Richard Grozier, after taking over for his father as the Post’s acting editor and publisher.
Mary Grozier
CHAPTER ELEVEN
“LIKE STEALING CANDY FROM A BABY”
Day after day throughout June, furniture dealer Joseph Daniels had watched streams of people troop down Hanover Street, walk past his store, and climb the stairs next door to the North End branch of the Securities Exchange Company. Several months had passed since Daniels had last spoken with Ponzi, who had repaid Daniels’s two-hundred-dollar loan in full and who had no interest in seeing him again. At their last encounter, Ponzi had told Daniels that his plan to wring profits from postal coupons had been a dud, which was technically true. But Daniels did not trust Ponzi. If the Securities Exchange Company was a bust, why would Ponzi open a second Boston office, and why would happy investors be lining up to trade cash for Ponzi notes?
A plan formed in Daniels’s mind. He reasoned that the small loan he had given Ponzi the previous December must have been the seed money for a successful enterprise. Surely he was entitled to more than simple repayment of principal and interest. So, at the end of June, he dropped by 27 School Street to see Ponzi, ostensibly to offer to sell him more furniture. But Ponzi saw through Daniels’s ruse and delivered a curt message: I am still not making any money. Even if I were, you would not be entitled to any.
An honest man would have let it drop there. Daniels hired a lawyer, Isaac Harris.
On July 2, Harris filed a million-dollar lawsuit claiming that Daniels was entitled to half ownership of the Securities Exchange Company. The claim had no merit, so it did not worry Ponzi. But Daniels’s lawyer also filed an attachment against five of Ponzi’s bank accounts, effectively freezing about $700,000 in cash, a legal maneuver designed to squeeze a settlement out of Ponzi.
A million-dollar lawsuit was no everyday occurrence, so it caused enough of a stir in the halls of the Suffolk County Courthouse to reach the ears of a Boston Post reporter. On page 1 of the paper on Sunday, July 4, the headline over the brief, unbylined story read: BOSTON MAN IS SUED FOR $1,000,000.
The reporter could not locate Daniels, who was in Vermont for the Fourth of July weekend, but he found a confident, talkative Ponzi on School Street. First the reporter wrote a vague explanation of the business: “The company, which was started in December 1919, claims to be able to pay 50 percent profits out of dealings in foreign exchange through international postal agreements.” Then he turned the story over to Ponzi, whose name was appearing for the first time in a Boston newspaper.
“I haven’t the slightest idea why Mr. Daniels brought the suit. So far as I know, he has no claim against me,” Ponzi told the reporter. “The only reason I can see for the suit is a desire to get some money out of me. If Mr. Daniels has a just claim he will have no difficulty in getting it satisfied because I have got two million dollars over and above all claims of investors against me in this country. This does not include funds in foreign lands.”
He rebuffed a suggestion that the lawsuit might hurt his business, turning the question to his advantage. “Anybody who withdraws funds to his credit only increases my profits. At the beginning, when I was trying to establish foreign connections and working out my idea, I needed capital and was forced to depend upon the public for assistance. Happily, my own private fortune is now sufficient to meet all demands upon the business for ready money.”
Privately, though, Ponzi knew he needed to take the lawsuit seriously. For one thing, it was sure to trigger additional scrutiny from postal officials and, quite possibly, law-enforcement authorities. Ponzi needed a good lawyer, and he looked no further than the investor list of the Securities Exchange Company. Frank Leveroni had arrived in Boston from Genoa at age four and had graduated from Harvard and Boston University Law School. A handsome man, forty years old, with an aquiline nose and a high forehead, Leveroni ran his own law firm and served as the first Italian-born judge in Massachusetts, sitting part-time on the bench in juvenile court. What really impressed Ponzi was that Leveroni had invested five thousand dollars during two weeks in June. With a wife and five young daughters to support, Leveroni believed he had found a sure thing.
Although confident he could beat Daniels in court if the suit came to trial, Ponzi instructed Leveroni to open settlement talks with the furniture dealer. Ponzi could not afford to let it distract him from the business at hand, nor could he allow his bank accounts to remain frozen indefinitely. He might need that money to carry out one of his planned switches to a legitimate business. Paying Daniels to go away might be worth it. At first they were miles apart; Daniels was holding out for a bigger payday than Ponzi could stomach. But they kept talking.
