A recent immigrant to America makes his fortune.
Such is their faith in this little Italian. Polacks, Jews, Swedes, the Irish, every one invests, but the Italians themselves are their leader’s most valiant defenders.
Mr. Ponzi. and His “Ponzied Finance”
“ONLY a few months ago he was a dishwasher. A man untaught in finance shows Wall Street and the greatest financiers in the world that they are pikers. Whether Ponzi’s bubble bursts or not, the American people will have to take off their hats to a man as clever as he is.” So the Rochester Times-Union sums up a good deal of the nation-wide editorial comment inspired by the meteoric rise of Charles A. Ponzi, Boston’s “Wizard of Finance,” who has stirred America and the world at large with the greatest “get-rich-quick” scheme in the memory of the oldest inhabitant. Mr. Ponzi, who landed in this country from Italy with a matter of $2.50 in his pocket and no later than last December was holding down a clerking job at $16 a week. is now reputed to be worth $12,000,000, and was paying fifty per cent. interest on money in vested in his scheme for three months, almost up to the day when he was arrested charged with using the mails to defraud. “Ponzi’s scheme is simplicity itself,” remarks The Knickerbocker Press, with the slightly ironical amusement which many editors are getting out of the young Italian plunger’s mystification of the financial experts. “He has exposed it all, voluntarily, to the much-exercised State and national officials—with the exception of the trifling detail of how he works it.” The Utica Press sums up Ponzi’s explanation of his method in the following explanatory editorial:
He invested in what are known as international reply coupons. For example, a six-cent coupon could be bought in Madrid for one cent of our money, and when brought here must sell for five cents, which leaves a penny to the Spanish Government for profit. The normal par value of an Austrian krone is twenty cents, but the market price in Vienna is seventy cents a hundred kronen. Accordingly when Ponzi sent $1,000 to Vienna he buys with it a draft for 140,000 kronen. These he turned into international reply coupons at the normal rate of four for each kronen. Getting 560,000 coupons he exchanges them in Switzerland for 140,000 Swiss francs, with which he buys a draft on New York at the rate of 5½ francs for a dollar. This yields him $25,000 on an investment of $1,000. He simply went into the business on a big scale, and claims that he made three and one-half million dollars in one week. He began in a small way, but it worked so well he enlarged his activities and declares that he can make $40,000,000 more before Thanksgiving if unmolested.
On the other hand, financial experts and government officials agree that, “in spite of his apparent frankness,” Mr. Ponzi hasn’t really revealed the secret of his wealth. Boston’s daily financial newspaper, The Boston News Bureau, of which the financial expert, C. W. Barron, is publisher, pooh-poohed Ponzi’s whole scheme under such derogatory head-lines as “Why Not Stop the Farce?” Mr. Ponzi at once sued Mr. Barron for $5,000,000 for libel, and mentioned to the newspaper reporters that he had “forgotten more about international finance than Barron ever knew.” Even Boston, accustomed in not long-bygone days to wonder at the doings of Thomas W. Lawson, of “Frenzied Finance” fame, was diverted and dazzled. Mr. Lawson never made $12,000,000 in a few months, nor guaranteed to double any money left with him for 180 days. A special correspondent for the New York Evening World went up to Boston, when the Wizard’s operations were at their height, and sent back the following colorful report:
All Boston is get-rich-quick mad over Charles Ponzi, the creator of fortunes, a modern King Midas, who doubles your money in ninety days. At every corner, on the street-cars. behind the department-store counters, from luxurious parlor to humble kitchen, to the very outskirts of New England, Ponzi is making more hope, more anxiety, than any conquering general of old. Mary Pickford, Sir Thomas Lipton, and smuggling booze over the Canadian border aren’t in it any more.
For Ponzi makes everybody rich quick. Loan him your money, from fifty dollars to fifty thousand dollars, and in 180 days he gives you back twice as much as you gave him. He’s been doing it for eight months and he’s still at it.
