years earlier made a brief foray into Boston's Brahmin- and Irish-dominated world of politics. In 1905, he'd run for the Common Council when he was a twenty-one-year-old law student at Boston University. He had run as a Republican and been thoroughly trounced.

Sitting in the bank commissioner's office, Hurwitz respected the confidence and ease with which Ponzi carried himself, the touches of humor in his answers. He took note of Ponzi's impeccable fashion sense, admiring his custom-tailored suit, the sparkling jeweled pin in his tie, and the soft gray spats on his glossy shoes. Ponzi completed the look of success with a gold-tipped cane in one hand and soft gloves in the other. The assistant attorney general was especially drawn to Ponzi's dark eyes, the way they danced as he spoke, seducing his listeners with what Hurwitz considered “a romantic look.”

Yet by the end of their talk, Hurwitz detected a note of condescension in Ponzi, a bit of cockiness he found less becoming. At one point, Hurwitz mildly challenged Ponzi, expressing doubt that it was possible to turn large-scale profits from postal coupons. Ponzi retorted that Boston police officers who had held similar doubts had grown so confident that they'd become frequent and successful investors. Ponzi then urged Hurwitz to deposit some of his own money, even offering a loan to get the assistant attorney general started in the business of 50 percent profits. Hurwitz declined, telling Ponzi he was investigating, not investing.

After Ponzi left, the three state officials and the banker agreed that Ponzi's business certainly sounded plausible, though Albert Hurwitz and Joseph Allen remained skeptical. By contrast, the banker and Abbott, the other assistant attorney general, declared they were satisfied that Ponzi was a legitimate businessman, solvent, and on the level. Abbott was so persuaded that he proposed a bet: If their investigation showed that Ponzi was a fraud, Abbott would buy Hurwitz dinner. If Ponzi lived up to his claims, the meal was on Hurwitz. Unknown to Hurwitz, Abbott expressed his confidence to Ponzi, privately mentioning that he might drop by School Street with some money to invest.

A
heat wave settled over Boston during the days after the State House meeting, but the sweltering temperatures did nothing to thin the ranks of men in suits and women in long dresses who lined up outside 27 School Street. Now that the Securities Exchange Company had passed the million-dollar-a-week mark, the only question seemed to be how long it would take for Ponzi to surpass two million a week.

Rising along with the mercury was the intensity of the bank commissioner's investigation. Allen's staff of bank examiners focused first on the banks where Ponzi maintained large accounts, particularly Tremont Trust and Hanover Trust. The two were also natural targets because in recent weeks Ponzi had often mentioned them as references to potential investors who questioned his solvency.

Ponzi had never gotten along well with Simon Swig, who ran Tremont Trust as its vice president and had installed his son as treasurer. Swig looked like a dour European aristocrat, with a thick mustache and a dimple in his square chin. He lived like one, too, in a palatial home on Humboldt Avenue in the city's Roxbury section, with a live-in Irish maid and a chauffeur. Since arriving in Boston from Lithuania as a teenager in 1880, the fifty-four-year-old Swig had risen from a peddler to a wealthy bank officer. Along the way, he had alienated a large portion of the financial establishment by persuading state lawmakers to pass legislation that helped midsized banks like his compete with the entrenched financial powerhouses run by the Brahmins. At the same time, Swig had tended to ignore laws he did not like, for years making loans that were improper or downright illegal, running misleading advertisements in the newspapers, and issuing more than a half million dollars in loans, many of them dubious, to his own family. Swig's house was a prime example. In December 1919, he took a twenty-five-thousand-dollar mortgage from Tremont, repaid ten thousand dollars from the bank's own profits, and then never bothered to make payments on the remaining balance.