“Okay, okay,” Ponzi replied, with a sigh. “I’m guilty.”
Nobody had said a word two days earlier when Charles had walked into the main office of Canadian Warehousing. And why should they? After all, the company was a customer of Banco Zarossi, and Charles had visited them often.
Entering the director’s empty office, he had opened a desk drawer and written himself a check for $423.58. He thought the precise number was an especially nice touch, making it seem more credible. At the bottom he signed the director’s name. Then he put the check into his suit pocket and walked out the door.
Charles didn’t want to take money from one of his customers, but what choice did he have? The scam at the bank had collapsed in just a couple of months, far sooner than any of them had expected. Customers received quick word from relatives that their money hadn’t arrived—and that was it. Within days, Salviati had disappeared and Zarossi had fled to Mexico City with all the cash he could find.
But Ponzi had decided to remain—at least long enough to spruce himself up before returning to the United States. He walked from store to store, buying two new suits, an overcoat, a pocket watch with a chain, shirts, ties, and suspenders. He looked the part of a successful businessman.
Now those very clothes were being inventoried by Detective McCall, who also found what was left of the forged check Ponzi had cashed—a little over two hundred dollars.
“Carlo Ponzi,” also known as “Charles Ponzi,” aka “Charles Bianchi,” aka “Charles Clement,” was under arrest.
That night, Charles wrote to his mother in Italy from the St.-Vincent-de-Paul Penitentiary:
Dearest Mother, your son has at last stumbled on excellent fortune in this country. I have taken a position as special assistant to the warden in this institution, who can well use my fluency in language in conversing with some of the inmates. It is a three-year contract, darling mother, and during that time I shall not have to worry where my next meal or warm bed is to come from. . . .
When he finished writing he shifted fitfully on his mattress, which was made from a sack of corncobs and husks. For Ponzi, the despair of being locked in a cell was nothing compared to the empty feeling of being dead broke. As he clawed at his makeshift pillow, he resolved never to let it happen again.
Three Years Later
Moers Junction, New York
June 7, 1911
“On your feet, wops!”
The U.S. border inspector walked through the crowded coach train and scrutinized the six men before him. They were obviously Italians. Five of them were big and burly and looked clueless. The sixth, however, was a short guy who appeared confident and composed.
Back in Canada, Charles Ponzi had told the five big Italians to board the train quietly and sit with him. He had ushered them on board as a favor to his old friend, Antonio Salviati, who was still managing to evade the authorities in Canada while undertaking a new scheme: smuggling Italian immigrants into the United States.
When Ponzi handed his ticket to the conductor, the five men were to follow suit. They were not to say a word or cause any trouble.
Intelligence, however, was not their strong suit. The moment an officer began to question them they started jabbering away in Italian. The jig was up moments later when their paperwork didn’t check out.
The officer looked directly at Ponzi. “You’ve brought these men into the United States in violation of the immigrations laws,” he charged.
“I did no such thing,” Ponzi protested. “We were all merely on the same train.”
“None of you have a permit to enter the country,” the officer said. As an Italian citizen, Ponzi needed a visa since he had never bothered to obtain citizenship when he’d first arrived in America eight years earlier.
“We were interviewed by the inspector on the Canadian side of the border. If we were inadmissible for any reason, it was his duty to inform us!”
“We don’t need you to tell us the law, Mr. Ponzi.”
Charles lowered his head and closed his eyes. His run of bad luck had apparently not yet ended. He was on his way to another prison, and this time for one of the most serious of offenses: attempting to smuggle aliens into the United States.
Atlanta Federal Prison
Atlanta, Georgia
January 1912
Charles Morse was a filthy-rich Wall Street mogul—exactly the kind of man Charles Ponzi had always wanted to be. Now Morse was Ponzi’s fellow inmate. The authorities had closed in on Morse over his involvement in a speculation scheme and the alleged misappropriation of bank funds—not unlike Ponzi’s own crimes back in Canada. As Morse described what he’d done, Ponzi hung on his every word.
Morse had been known as the “King of Ice” in New York due to his ice delivery business. He’d also had a successful shipping company, which had made him a player with some of the biggest names around—not just in the city, but in the entire country. Even now, Morse bragged to Ponzi that his lawyers were pushing President William Howard Taft to show him leniency because of the mysterious illness he was suffering from.
Ponzi had noticed that Morse’s curious malady always seemed to be most acute right before he was to be seen by the prison doctor. Then, moments later, he seemed to be fine again. Ponzi knew something was up, but he never said a word. He just watched.
The illness intensified the entreaties of Morse’s wealthy friends for Taft to pardon him on humanitarian grounds. When news spread through the prison that Taft had finally granted the release, Morse quickly started planning a European vacation.
Over their periodic chess games, Morse told Ponzi many times that his sentence was one of the most brutal ever imposed on a citizen of the United States. “There is no one on Wall Street who is not doing daily what I did,” he said.
Ponzi listened to his idol’s words carefully, especially now that the great man was departing. “Always have a goal, Charlie, a goal that keeps getting bigger.