With no other security than his personal note, Boston is pouring all its savings into Ponzi’s hands. Like a tidal wave, the passion for investment with the new Italian banker has swept over Boston folk until it took half of Boston’s police force to subdue the enthusiasm of a throng of prospective investors that overflow from the banking office, through the corridors, down the stairs, and into the street, blocking traffic. So tremendous has been the withdrawal of funds from savingsbanks that it is rumored there is consternation in high financial circles.
Trading in international coupons, taking advantage of the various rates of exchange with foreign countries in peculiar combination, Ponzi says, enables him to coin fortunes for himself and every one who invests with him. Federal, State, and local investigation has failed to unearth anything illegitimate about the business. Police officials and district attorneys are said to be heavy investors: “the biggest skeptics are now my biggest believers,” says Ponzi. Estimates are made that more than half a million persons have invested, every note has been paid at maturity with fifty per cent. interest in ninety days, one hundred per cent, in one hundred and eighty days. Notes are redeemed at face value at any time.
In a dingy little office, on one of Boston’s narrowest streets, close by the old Revolutionary burying-grounds, Ponzi, meteoric banker, doles out his notes and takes in the money. In narrow corridors, up the stairways, at the doorways, with the air hot and dense from the crowds who have gathered day by day, handsome women with jewels in their ears and the money-mad fever in their eyes, touch unkempt women with babies in their arms and children tagging at their skirts.
There’s a terrible tenseness in the air and excitement runs high, the hands of big men are trembling and some women stutter as they talk. Lifetime savings are given away as if under the touch of an unseen hypnotist. Gaunt old maids give their money away as if it were pest-ridden, boys in knickerbockers gladly turn over all their wealth. Widows in long black veils, stenographers, fruit-peddlers in their overalls, all kinds, young and old, rich and poor, some looking affluent, some downtrodden, jostle and push and sometimes fight to get a place nearer the magic entrance.
And all on the personal note of Charles Ponzi.
A RUN ON THE PONZI INSTITUTION.
Who is he? How does he do it? Is he crooked? Is he straight? These are the sole subjects of conversation in this city.
Eight months ago he was even minus a bank account, a sixteen-dollar a week clerk—now he is Charles Ponzi, the great banker, the multimillionaire, owner of much real estate, including a palatial residence in historic Lexington, principal holder of stock in one of Boston’s largest banks, with tremendous banking accounts in more than a dozen banks, reputed to have made $8,500,000 in eight months and turning over more and more every day.
Calm, collected, he grants interviews to all newspaper men, to all State and city authorities—and hands out cash to pay his maturing notes. Of insignificant appearance, with the swarthiness and heaviness typical of his Italian countrymen, always with a genial smile, he conducts his one-million-dollar a day business as if it were nothing at all.
“I’m not crazy for money,” says Ponzi. “Not crazy to spend it for anything and nothing. I am rich. I help others to get rich.”
Every morning at nine o’clock Ponzi steps out of his limousine at his office door, immaculate, cane over his arm, boutonnière never absent, and with a smile for all. He is given a greeting that almost sweeps him off his feet.
“There he is, there he goes,” and a mob frenzied by past success with him, press their bills in his face, almost pushing his eyes out. “Take my money, take my money,” they cry, and in their eagerness would forget their notes.
Such is their faith in this little Italian. Polacks, Jews, Swedes, the Irish, every one invests, but the Italians themselves are their leader’s most valiant defenders.
“He’d never dare to cheat his own people like that. They’d cut his heart out with a knife if he didn’t pay,” says one as he waits to invest his four thousand dollars.
“My friend made $1,500 with him,” says another, while it is rumored that people are selling their Liberty bonds and getting money from loan sharks in order to get in on the get-rich-quick proposition. Police officials are said to be heavy investors. “It must be all right if District Attorney Pelletier invested twenty-five thousand dollars,” remarked one stately woman drest in the height of fashion.
There’s never been anything like it before in Boston, they say, and no one knows where it will end.