In the meantime, Ponzi took the precaution of opening bank accounts in other people’s names, to keep them out of reach of Daniels or anyone else. Sometimes the names were fictitious, such as his Lucy Martelli account at Hanover Trust, a name created by combining Lucy Meli’s first name with her mother’s maiden surname. As a further precaution before Daniels’s attachment took effect, Ponzi emptied his account at the Cosmopolitan Trust Company, taking home $283,710.62. He could rebuild the account later; at the moment, he wanted piles of cash on hand.
Ponzi knew the Post story would prompt some depositors to demand refunds out of fear that the lawsuit would destroy the Securities Exchange Company and swallow their investments with it. Indeed, the story ignited a two-day “run,” as several thousand nervous investors asked for their original deposits back, forfeiting the 50 percent interest. Ponzi gladly obliged; the result was addition by subtraction. Each refund demonstrated that he was a man of his word, prompting even more investors in the days that followed. By mid-July, Ponzi was taking in more than a million dollars in new investments a week. Each day was better than the one before.
The story about Daniels’s suit piqued the interest of Richard Grozier. He was especially troubled when he learned that Ponzi’s investors included scores of Post employees, most notably the low-wage workers in the pressroom. On one of his regular tours through the building, Grozier stopped at the desk of his city editor, Edward J. Dunn, whose soft features and sun-deprived skin masked the steel spine of a no-nonsense newsman. A Boston native, Dunn had joined the Post eighteen years earlier, in 1902, and had served as a City Hall and State House reporter, a war correspondent, and a political editor before being named city editor in 1917.
Just as Richard Grozier had abruptly taken over for his stricken father, the forty-year-old Dunn was newly in control of the day-to-day news operations, having stepped in during the summertime absence of managing editor Clifton Carberry. Grozier told Dunn he was intrigued by the story of the lawsuit against this Ponzi fellow. How could anyone promise 50 percent profits in forty-five days? If Grozier was correct in his doubts, Post readers and employees were headed for a painful fall. He instructed Dunn to deploy a couple of reporters to look more closely at Ponzi.
Grozier and Dunn both knew they needed to be careful. Four months earlier, when Edwin Grozier had bet the paper against Curley, he had done so with confidence, knowing that no proof existed showing he had sold out the cause of Irish independence. Now, with Edwin Grozier still hospitalized and unable to speak, his son, the untested young acting publisher, was taking a far greater risk. Richard Grozier had just told his city editor to investigate a private businessman, one with seemingly limitless resources and a thriving company to protect. If the paper damaged his reputation with unsupported charges, Ponzi might replace the Grozier family as owner of the Boston Post.
Recognizing the danger, Grozier had one more message for Dunn: Don’t worry about the consequences. I’ll take full responsibility if anything goes wrong.
Daniels’s lawsuit made Ponzi realize he could wait no longer to transform the Securities Exchange Company into a legitimately profitable business. He was supremely confident he could do just that, having spent untold hours hatching moneymaking ideas. Now he had the distinct advantage of wheelbarrowloads of cash lined up behind him, and one thing Ponzi believed above all else was that money made money.
One approach might have been to sell the Securities Exchange Company to one of the many suitors who had begun showing up at 27 School Street. Once the deal was done, he could disappear to Italy with the money. But that was never Ponzi’s style. Much more creative ideas were percolating, all of them seemingly grounded in reality yet each more fantastic than the next.
Over their initial dinner at the Copley Plaza, Ponzi’s new financial manager, Roberto de Masellis, had suggested that Ponzi consider going into the banking business. Ponzi had taken a step in that direction with his investment in the Hanover Trust Company, but now he hoped to go further. He imagined turning Hanover Trust from a sleepy, midsized bank into a financial powerhouse, which in turn would make his nearly 40 percent ownership of the bank soar in value. The first step, he thought, would be to sap the deposits of other banks and draw them to Hanover Trust. Once the bank had more deposits, it could make more and larger loans, which would burnish its balance sheet and ratchet up the stock price.
First, Ponzi planned a contest with a monthly prize of one thousand dollars to the person who brought the most new business to the bank. To determine a winner, Ponzi would print up thousands of what he called “introduction cards,” each one with spaces for the signatures of a contestant and a new depositor. A card would be turned in whenever a new account was opened, and the contestant with the most cards at the end of each month would win the prize. To get the ball rolling, Ponzi hung a sign outlining the contest on a wall at the Securities Exchange Company office. At about the same time, he quietly paid his debt to Fidelity Trust, settling the lawsuit the bank had filed against him in March and for the moment putting himself on good terms with Boston’s banking community.