“It’s all a matter of keeping your sights high. There are millionaires outside who make mistakes every day, but their sights are high and when things go wrong the money is there to cover their losses.” Their wealthy friends seem to be there as well, Ponzi thought.
Charles later found out that Morse’s illness had been just another one of his schemes. He had been eating soap shavings to put toxins temporarily in his body. In America, Ponzi was starting to realize, if you had money and power, you could get away with almost anything.
Six Years Later
Boston, Massachusetts
February 4, 1918
Charles Ponzi looked at the wooden pews of St. Anthony’s Church and saw them filled only with Gneccos, his future in-laws. He couldn’t afford to bring his mother or any other relatives to America for his wedding. It was the day’s only disappointment.
Up until this moment, he’d endured a long string of disappointments since his release from prison. He had first kicked around the South for a while, finding temporary jobs in Alabama. Then he’d decided to return to Italy to see his mother and fight for his country during the Great War. He had convinced himself that fighting with honor for his homeland would fulfill the great destiny that had eluded him.
It was not an idle dream—Ponzi had, in fact, even gone so far as to board a steamship in New York Harbor. But as the ship weighed anchor, Ponzi learned via telegraph from the Italian government that he would have to bear the cost of his transit to Italy and back himself. Ponzi believed that to be unacceptable. He was returning home to fight for his country—it seemed to him that paying for his voyage was the least they could do.
Leaving his luggage on the ship, Ponzi walked out to the deck and jumped overboard.
It only took a few minutes to swim the short distance back to the pier. Maybe, he thought, America is still my destiny after all.
And now, as he stood at the altar awaiting his bride, he felt that destiny more strongly than ever.
Thirty-five-year-old Charles had wooed the much younger Rose Gne
cco for months. Even with his meager salary as a clerk at the J. R. Poole Company, Charles had showered the woman with flowers, gifts, and nights out at the theater. He’d finally saved up enough cash to afford a modest ring.
During their courtship, Charles had always been vague about his past. He told Rose he was involved in various “investigations.” He hinted that he’d worked for the Italian government.
“We will build a great empire,” he told her. “We have a great destiny before us.”
Rose smiled politely. “I don’t care about any of those things. I just want to be with you. I want to raise a family.”
Now, with the sun peeking through the church’s stained glass windows, Charles and Rose were married. He truly loved her, and he felt honored beyond words to have found such a beautiful woman. It was another new beginning for him. Another fresh start. And, this time, his life really was going to take a turn for the better. Big things were about to happen. He could feel it.
Boston, Massachusetts
January 4, 1919
“We don’t need to be rich to be happy,” Rose told him. “It’s okay, Charles.”
Ponzi had quit his job and taken over his father-in-law’s grocery business, determined to turn things around. The company had owed $11,000 to creditors when he’d joined. Charles had pled with the creditors’ lawyers to loan him $6,000, and he’d promised to repay the money and the business’s debts within a year. He had a plan. He could do it.
The lawyers didn’t believe him.
As it turned out, they were right to be skeptical—and now, with the bankruptcy papers officially filed that morning, Ponzi was once again without a job. But this time was different. This time he had a wife to support.
Brooding over his most recent financial troubles, he sat at the kitchen table, examining his stamps. He loved collecting them because it allowed him to think without distraction. Rose marveled at his patience and how they seemed to be an endless source of fascination for him. As he sat at the kitchen table, poring over the colorful pieces of paper from around the world, he vowed that this failure would be the last. He’d seen scams and frauds and bankruptcies. He’d seen Boston, Canada, and the inside of two prisons. Now, he pledged, he would finally see the one thing he’d been missing all along: success.
He was going to be his own boss now.
Boston, Massachusetts
Summer 1919
Walking through the front door of the Hanover Trust Company, Charles Ponzi was confident he would receive the funds he needed to make his new company a success.
Seated across a desk from the bank’s president, he outlined his business plan, then cut to the chase: “I’m going to need two thousand dollars,” he said, assuring him that all of it would easily be repaid on time.
The Traders’ Guide that Ponzi had devised was an enterprise of pure genius. He would charge other businesses around the country to advertise in the magazine, which would also promote his own import-export business for free.
Ponzi had outsized ambitions for the publication, planning to release it in multiple editions and languages, including English, French, German, Italian, Portuguese, and Spanish. To get things going, he would mail a hundred thousand free copies to companies he found in business directories. Advertisers, he assured the bank’s president, would line up to buy ads in a publication with such a massive, business-oriented circulation.
Anticipating his success, Ponzi had already rented a large office and hired two stenographers. All he needed now was money for more staff, along with printers, translators, salesmen, and, of course, postage. He had tried to find investors throughout that spring and summer, but had come up with nothing. What can you do? he asked himself. Some people lack imagination. This meeting with the bank was his last resort.
“It is a very interesting idea, Mr. Ponzi. We would be happy to consider the loan, assuming the collateral you desire to pledge against it is sufficient.”
Ponzi was prepared for the question. “Sir, I have an account in good standing with this institution. I believe that should suffice.”
“I’m sorry, Mr. Ponzi,” the banker replied. “I was hoping you had something else in mind. I cannot approve the loan and I cannot even send the proposal forward to the loan committee.”
