Ponzi's Scheme (18 page)

Ponzi also spent part of the day making plans to open a new Boston office. The hordes on Saturday convinced him that he had outgrown 27 School Street, so he made arrangements to move to a second-floor office next door to Hanover Trust on Washington Street, even closer to the
Post
building.

When he crawled into bed alongside Rose that night, Ponzi was exhausted. Afterward, he remarked: “That Sunday was the busiest day in all my life I ever put in doing nothing!”

W
hile one
Post
reporter spent part of Sunday in Lexington watching Ponzi soak up the limelight, other
Post
reporters were working overtime trying to nail him. Boston's other newspapers were still ignoring the story, so Richard Grozier and city editor Eddie Dunn sought to press their paper's advantage—but carefully. One step was to shore up the Ponzi reporting staff. Joining P. A. Santosuosso was Herbert L. Baldwin, a bookish Harvard graduate selected for his knack with financial stories and features. The previous Saturday, Baldwin had written a lively profile of one Lucius Dodge, a man who had meticulously recorded nearly every penny he had spent during the previous thirty years.

The next step was to advance the story. But it was Sunday, and nothing much was happening beyond the commotion at Ponzi's house. The Securities Exchange office was closed, as were the government offices managing the investigations. Not wanting to lose momentum, the
Post
staff engaged in the time-honored journalism practice of consulting an outside expert. They did not have to look far.

Clarence Walker Barron was a Bostonian who, as the
Post
put it, was “recognized internationally as among the foremost financial authorities of the world.” At sixty-five, Barron was called “the father of American financial journalism.” Abundantly bearded, with bright blue eyes, and carrying 330 pounds on a five-foot-five frame, Barron looked like a cross between a sea captain and Saint Nicholas. Born in the city's North End in a stone house covered with vines and overrun with cats, he was the son of “Honest Henry Barron,” a teamster who worked at the wharves and warehouses of Commercial Street. Some of his earliest memories were of tugging at the dress of his mother, Elana, as she stood at the door of their house talking to peddlers and tradesmen about President Abraham Lincoln, slavery, and the latest news. By fifteen, he had resolved to become a newspaperman and had taught himself stenography, which he put to use with a temporary job on the
Boston Daily News.
By twenty-one he had found work at the
Evening Transcript,
where he gravitated to financial reporting and soon inaugurated the paper's financial section, which he boasted was responsible for increasing circulation by 15 percent.

In 1887, at thirty-two, he founded the
Boston News Bureau,
having concluded that Boston's State Street, at the time a rival to New York's Wall Street, needed financial news delivered more often than once with the morning papers and once with the evening papers. For the exorbitant sum of a dollar a day, Barron promised the city's business elite that he would provide them with news as fast as he could report it, printing his stories himself on a hand-fed press in a basement office, then dispatching two messenger boys to deliver the goods. Barron was a gifted writer and an intrepid reporter. His rough-printed handbills were soon essential reading for the bankers, brokers, and business leaders of Boston. In 1902 he expanded to New York by buying control of the
Wall Street Journal
and its parent, Dow Jones & Company.

His success allowed him to keep a permanently reserved suite at the Ritz-Carlton in New York and to buy a grand town house on Beacon Street with views of the Charles River, a yacht named the
Hourless,
and a huge, seaside country home he called “The Oaks” in the South Shore town of Cohasset. He also was a gentleman farmer, raising prized Guernsey cows on a perfect swath of pasture and willingly selling their milk at a loss to nourish Boston's sick children.

A demanding taskmaster, thorough in his reporting, he was unafraid to wade into unpopular territory if he considered something unjust. This was the same Barron who had successfully pleaded the case of Ponzi's old Atlanta prison mate Charles Morse, the “Ice King.” Nevertheless, Barron would caution his reporters, “If you must fight, pick only worthy adversaries.” He instantly placed Ponzi in that category: Invited by the
Post
to give his opinion of Ponzi's business, Barron emptied both barrels.