A second piece of his plan involved increasing Hanover’s attractiveness to depositors and shareholders by creating a power- and profit-sharing program. It was a radical notion, one that Ponzi knew would be branded a Socialist plot by Brahmin bankers and their supporters.
The third element of Ponzi’s plan was to monitor which banks lost the most depositors and, as a result, suffered the steepest decline in stock price. Ponzi would then buy large blocks of those banks’ stock at a rock-bottom price, replenish the banks’ vaults with deposits of his own, and reap the benefits when the stock price rose again.
As usual, Ponzi ignored or understated the obstacles. “There was absolutely nothing to it. It was a cinch,” he believed with his trademark optimism. In his mind, his quick-and-easy realignment of Boston’s entire banking structure represented “an opportunity to switch, gradually, from the coupons venture into a more conservative line of business. . . . To get out from under all together, and retire a multimillionaire, in a non-distant future.”
An even more elaborate scheme sprang to Ponzi’s mind when he saw an announcement that the United States government was seeking bidders for several thousand mothballed freight and passenger ships that had been built during the Great War and declared surplus afterward. By Ponzi’s calculations, the ships were worth $2 billion but could be had for the bargain price of $200 million. Ponzi figured he could raise the money within a month simply by expanding the Securities Exchange Company from the Northeast to the entire nation.
The bigger challenge, he thought, was figuring out how to make a profit from a fleet of three thousand ships. He lay awake for several nights before latching onto an ingenious, if impossibly impractical idea. Ponzi figured the ships would actually cost him $320 million—the $200 million price tag, plus $100 million for the 50 percent interest on the money he was “borrowing” from investors, plus $20 million in commissions to the agents who collected the initial $200 million.
To repay that sum, he would form two companies, the Charles Ponzi Steamship Company, which would own the fleet, and the International Shipping & Mercantile Company, which would lease and operate the ships. He envisioned a complicated series of stock sales, bond offerings, equity swaps, and lease deals that would take a team of accountants years to untangle. The immediate result would be the paying off of all debts of the Securities Exchange Company, at which point Ponzi would abandon the postal coupon business forever. He would then spend a decade as an unimaginably rich shipping magnate with a decidedly patriotic bent. The passenger ships, he declared, would double as “floating sample rooms for American products.” They would travel from port to port, their holds brimming with huge cargoes of made-in-America goods. Each time the ships dropped anchor, teams of salesmen would burst forth onto foreign soil and drag local merchants aboard. The salesmen would expertly display their wares and offer immediate delivery of goods from the below-decks warehouse.
As unlikely as it might have seemed, Ponzi was certain he could pull it off, as long as he had enough time.
Rerouting 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.
After 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.
Ponzi thought Swig looked down on him because he was Italian, just as the Brahmins snubbed Swig because he was Jewish. “He was of the opinion that a Jew was better than a wop,” Ponzi said. “I could not agree with him. In my own mind, nothing could be better than a wop. Except two wops.” Some class-conscious Bostonians made no such distinctions, lumping Italians and Jews together as untouchables. “Whenever I gave the name of the Tremont Trust Company as a reference to some supercilious investor,” Ponzi said, “I could read a message on his countenance: ‘Birds of a feather.’ And I would wince.”
Swig winced, too, when state bank examiners inquired about his relationship with Ponzi, who, by mid-July, had more than $400,000 on deposit at Tremont Trust. Always dubious about Ponzi’s claims, and increasingly uncomfortable with the added scrutiny from regulators, Swig wrote Ponzi a caustic letter on July 21. “If what we have heard about your plan of business is true, then certainly we do not care to accept your deposits, no matter how large they may be,” Swig wrote. “And even if reports are untrue, we do not care to accept your future deposits because you have taken unfair advantage in using our name as you have. We therefore advise you that henceforth your deposits will not be accepted, and you will favor us by closing your account.” Ponzi did as Swig asked, but he refused to take a Tremont bank check. He demanded the money in cash, just to give Swig a taste of his own medicine. Though Ponzi’s account was closed, another $185,000 of his money remained at Tremont Trust, stuck there by the attachment filed by Daniels with his lawsuit.
