In the end, there was no decision at all. Where Zarossi had failed, Ponzi knew he would succeed.
Boston, Massachusetts
February 1920
The first forty-five days were up, and now Ponzi was ready to pay his investors their money back, along with the promised 50 percent interest. Sure, he’d told investors ninety days at first, but he knew that paying them the promised interest in half the time would generate far more enthusiasm.
“How can you afford to do this?” some investors asked.
“My man in Europe, Lionello Sarti, returned earlier this month,” Ponzi explained. “He works on a transatlantic liner that makes stops in various ports, so he collects reply coupons by the thousands and brings them back to the States.
“Mr. Sarti tells me coupons are available even in the small post offices across Europe!” Ponzi continued. “Our returns have been enormous already!”
Word of Ponzi’s success began to spread. A young married couple had learned of the company from a friend who was an early investor. Now they wanted to talk to the man himself.
As Ponzi met with them, he noticed that the wife seemed especially skeptical of the strategy. He saw the dubious look in her eyes as she listened to him answer her husband’s questions. She wasn’t sold. So Ponzi went to work on her directly.
He showed her sample International Reply Coupons, told her all about Mr. Sarti and his missions to Europe. The investments were safe, he assured them. “Should you take ill or want your investment returned, you need only say the word. It is your money.”
By the time he was finished, the wife took $15 from her purse and handed it to Ponzi. Her husband proceeded to turn over $400 more—the remainder of their bank account—and agreed to work for Ponzi as a sales agent.
When returns were due, Ponzi often told customers that he would gladly pay off their investments, but that if they wanted to reinvest their money—well, then the returns would be even greater.
Most agreed to do just that. And, soon, almost everyone was telling their friends about the financial wizard who had invented a plan that would make them all a fortune.
Even his wife’s uncle, John Dondero, invested in the reply coupons, handing Ponzi a check that amounted to his life savings, $2,000. It was the biggest sum Ponzi had ever received from a single investor.
“An excellent investment,” Ponzi replied. “I’m honored by your trust. I will be sending Mr. Sarti on another trip to Europe imminently.”
Dondero did not worry that he had never met Mr. Sarti—though he might have if he’d known that no one else had ever met Sarti, either.
Boston, Massachusetts
March 1920
Charles Ponzi walked into the police station looking like the embodiment of wealth and success. One hundred and ten investors had come into his office over the past month alone, investing a total of around $25,000. It was more money than Ponzi had ever seen at one time—more than he would make in a decade doing the kind of “honest work” his uncle had envisioned for him.
A man always wants more, Charles thought. More money. More possessions. More power. The more he buys, the more he wants to buy. It’s human nature.
He had begun to pay off his debts, including the $200 he owed to furniture dealer Joseph Daniels. He’d even bought more furniture from Daniels to show his appreciation for his previous trust.
Now, basking in his success, Ponzi had come to the police station to buy an insurance policy. Getting the attention of a police captain, he inquired, “Does anyone collect funds here for the widows and orphans of policemen?”
“We have the Boston Police Relief Association,” the captain answered.
“Wonderful,” Ponzi replied. He placed $250 in crisp bills on the counter. “I can think of no more worthy cause. Please make sure they receive my donation.”
Boston, Massachusetts
April 19, 1920
Ten thousand dollars were flowing into the offices of Charles Ponzi each week.
Word of the Ponzi profit machine was now the talk of ordinary folks throughout the city. He couldn’t go to a fruit vendor without hearing their excitement about investing in International Reply Coupons and the sky-high profits that would follow.
Of course, there were still questions. People weren’t always fools. Some asked how he was buying all these reply coupons in Europe. Ponzi told them what he could, but explained that he could not divulge any corporate secrets. He could, however, tell them that he had built an elaborate network of agents throughout the Continent, people buying up coupons by tens of thousands, for redemption back in the States.
“How are you trading in the coupons for money?” others asked. It was a good question—too good, in fact. Ponzi told them that such information was a trade secret for competitive reasons. If he explained his methods of redemption then anyone could do it and he would no longer have a business. Besides, all of his initial investors were receiving the interest they had been promised and many were reinvesting with him. Who could argue with success?
Charles was charming everyone into investing—butchers, bricklayers, priests, local police officers, even their wives. It was almost too easy. People wanted to see for themselves how, as Ponzi told Rose one night, “a little dollar could start on a journey across the ocean and return home in six weeks, married and with a couple of kids.”
Everything was going incredibly well, but Ponzi could not shake the feeling that he hadn’t thought of everything yet. With each new investment, his stomach twisted further in knots. He was sure he was getting an ulcer. What if his investors all wanted to cash out at once? What if someone figured out that there was no Lionello Sarti or that there were no coupons being redeemed? What if the authorities shut him down?
Ponzi’s growing angst turned out to be prescient. This became clear later that day when he received a letter from the U.S. Post Office, the contents of which he disclosed to no one.