When questioned in conference with Daniel J. Gallagher, United States Attorney, Ponzi said also that he had in the United States upward of $5,000,000 and between $8,000,000 and $9,000,000 in depositories abroad.
“This enterprise is just preliminary to something much bigger,” Ponzi says. He adds he is going to start a world-wide banking system whereby net profits would be divided equally between the stockholders and the depositors.
Postal inspectors who are working with United States Attorney Daniel J. Gallagher and District Attorney Pelletier on the case are unable to discover where Ponzi obtained the many millions of stamps necessary to carry on his business. Investigations are being made here and abroad, but as yet Ponzi’s secret has not been revealed.
He continues to pay his debts, and faith in him multiplies as each note-bearer emerges with a smile, and with twice as much cash in his hands as he put in two months before.
Payment is being made to all comers over a hastily improvised cashier’s counter in the “Bell-in-Hand,” a former bar-room in William Court (“Pie Alley”).
Ponzi opened offices in the “Bell-in-Hand” yesterday to meet the demands upon him growing out of newspaper notoriety he attained when the methods by which he made his quick fortune became known, and to-day he said that during the first day there was paid out over the counter hundreds of thousands of dollars. He declared he could put $5,000,000 on the table at any time and that every obligation would be met.
Ponzi’s promptness in providing measures to meet all proper demands has so imprest the Equity Session of the Superior Court that Judge Waite refused an application by David Stoneman, counsel for Alton Parker, of Boston, for the appointment of a temporary receiver for Ponzi’s funds.
A rival concern started across the hall fails to draw supporters from the Ponzi get-rich-quick establishment. To “Charles Ponzi, head of the Securities Exchange Company,” points a large sign on the first floor of the building, and that is where they all go.
Ponzi is the topic of conversation wherever you turn in New England, observes a correspondent for the New York Times. His success, in spite of great obstacles, confounds critics. The correspondent gives this story of the financier’s career, “more romantic than the wildest reach of romantic fiction,” in Ponzi’s own words:
“My family was well-to-do in Italy and my education was of the best. We had considerable money, but were not extremely wealthy. However, we had plenty.
“I never had to do any work of any kind and felt that it was beneath me in my own country to engage in labor of any kind. So I kept at school at Parma, Italy, and then went into the University of Rome.
“I’ll be very frank with you,” he went on. “In my college days I was what you call over here a spendthrift. That is, I had arrived at that precarious period in a young man’s life when spending money seemed the most attractive thing on earth.
“Such a game is like a balloon—it goes up all right, but sooner or later it has got to come down.
“To make a long story short, I felt that I must get to work, and not wanting to do so with all my acquaintances about me, I decided to come to America. I did not have much money then, and came to this country—right here to Boston, just like any immigrant—and when I arrived my total wealth was just $2.50.
“As I say, I landed in this country with $2.50 in cash and one million dollars in hopes, and those hopes never left me. I was always dreaming of the day I could get enough money on which I could make more money, because it is a cinch no man is going to make money unless he has got money to start on.
“I saved a bit of money from the odd jobs and felt like having a good time, so I – went to Coney Island and had the time of my life for a couple of weeks. Then my cash was gone. So into the big town of New York I went to find a job.
“Up at one of the big hotels they needed some waiters, and they even furnished me with the tuxedo service coat. Yet I’ve carried tons of food on the old waiter, and with the small salary and tips I made enough to live. I went from one waiting job to another—worked in various hotels, small restaurants, and did from necessity at times. I got tired of New York and began to travel, getting jobs all along the way.
“Once, when I was in Florida, I got it into my head that I could make something painting signs. So I bought some cardboard and paint and started in. No, I never had the slightest experience, but I got away with it, satisfied folks, and made a little cash.
“And all the time I kept dreaming of the time I was going to do big things.