With Ponzi the owner of so much stock in Hanover Trust, that bank’s officers could not follow Swig’s example even if they had wanted to. But Hanover president Henry Chmielinski and treasurer William McNary, a former congressman who served as chairman of the bank’s board of directors, felt it essential to take precautions. Only a month earlier, Ponzi had threatened to withdraw his deposits immediately, a potentially catastrophic event, and now the risk was far greater. Lately, Ponzi’s account at Hanover Trust had been rapidly rising, falling, and rising again. It fell when investors in the Securities Exchange Company redeemed their Ponzi notes at 27 School Street, then walked to the bank with checks written against Ponzi’s Hanover Trust account. It rose again when Ponzi deposited piles of cash from his latest depositors. The cycle took place almost daily. But Hanover Trust officials recognized that if Ponzi’s income were interrupted, the danger existed that withdrawals would greatly exceed deposits, and Ponzi’s account would be hugely overdrawn. Unless his account were quickly replenished, Hanover Trust would likely collapse, putting the bank’s officers and depositors at risk of ruin.
On July 22, with bank examiners breathing down their necks, Chmielinski and McNary insisted that Ponzi provide Hanover with enough security to hold the regulators at bay and guard the bank against the roller-coaster shifts in his account. Ponzi agreed to put $1.5 million in a thirty-day certificate of deposit, enough to withstand any anticipated run of withdrawals on his account. Although it satisfied the bankers, Ponzi realized it put him in a tight spot, tying up a large amount of cash for a minimum of thirty days at the same time the lawsuit by Daniels had frozen some of his other bank accounts. It was more impetus for him to hasten his plan to get out of the faux-coupon business and into something more tangible and sustainable.
Ponzi took the first step on July 23 by hiring publicity man William McMasters, a former Boston Post reporter who had come recommended by Ponzi’s lawyer, Frank Leveroni. McMasters had earned his stripes by handling publicity for the mayoral campaigns of John “Honey Fitz” Fitzgerald and James Michael Curley, as well as the 1918 governor’s race for Calvin Coolidge. McMasters’s first job for Ponzi was to promote the financier’s dream of becoming a banking magnate, the next J. P. Morgan. At a starting salary of a hundred dollars a week—fifty less than he had asked for—McMasters’s first move was to place advertisements promoting Ponzi’s contest to increase business at Hanover Trust and his idea to launch a string of banks that would share profits with depositors.
But Ponzi, and by extension McMasters, was quickly swept up in more urgent business. That same day, a Boston Post reporter dropped by to follow up on the story about Daniels’s lawsuit. He spent the day at 27 School Street, and then Ponzi invited him home to Lexington. The remarkable result appeared in the paper the next day, July 24, 1920:
DOUBLES THE MONEY WITHIN THREE MONTHS
50 Per Cent Interest Paid in 45 Days by Ponzi—Has Thousands of Investors
Deals in International Coupons Taking Advantage of Low Rates of Exchange
A proposition fathered by Charles Ponzi, as head of the Securities Exchange Company at 27 School Street, where one may get 50 per cent in 45 days, 100 percent in 90 days, on any amount invested, is causing interest throughout Boston.
Yesterday his offices were crowded with people trying to loan him money on his personal note.
The proposition has been in operation for nine or ten months, rolling up great wealth for the man behind it and rolling up much money for the thousands of men and women who are tumbling over themselves to entrust him with their money on no other security than his personal note, and the authorities have not been able to discover a single illegal thing about it.
Ponzi, starting last October or November with hardly a “shoestring,” so to speak, is today rated as worth $8,500,000—purchaser of business blocks, trust companies, estates, and motor cars.
His investors—and they run the gamut of society, rich men and women, poor men and women, unknown and prominent—have seen their money doubled, trebled, quadrupled.
The story went on merrily from there, liberally and generously quoting Ponzi recounting the Horatio Alger version of his life, describing the vague outlines and enormous success of his business, marveling at his Lexington home, and detailing the acquiescence to date of federal, state, and local prosecutors. Unaware of the bank commissioner’s interest, the Post made no mention of Joseph C. Allen.
Everything in Ponzi’s life changed the moment the first newsboy tucked a stack of fresh-printed papers under his arm, stepped onto Washington Street, and yelled with his Boston accent, “Post heah!”