Boston, Massachusetts
May 24, 1920
Charles Ponzi was the millionaire he’d always wanted to be. He and Rose had chosen a massive mansion in Lexington, Massachusetts, complete with a grand portico, a carriage house, air-conditioning, and a heated swimming pool. He had the finest clothes and he showered his wife with gifts, flowers, and jewels. He bought a new car—a cream-colored Hudson coupe—and he planned to hire a butler and a cook. He sent his mother money to come to America—first-class, of course.
But none of those trappings of wealth underscored his success as much as what he was doing today.
Walking into the Hanover Trust bank—the same bank that had refused to lend him money and had derided his account as a nuisance—Ponzi now deposited a small fortune of $60,000. Pretty soon, he thought, he’d buy up shares of the bank to gain a controlling interest. Maybe he’d even be named the bank’s president. Revenge was sweet.
But this was about more than just revenge; it was about his destiny. Ponzi saw himself in the same vein as Italy’s greatest hero, Christopher Columbus. The explorer had thought he was on his way to Asia and had discovered America instead. Nobody cared that he’d had no idea America existed when he started his journey, or that he had come across it by accident. He was famous anyway. Yes, Ponzi thought, he and Columbus were similar in many ways.
Ponzi’s anxiety over his growing fraud lessened as he walked into the lobby of Hanover Trust. Using his profits to buy shares in other companies meant that he could use those company’s success to help pay off his investors. It was perfect. He wasn’t finished yet. Far from it.
Boston, Massachusetts
June 17, 1920
Ponzi jumped up and down like a child as he spotted the small, frail woman dressed in black who was exiting the ocean liner with the other first-class passengers. It was the first time he’d seen his mother in seventeen years.
Dressed in a dark blue suit with a carnation in his lapel, he approached his mom and wrapped her in a warm embrace. Imelde scrutinized her son carefully. She didn’t seem surpri
sed by his success—this was, after all, what she’d always expected from him.
As he took his mother to meet his wife, Charles laughed. “My hat!” he exclaimed to Rose. “She’s worried about the price of my hat!”
He couldn’t wait to show her his mansion.
Boston, Massachusetts
July 3, 1920
“Mr. Ponzi, I’m a reporter from the Boston Post.” The voice on the other end of the telephone line was deep and serious. “I understand a chap named Joseph Daniels is suing you for one million dollars.” The sum was all but unheard-of and had caught everyone’s attention.
Ponzi had received the news only days earlier. Daniels, the furniture dealer, had decided that his loan of $200 had kept Ponzi’s company afloat. Now he wanted a piece of the massive profits that had followed.
The lawsuit infuriated Ponzi. The company had been his idea alone! Daniels had wanted no part of it. He’d be damned if that furniture salesman would get a single cent.
“This is merely a nuisance suit,” Ponzi told the reporter. “I think Mr. Daniels thinks he can get rich by suing people, rather than by working hard and investing.”
Ponzi was eager to get the reporter off the phone, and off his trail. But then an idea struck him. One of his best—and that was really saying something.
“Tell me, can you come down to our offices?” Ponzi asked. “I’d like to show you what we’re doing here.”
Lexington, Massachusetts
July 24, 1920
It promised to be another glorious summer day. While Ponzi enjoyed breakfast with his wife and mother in the mansion’s dining room, the maid brought in the Boston Post.
The front-page headline caused Ponzi to spit out his juice.
DOUBLES THE MONEY WITHIN THREE MONTHS
50 PERCENT INTEREST PAID IN 45 DAYS BY PONZI—HAS THOUSANDS OF INVESTORS.
As he eagerly turned the pages, absorbing every word of the article, he smiled with delight. He had been wooing the newspaper’s reporters for weeks, and, of course, he had received an important assist from his public relations advisor, William McMasters—but still, he had never expected something this big. The story read:
The proposition has been in operation for nine or ten months, roiling 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.
The article pegged Ponzi’s net worth at $8.5 million and reported how his investors—“rich, poor, prominent, and unknown”—had seen their money “doubled, trebled, quadrupled.”
Ponzi concluded that the story couldn’t have been better if he had written it himself. He watched with pride as his mother glanced at the headline, the story, the pictures. He had finally proven himself to her. And to the world.
• • •
The next morning Ponzi arrived at his office to find an enormous crowd of people waiting for him. They had been lining up since 6 A.M., eager to invest their savings in Ponzi’s can’t-miss strategy.
The Post’s story had been picked up by newspapers across the country. Charles Ponzi was now more than just rich—he was famous.
“There’s Ponzi!” someone shouted as the “wizard” arrived in a blue limousine. The sighting led to cheers as dozens of people rushed forward to see the genius in the flesh.
“Ponzi! Ponzi! Ponzi!”
As Ponzi walked through the crowd with his gold-tipped cane, he presented himself as the people’s financial hero and savior.
“I want to see the man who can make a million in six months!” someone shouted, their voice rising over the din.
“That’s me!” Ponzi replied, to laughter. “I’m the man! I’m doing it!”