“It was small jobs, and small jobs, up to the year 1917, when I headed for Boston once more, saw an advertisement in a Boston paper, answered it, and took a job with J. R. Poole, the merchandise broker. My salary was twenty-five dollars a week.
“And then I found my inspiration. She was Rose Guecco, daughter of a wholesale fruit merchant of Boston, and the fairest and most wonderful woman in all the world.
“All I have done is because of Rose. She is not only my right arm, but my heart, as well. We were married in February, 1918.”
Ponzi was asked if he didn’t owe his financial opportunity to the reactions of the war.
“Absolutely,” he answered. “This business of mine can be only temporary at best, simply while the foreign exchange conditions remain as they are. The minute the exchange offers no margin, then this business stops.”
“Then you will retire for life on your twelve million dollars?” queried his interviewer.
“I will not,” he answered with emphasis. “I will just begin to do my life-work.
“You know, this whole fracas at present is due to just one state of affairs. Bankers and business men can easily understand how I could make one hundred per cent. for myself, but simply because no one ever made an added fifty per cent. for the general public they reason that it can’t be. You remember the old Rube who saw the giraffe for the first time? He stared at it and remarked, “There ain’t no such animal.”
“The truth is, bankers and business men have been doing plenty for themselves under the present banking system, but they have done little for anybody else.
“I want to change this unfair condition. The depositor in the banks to-day is not getting a square deal. I shall endeavor to create an institution where the depositor will get what he ought to get, even if it does shake up the old crowd. Now, please, do not think I am boasting, but I have forgotten more about foreign exchange than C. W. Barron ever knew.
“To be sure, the stockholders assume responsibility, and this should be taken account of. Therefore, I believe the stockholders should receive a certain designated per gent. to cover this responsibility, and that the depositors, as now, get their regular rate of interest, but on top of this I believe that the extra earnings, instead of all going to the stockholders, would be divided fifty-fifty between stockholders and depositors.
“Yes, I know it is a shock to some of these folks who have been hogging it all, but it is fair and right, and the depositor should get a fair return for his money.”
THOUSANDS OF THESE HAVE BEEN PAID.
The most commonly suggested explanation for Ponzi’s rapid acquisition of wealth is that he uses part of the money he is taking in to pay his certificates of indebtedness as they fall due. No evidence has been discovered that he has been doing this. The exploits of two other “wizards of finance” are recalled. The Wall Street Journal tells of a “pale, slim young man who came to New York in 1877, and introduced himself as Ferdinand Ward.” He formed a partnership with the son of General Grant, and amazed Wall Street by running $400,000 up to $15,000,000 through fake deals. The end was failure, and a tenyear prison sentence. The case of “520%. Miller” is recalled by the New York World. George H. Boothby went to interview the former “wizard,” who announced that he “wouldn’t be in Ponzi’s shoes for $10,000,000.” Miller’s line was oil stocks, and a Sing Sing sentence ended his high financial career. Ponzi, it is reported, has served two prison sentences, and now has liabilities of $7,000,000, with much smaller assets. The gentler critics of the Boston plunger confine themselves to asserting that he simply couldn’t have made his money in the way he indicates. The financiers of France are invoked by cable to back up those of America in decreeing that Ponzi is mistaken in certain of his assertions. Thus a special cablegram from Paris to the New York World announces:
French financiers are at a loss to understand how Charles Ponzi, of Boston, manipulated his business so as to reap such a great harvest out of the rates of exchange. That Ponzi used stamps as currency is discredited at the Ministry of Finance. It is pointed out also that the French Treasury is not the loser by Ponzi’s financial transactions, for he had to pay the full rate for the dollar in reconverting into American money whatever money he exchanged here.
At the Ministry of Finance the World correspondent was informed that Ponzi might be standing in with a French banker, or a banking concern which would accept stamps as currency. But a manager of the Crédit Lyonnais, one of France’s biggest banks, said to the correspondent:
“I do not see how this Boston financier could have negotiated stamps through a bank. We refuse to take stamps for banking purposes. Like many other banks and business houses, the Crédit Lyonnais used stamps as change during the shortage of silver and small bills, but never in amounts that exceeded ten francs (about two dollars normally). In the same way, we accepted starfips as small currency.”