Charles was stunned. “I don’t understand.”
“While it is our policy to accommodate our depositors whenever we can,” he said, “your account is more of a bother to us than a benefit.” Its balance, the president pointed out, usually hovered around zero.
Ponzi stormed out of the bank. The Traders’ Guide was going to be his ticket to a fortune. Why couldn’t anybody else see its promise?
• • •
Later that summer Charles sorted through the letters on his desk and came across one postmarked from Spain. Unaware that Ponzi was no longer working on the magazine, its writer had seen a notice for the Traders’ Guide and asked for a free copy.
A lesser man might have viewed the letter as a cruel mockery, but Ponzi saw it as a turning point.
He scrutinized the envelope and the strange, yellow piece of paper, the size of a half dollar, that was attached to the upper right corner. It wasn’t a traditional postage stamp. He knew those well. What was it?
A smile spread across his face at the realization of what he’d just discovered. It was the spark of genius he’d always known was within him. Finally, after all of the false starts and all of the years of struggle and bad luck and misunderstandings with the law, the destiny his mother longed for him to fulfill was finally within reach.
Actually, it was more than within reach; it was currently residing in the palm of his hand.
Boston, Massachusetts
December 9, 1919
Even as he struggled to explain his new business venture, Ponzi could see that Joseph Daniels had no interest in the 1906 conference in Rome, or foreign exchange rates, or reply coupons. To Daniels, who was standing on the other side of Ponzi’s desk with a frustrated scowl on his face, the equation was simple: Ponzi owed him money for the furniture he’d rented; Ponzi was unable to pay it; so now Daniels was there to repossess the furniture.
But the Rome conference was important, Ponzi insisted. It was the linchpin of his new idea, called the “Securities Exchange Company,” and the key to his fortune. And so he tried again to explain it.
Back in 1906, nations participating in the Rome conference had agreed to allow International Reply Coupons—just like the one attached to the letter he’d received from Spain—to be placed on envelopes sent abroad in place of postage stamps. Those coupons could be redeemed in any participating nation for a stamp of the equivalent price.
It was pretty straightforward, but there was a loophole in the law: Because foreign exchange rates changed all the time, one could buy a coupon in Italy or Spain or Portugal for an amount that could end up being much less than what it was worth in the United States. And yet the coupon could still be redeemed in America for the full price.
Daniels still looked confused. How could he not see what this meant? Didn’t he understand the potential? Buying a single coupon here or there was of no consequence, but if Ponzi got an army of employees to buy thousands, no tens of thousands, of these coupons abroad and then redeem them here in America at a higher price, the potential profits were enormous! Maybe, he told Daniels, even double or quadruple the original investment.
This was a can’t-miss idea, and it was all perfectly legal. “Joseph, this is just common sense. I can guarantee my investors a fifty percent return on investment within ninety days—that is how confident I am that this will work. We are simply taking advantage of inefficiencies in the system!”
In truth, Ponzi had invented the “fifty percent in ninety days” pitch because it sounded impressive. He had absolutely no idea how much he could really make, but he also knew the actual numbers were irrelevant—he just had to sell the dream. We are all gamblers, Ponzi thought. We all crave easy money.
To Daniels, the i
dea sounded too good to be true, but he was intrigued enough by Ponzi’s enthusiasm to invest $200 and to let him keep the furniture for a little longer.
Boston, Massachusetts
December 21, 1919
Ponzi was about to lose the potential investor. Ettore Giberti, a grocer and fellow Italian immigrant in his thirties, had come to the office to hear more about the new enterprise that Ponzi had been talking up all over the neighborhood.
As Ponzi explained the idea behind the company—the coupons, the Rome treaty, the currency rates, the 50 percent profits—Giberti grew increasingly alarmed. Far from being entranced by the idea of easy money, Giberti was skeptical. “I think I will pass.”
Ponzi could not lose on his very first investor pitch after Daniels. That would be an unwelcome precedent. So he made Giberti an offer: “Why don’t you become the first sales agent for the Securities Exchange Company?” He explained that Giberti wouldn’t have to part with any money and instead would receive a referral fee of 10 percent of any money he brought in.
Free money, the grocer thought. What could be wrong with that? “All right,” Giberti said. “That sounds much better. I am in.”
Now that Giberti was on board, Ponzi offered him a tutorial on salesmanship and psychology. “The most important rule is to never crowd a prospect,” Ponzi advised. “Any attempt to force something on an investor would create suspicion rather than confidence.”
He also convinced Giberti to put up a nominal amount—maybe $5 or $10—just so he could tell the people he was soliciting that he was also an investor.
Two weeks later, Giberti handed Ponzi $1,770 from a total of eighteen different investors.
Now, as he spread the cash out over his desk to count it, Ponzi had to make a decision. He could try to actually buy the coupons and redeem them for cash, as promised. It was very likely to work, but it would take a lot of work and coordination with people overseas. Or, he could improve upon the idea he’d first been a part of at Banco Zarossi: use the cash from later investors to pay off the earlier ones. Everyone got their money, and there would be no hard work necessary.