As he entered his office, he received a phone call from Rose. She told him that reporters and others were standing in front of their house, all hoping to catch a glimpse of him. Someone from the Fox movie company had called to tell her they were going to send a camera over to put Ponzi in the newsreels!
Ponzi took a deep breath and smiled. Everything he’d worked for was now his. That day alone, his offices collected more than $3 million in new investments. It all came from people who were tripping over themselves to give their money to a man they knew solely through a newspaper article.
Boston, Massachusetts
July 26, 1920
What the newspaper gods have given, they now were quickly taking away.
Ponzi was riding in the backseat of his car when the Boston Post’s morning edition gave him another surprise. This one was far less pleasant. Top financiers, the paper noted, were now questioning what they called the “Ponzi scheme.”
The article included a devastating quote from Clarence W. Barron, one of the country’s most acclaimed financial experts. “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 at interest of 200 percent annually.”
Barron had checked with the U.S. Post Office and learned that an average of just $8 worth of International Reply Coupons had been redeemed per day over the last several months. If Ponzi was making his money by redeeming these coupons on a wide scale, Barron was wondering why the Post Office had no record of it.
Ponzi was infuriated by the accusations and considered filing a lawsuit against Barron for libel. But first he had to attend an important meeting, one that might well spell the end of everything anyway.
To settle all doubts about the company’s legitimacy, McMasters had suggested that Ponzi sit down with the state district attorney and federal investigators and offer to put himself through an audit.
McMasters knew there was something funny about Ponzi’s numbers and suspected the Ponzi would never agree to official scrutiny. But, to McMaster’s surprise, a suddenly jovial Ponzi was all too happy to oblige.
Now, sitting across the table from the DA and other officials, Ponzi came right to the point. He said he welcomed an examination of his operation. He had broken no laws.
Pressed for how his company could possibly be providing such returns to investors, Ponzi shook his head. “That I cannot tell you,” he replied. “I cannot give away my secrets to my competitors.”
As his client spoke, smoothly and confidently, calmly answering question after question, McMasters became even more skeptical. Several times Ponzi had seemed to contradict himself. McMasters wondered if he was the only one who had noticed.
“Mr. Ponzi, if you can do these things that you claim, you will be the greatest Italian who ever came to America,” one of the officials told him.
Ponzi smiled. “Don’t forget Columbus!”
Everyone laughed.
“The real question facing you,” Ponzi observed, “is whether or not I have the money to meet my outstanding notes. Isn’t that right?”
The district attorney conceded that was so.
“Well, then, may I make one request?” he asked.
“What is it?”
“Instead of having multiple auditors from multiple state and federal agencies auditing my company’s books, could the various officials settle on just one?”
• • •
The next day Ponzi closed his offices as the public audit got under way. But that didn’t stop people from lining up outside. McMasters watched as a few of the investors asked for their money back—and Ponzi happily obliged. But most of them, McMasters observed, seemed inclined to wait out the audit. They still believed in the wizard who could make them a fortune.
“I’ve given back more than two million,” Ponzi told McMasters. “But people still trust me! There are thousands out there who know I keep my promises, who are hanging on to millions of dollars of notes!”
McMasters was not among them. At Ponzi’s office, he had begun to examine receipts and accounting slips. Then he went house to house and shop to shop, interviewing various inves
tors. They showed him ticket stubs that indicated how much Ponzi owed them. And then he started to add up the sums.
As he met with hopeful citizens who had given everything they had to this man, a disturbing realization haunted McMasters: Charles Ponzi was hopelessly insolvent.
Boston, Massachusetts
August 2, 1920
The lines outside Ponzi’s office circled the block. McMasters had witnessed this scene before, although under vastly different circumstances. Instead of joyful crowds eager to hand over their hard-earned money, people now looked terrified and angry. Some were in tears. A few had even fainted.
All of them seemed to have read the Post’s front-page article that morning, a story written by William McMasters himself, who was now a former employee of Charles Ponzi. Although he’d been paid $5,000 to write the piece, he had done it primarily to clear his conscience and tell the people of Boston the God’s honest truth.
The headline said it all:
DECLARES PONZI IS NOW HOPELESSLY INSOLVENT
PUBLICITY EXPERT EMPLOYED BY “WIZARD” SAYS HE HAS NOT SUFFICIENT FUNDS TO MEET HIS NOTES
Ponzi responded to the story immediately. Showing up at his office, he denied the allegations and offered to pay off the investors who were circling the block. He also said he would sue the Post for $5 million.
“The issue now at stake is an issue between a man who wants to do all he can for the people and men who want to take as much money as they can from the people without giving adequate return!” Ponzi declared.
His former client’s manufactured fury did not faze McMasters. He’d been around Ponzi long enough to know it was all a bluff—the last, desperate act of a failing showman.
Boston, Massachusetts
August 3, 1920
Ponzi greeted the reporters who were now watching his every step with his customary grin. “Well, they didn’t break me yesterday,” he said. “And they won’t break me today.” He told them that he was going to sue McMasters for $2,000.
“How are your newspapers selling?” Ponzi yelled out. “I ought to have a commission!”