Here it is considered possibly feasible, but highly improbable, that Ponzi has been buying and selling international postage coupons. For such coupons are exchangeable only for stamps, which even the French post-offices refuse to buy back or to accept as money.
Boston savings-banks have naturally suffered through the withdrawal of savings. One of the Boston papers, whose front page is covered with accounts of Ponzi’s achievements, carries in an adjacent column, perhaps significantly, an advertisement by a Boston savings institution, offering 5¼ per cent. interest on deposits. Since Mr. Ponzi has brought suit for $5,000,000 against a Boston publication which severely criticized his business, we may more safely quote an editorial from another financial paper which goes to the opposite extreme in showing the remarkable achievements which might be accomplished by an extension of the Ponzi plan. At the end of three years, the aggregate profit on $100 first tossed to Ponzi would be a trifle over $1,680,000, computes this financial authority, The Wall Street Journal. The editorial runs, in a vein that might be considered either greenly envious or simply ironical:
It is a pity in these hard-up times that Ponzied finance wasn’t earlier invented. Foreign exchanges have been out of joint for some years now. The chance was there right along. Chancellors of exchequers, secretaries of various treasuries, and other budget balancers would have found Ponzi a very present help in time of fiscal trouble. He could multiply their revenue loaves and fishes.
The individual now suing Ponzi for a million on the basis of $200 first placed with him, on alleged partnership grounds, has the right idea. For Ponzi’s plan means a total return at the end of a year of 2,463 per cent.; at the end of two years of 65,587 per cent.; at the end of three years of 1,688,300 per cent. Why keep on?
Give Ponzi a million, and in a twelvemonth he will expand it for you to some $25,000,000; in two years to $657,000,000; in three years to $16,885,000,000. Surely the Allies could spare him a million, and within three years clean up that debt tangle. Germany might hire him to wipe out the indemnity within four years.
Great is the magic of compound interest—when you start off at the rate of 405 per cent. a year for your first forty-five days, and accordingly climb to your full 2,463 per cent. for your first eight forty-five day periods, or one year. For who could refrain from reinvesting both principal and profit with such a wizard?
But the average citizen hasn’t a million? Let him start with a mere $100—a trifle in these times. What can Ponzi’s magic do with it? . Simply this:
First year | Second year
$100 | $2.562.90
150 . . . . . . . . . 45 days | 3,844.35 . . . . . . . . 45 days
225 . . . . . . . . . 90 " | 5,766.53 . . . . . . . . 90 "
337.50 . . . . . . . . 135 " | 8,649.79. . . . . . . . . 135 "
506.25 . . . . . . . . 180 " | 2,974.68 . . . . . . . . 180 "
759.38 . . . . . . . . 225 " | 19,462.02 . . . . . . . . 225 "
1,139.07 . . . . . . . . 275 " | 29,193.03 . . . . . . . . 270 "
1,708.60 . . . . . . . . 315 " | 43.789.55 . . . . . . . . 315 "
2,562.90 . . . . . . . . 360 " | 65,684.33 . . . . . . . . 360 "
Profit . . . . . . . . . 2,463% | Profit . . . . . . . . . 2,463%
Total profit on $100 for two years . . . . . . . . . . . . . 65,587%
At the end of three years the aggregate profit would be a trifle over $1,680,000 on $100 first tossed to Ponzi!
A more common state in these times would be $1,000. That would net of course $16,830,000 odd in three years; in four years, $431,000,000; in five years, $11,000,000,000. In six years the return would be a few trifling millions over $283,000,000,000, or about the average of current estimates of the total wealth of the United States. Only the worry about one’s stewardship need bid one quit the indefatigable Ponzi. For in the nonchalant way in which he has been taking in large fractions of a million daily, he can have no concern about the supply of coupons and stamps to do the trick with.