“No man of wide financial or investment experience would look twice at a proposition to take his money upon a simple promise to pay it back with a 50 percent increase in three months,” Barron said. He zeroed in on
Post
stories from that morning and the day before that said Ponzi had placed his profits from the enterprise in bank stocks, real estate, government bonds, and other conventional investments.

“If Mr. Rockefeller, the richest man in the world, should offer even 50 percent for money and be found to be putting his own money into 5 percent bonds, there would not be much money offered to him by financial people,” Barron scoffed.

Barron understood fluctuating currency rates better than most, and he acknowledged that “there is now probably opportunity for people to deal in a small way under these postal arrangements so as to make money out of the fall in foreign exchange. But it is unreasonable to ask anybody to believe that any large amount of money can be so invested.”

Even if it were possible, Barron said, it would be “immoral” because it would be profiting at the expense of a government. “When a man gets money from the government without performing a service,” he said, “it is just the same as when a man takes money from an individual without performing a service for that money.”

The
Post
printed Barron's attack the next morning, Monday, July 26, as its lead story at the top of the front page, under a headline more cautious than Barron's comments:
QUESTIONS THE MOTIVE BEHIND PONZI SCHEME;
the subhead added, “Barron Says Reply Coupon Plan Can Be Worked Only in Small Way.” Still, the message the
Post
was sending its readers was clear, and the story began with the ominous claim that the foreign countries where Ponzi was supposedly operating were expected to report to United States authorities by the next day. But if Grozier, Dunn, and their staff expected pronouncements from the Zeus of State Street to dissuade Ponzi investors, they were in for a shock.

W
hen Ponzi arrived at work on Monday morning, School Street was teeming with people desperate to trust their money to the Securities Exchange Company. It was as if Barron had endorsed the idea as foolproof. The street was so jammed police closed it to traffic; only two cars were allowed to pass: Ponzi's and Mayor Peters's.

A conga line of would-be investors, four abreast, snaked around the block from the City Hall Annex, up City Hall Avenue, down School Street, and into the Niles Building. Ponzi counted a half dozen mounted policemen in the street, then found more than a dozen others afoot keeping order inside the building. When Ponzi stepped from his Locomobile, he was greeted by three cheers. After the din died down, Ponzi called back, “And three groans for the
Post!
” The crowd answered with laughter and more cheers. Eddie Dunn, the
Post
's city editor, had walked around the corner from his office to watch the spectacle. “Pigs being led to the slaughter,” he said before returning to work.

Ponzi did not entirely disagree with Dunn, but he rhapsodized about what he saw and sensed: “The air was tense with ill-suppressed excitement. Hope and greed could be read in everybody's countenance, [or] guessed from the wads of money nervously clutched and waved by thousands of outstretched fists! Madness, money madness, the worst kind of madness, was reflected in everybody's eyes!”

Ponzi was at once exhilarated yet oddly repulsed. It struck him as an “exhibition of reckless mob psychology, entirely too susceptible to the fatal spell of misguided or perverted leadership!” But the notion that he was solely responsible for the “misguided or perverted leadership” was soon replaced by intense satisfaction.

“I was the realization of their dreams,” he exulted, his grandeur growing with each new thought. “The idol. The hero. The master and arbiter of their lives. Of their hopes. Of their fortunes. The discoverer of wealth and happiness. The ‘wizard' who would turn a pauper into a millionaire overnight!” He became intoxicated by the sight of the madding crowd and became certain it spelled the success he had always imagined: “Nothing could stand in the way of the most complete achievement of my ambitions. I had won!”

It was difficult to argue. By noon he would take in several hundred thousand dollars from all his branches—in his recollections, he rounded it off to one million. The new office he opened that morning around the corner on Washington Street collected more than ten thousand dollars an hour during its first three hours of operation. All told, in July alone Ponzi had taken in nearly $6.5 million, from more than twenty thousand investors, for an average of $325 each. In the remarkable seven months since it had opened for business, the Securities Exchange Company had amassed thirty thousand investors and $9.6 million. All Ponzi had to do to keep them satisfied was to pay them nearly $15 million in return.