The other day, just before suspension, he is rumored to have taken in $250,000 in Boston alone, excluding branches. He could convert that into the equivalent of the nation’s wealth in a trifle over four years and three months. In the full six years it would spell some seventy billions. And this excludes his own much larger profit—to judge from the millions he says he has accumulated since starting less than a year ago.
Every little billion of dollars means of course twenty billion of postal reply coupons to handle; also as many five-cent stamps—or fifty billion two-cent stamps. This whole country used only 15,020,000,000 stamps in the 1919 fiscal year. Out of his profits he could readily pay the needed army of clerks and agents.
Why not let him put the needed material foundation under the League of Nations? First to clear off the war-debts. Then to erase still bigger peace debts. For, under international postal settlements, the profits must come out of national treasuries somewhere.
Ponzi already has one local imitator. Why not a thousand or a million? And a world carpeted knee-deep with used postal coupons, through which plow the limousine of multibillionaires who a short few months before didn’t even pay an income tax?
The New York Tribune, without taking sides as to how Ponzi does it, objects to the whole scheme on the ground that “nothing is so demoralizing as easy money.” The Newark News speaks for a good many critics of the plan in taking the general line that “somebody has to pay” whenever unearned money goes into financiers’ pockets. Ponzi may only have been doing on a larger scale what a thousand financiers, big and little, are engaged in doing all the time, argues this class of objectors. Nevertheless, as The News observes, taking up the Italian banker’s plan:
However legal the methods thus employed, they are not defensible on high moral grounds. Ponzi contributed his knowledge of a rich opportunity and the ability to organize its exploitation. He used other people’s money. They got fifty per cent. profit, he as high as four hundred per cent., on his own reported statement.
In terms of pure morality it might be argued that Ponzi took a double advantage—first, of the national treasuries out of which, directly or indirectly, his profits came; and, secondly, of his customers, to whom he returned what seems a disproportionate share of those profits.
The United States Treasury, however, despite efforts to make it appear so, did not contribute. It may indirectly and unwittingly have profited. The dollar has not been anywhere at such a discount that it could have presented a profitable field for such transactions, and the same is true of the pound sterling, despite the fact that the latter has been as low as $3.50 in relative value. Neither would have paid adequately in such employment.
It was in Italy, France, Belgium, and especially in Germany and Austria, that by pyramiding fractional profits in exchange differences of extreme range large returns could be piled up. Those nations’ treasuries, and through their treasuries their sorely tried peoples, had the bills to pay in the end. Not so much a Barabas as a Shylock is suggested.
France and Italy, by ceasing to issue international reply coupons, designed to enable return postage to be employed in international correspondence, upon the basis of which Ponzi and others worked their game, halted the raid. Belgium did the same by almost doubling the price charged for the coupons. Incidentally, evidence of a conclusive sort was provided that these countries were chief sufferers from this exploitation. The effect upon Germany and Austria, and the measures taken there, are not known. If they were used, they contributed in even greater proportion. . . . The advisability of considering measures that will remove the invitation to batten on national calamities and international disorganization is clearly suggested.
In the meantime, the Ponzi business is closed down pending the result of the various investigations, and people who desire to double their savings in six months are obliged to go elsewhere. A New York firm, reports the New York World, is preparing to accommodate some of them by going into partnership with the “Boston Wizard,” with a capital of $200,000,000. It plans to pay only eight per cent. in sixty days, however, or a paltry forty-eight per cent. a year. Another firm takes a more optimistic view:
The company sent out 1,400 circulars offering thirty per cent. return to investors within sixty days.
“You see, it takes us about sixty days to complete our turnover,” said the manager.
He tossed a postal-card across the desk. The name of a Baltimore investor was filled in at the indicated space and a request for an opportunity to put in $25,000 was made.
—The Literary Digest, (Vol. 66, No. 8) August 21, 1920.
Courtesy of Democratic Thinker