But for all his excitement, all his satisfaction about his success, Ponzi knew it could not continue. That reality became inescapable after he waded through the crowds outside 27 School Street, walked around the corner to the Hanover Trust, and slipped into Henry Chmielinski's private office for a moment of peace. He had been so busy he had yet to read the morning papers. Ponzi picked up a copy of the
Post
and scanned Barron's comments—the first public criticism of him and his company. He was outraged and, although he would not show it, afraid. He knew the disparaging words of a financial legend would goad public officials into immediate action, even overreaction. “The situation was especially dangerous,” Ponzi concluded, “because a man in public office generally runs amok the moment he becomes the target of printed criticism. Under the spur of what he believes to be a public opinion, he is apt to do almost anything. Except keep quiet.”

“Within the day, within the next hour or so, some proceedings might be instituted against me,” Ponzi told himself. “Without any doubt, I had a battle on my hands.” His biggest fear was a court injunction that would shut him down immediately, short-circuiting his plans to switch businesses and go straight. With his trademark flair, Ponzi decided to go on the offensive and do what his enemies least expected.

P
onzi reached for the phone in Chmielinski's office and told the operator to call the United States district attorney, the Massachusetts attorney general, and the Suffolk County district attorney—the federal, state, and local authorities Ponzi considered his greatest threats. “Tell them I want to talk to them,” Ponzi said. “Give me the calls as they come in.”

First to answer was Dan Gallagher, the United States district attorney for Massachusetts. A graduate of Boston College, Gallagher was an undistinguished lawyer and local leader of the Knights of Columbus who had been appointed federal prosecutor by Woodrow Wilson. He was forty-seven, married with four children, with an impassive, doughy face and wavy light-brown hair parted in the middle.

After exchanging pleasantries and mentioning the
Post
story, Ponzi got down to business. “It occurs to me,” he said, “that it is rather unfair for them to criticize public officials for their alleged laxity. Personally, I resent the criticism because of its implications. I am going to demand a showdown. I am going to offer you and the other officials an opportunity to investigate my business. Would you be willing to join the attorney general and district attorney at a conference with me, in order that the details of such an investigation may be arranged?”

Gallagher immediately agreed—a target of inquiry inviting himself to a prosecutor's office was about as common as a mouse chasing a cat. Ponzi got the same positive response from Boston's county prosecutor, Suffolk District Attorney Joseph Pelletier, a friend and political ally of Gallagher's. Judging from his past history, Pelletier's most likely motive for agreeing to see Ponzi was to gauge whether he could squeeze money from the financier.

Pelletier was forty-eight, a lumbering ruin of a man, physically and morally. Like Gallagher, Pelletier was a Boston College grad—Pelletier had won the college debate prize a year before Gallagher did. Though his prosecutorial domain was limited to Boston and its surrounding suburbs, Pelletier occupied a small role on the national stage as supreme advocate of the Knights of Columbus. But Pelletier adhered to none of that organization's high-minded ideals. He had grown thoroughly corrupt during his decade as district attorney. The price he charged to quash an indictment varied by the crime, but his real specialty was blackmail and extortion. His favorite fleece was the sexual entrapment con known as the badger game. A wealthy man, usually married, would be lured into a compromising position with a comely young woman in a hotel room, apartment, or taxicab. Just when things were getting interesting, another man would burst in and claim to be a policeman, the woman's husband, her father, or a Justice Department agent, depending on which variation of the scheme had been decided upon. The wealthy pigeon would be informed that he faced public exposure, an alienation-of-affection suit, and criminal charges. He would be advised to hire a politically connected lawyer. That lawyer was none other than Daniel Coakley, who had proved so useful to former mayor James Michael Curley in blackmailing John “Honey Fitz” Fitzgerald in 1913. Coakley, who had served as Pelletier's campaign manager, also was an intermediary between Pelletier and Curley when the district attorney chose not to prosecute then-councilman Curley.