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The True Story of a Financial Legend

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On Sale: March 08, 2005
Pages: 0 | ISBN: 978-1-58836-448-7
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It was a time when anything seemed possible–instant wealth, glittering fame, fabulous luxury–and for a run of magical weeks in the spring and summer of 1920, Charles Ponzi made it all come true. Promising to double investors’ money in three months, the dapper, charming Ponzi raised the “rob Peter to pay Paul” scam to an art form. At the peak of his success, Ponzi was raking in more than $2 million a week at his office in downtown Boston. Then his house of cards came crashing down–thanks in large part to the relentless investigative reporting of Richard Grozier’s Boston Post. A classic American tale of immigrant life and the dream of success, Ponzi’s Scheme is the amazing story of the magnetic scoundrel who launched the most successful scheme of financial alchemy in modern history.


Chapter One

"I'm the man."

The huge blue car moved slowly through the crooked streets of the old city, its owner sitting on the wide rear seat, his bottom comforted by deep, horsehair-filled cushions that absorbed the bumps from the uneven cobblestones. Heat and sunlight bounced off the brick and granite buildings, baking the Locomobile limousine and broiling its passengers. The morning air bristled with the hint of a developing thunderstorm. When the skies broke loose it would be a welcome relief from the weeks of summer heat that had made downtown Boston ripe with the smells of horses, fish, fruit, fresh-cut leather, and tight-wound rope, all seasoned by salt from the nearby harbor.

At the wheel of the hand-polished Locomobile was a young Irish immigrant named John Collins, wearing the hat and brass-buttoned uniform of a newly created job: motorcar chauffeur. His boss, an Italian immigrant, had taken delivery of the dazzling vehicle only three weeks earlier, paying a thousand dollars in cash above the $12,600 list price to spirit it away from the New York financier for whom it had been custom-built. For the same price a man could own twenty Model T's, with enough change to buy a modest house. But what was the point of that? In 1920, the Locomobile was the most expensive car in America, dripping with luxury, from its sterling-silver trim to its crystal bud vases. Purring, glistening Locomobiles filled the garages of Carnegies and Vanderbilts, and General John J. "Black Jack" Pershing, commander of American forces in the Great War, had shipped his to France for use as a staff car. The executives at the Locomobile Company of America understood that exclusivity appealed to the elites. They had positioned their automobile in direct opposition to Henry Ford's backfiring rattletrap of the masses. The company's ads, with the look of engraved invitations, stated that Locomobiles were built by hand "in strictly limited quantities because the making of any pre-eminently fine article is impossible on a large scale."

In the short time he had been driving the car, Collins had learned well the daily twelve-mile route that began at his boss's gracious home in the historic suburb of Lexington, less than a mile from the site of the first skirmish of the Revolutionary War. From there, they rolled east through working-class Arlington and Somerville, into tony Cambridge, across the Charles River, then down Tremont Street to a nondescript building on School Street, less than a block from Boston City Hall. Occasionally there would be detours, most often to a bank, and the boss would use the one-way intercom from the back seat to relay the new directions to Collins. But on this day-July 24, 1920-it was straight from home to office.

Collins slowed as he turned down School Street and saw what awaited them: a mob of several hundred men and women, crowded together hip to hip, chest to back. Viewed from above, it looked like an abstract mosaic of straw boaters and colorful felt cloche hats, punctuated by the dark crowns of a few bowlers. Some in the throng had brought bewildered children, who cried or whined as they struggled to avoid being trampled underfoot. The street was alive with electricity unrelated to the gathering thunderclouds. It came from the horde itself. Each member was a charged electron jittering in a magnetic field created by the man in the back seat of the Locomobile.

The street normally would have been all but deserted on a sultry Saturday in late July. But this was no ordinary day. When the crowd saw the limousine turn down the street they pressed toward it, half in reverence and half in mindless desire. They parted to allow Collins to steer toward the curb in front of the Niles Building, at 27 School Street, the modest home of his boss's extravagantly immodest firm, the impressively named Securities Exchange Company.

From his perch in the back seat, Collins's boss could see that some men in the street were holding copies of that morning's Boston Post. The banner headline trumpeted a victory in one of the America's Cup races by the American yacht Resolute over its British challenger, Shamrock IV. At a time when anything seemed possible except a legal drink of whiskey, elite sports like yachting and golf had captured the public imagination.

If one subject interested Bostonians more than rich men's sports, it was the prospect of becoming rich themselves. Undeniable evidence could be found in that morning's Post, just below the yacht race story. On the left side of the front page, in bold black letters, was the headline that had filled School Street to bursting:




A Post reporter had visited 27 School Street a day earlier and acquired a basic understanding of how the Securities Exchange Company claimed to create spectacular profits for its investors. The unbylined story even described the Locomobile limousine and the boss's Lexington home, which was "furnished with the best" and "does not give the impression of nouveau riche either, for the fine Italian tastes of the owner fixed that."

The man who owned the fine home, the flashy car, the Securities Exchange Company, the adoration of the people on School Street, and anything else he cared to buy was named Charles Ponzi.

Reading the Post story that morning, Ponzi could chuckle with appreciation of his good judgment in granting the reporter access to his office and home. He had handled the interview himself, but from now on he would rely on advice from a publicity man he had just hired, an ex-reporter named William McMasters. At first, Ponzi had been skeptical about publicity-he had not needed much to achieve success that approached his wildest dreams-but his gentle treatment by the Post made it seem as though every card he turned would be an ace.

The front-page Post story eclipsed two previous stories Boston papers had printed about him and his business. The first, six weeks earlier in the Boston Traveler, had described his company in flattering terms but never mentioned it or him by name. Still, word had spread as to the identity and location of Ponzi's operation, and hundreds of thousands of dollars had poured in during the weeks that followed. The second story, three weeks earlier in the Post, had been a brief item about a million-dollar lawsuit filed against Ponzi by a furniture dealer. That, too, had helped. The fact that he was rich enough to be sued for a million dollars had attracted swarms of new investors.

The brief account of the enormous lawsuit had piqued the interest of the Post's young acting editor and publisher, who had ordered the follow-up feature story that appeared this day. In it, the Post reporter printed Ponzi's comments at length and without challenge, as though Ponzi had delivered them with his hand on a Bible. During the course of several hours of discourse, the thirty-eight-year-old entrepreneur had offered a condensed, sanitized version of the seventeen years since he had emigrated from Italy. Then Ponzi had explained his business in broad, confident terms, telling how it was built on a modest and unlikely medium: International Reply Coupons, slips of paper that could be redeemed for postage stamps. He'd described his company's growth-from pennies to millions of dollars in seven months-and had boasted of the opening of branch offices from Maine to New Jersey. The reporter had filled a notebook with Ponzi's comments and played the notes back to Post readers as clear and sweet as a song from a Victrola.

Ponzi had capped the interview with a priceless assertion, and again the reporter had obliged him by printing it: "I get no pleasure out of spending money on myself, but a great deal in doing some good with it. Always I have said to myself, if I can get one million dollars, I can live with all the comfort I want for the rest of my life. If I get more than one million dollars, I will spend all over and above the one million trying to do good in the world. Now I have the million. That I have put aside. If my business closed tomorrow I am sure that I will have that amount on which to make myself and family comfortable for the rest of our days." If anyone doubted how secure Ponzi felt, the story continued: "Ponzi estimates his wealth in excess of $8.5 million."

With a maestro's touch, Ponzi had struck a perfect balance among the forces competing to control the new American identity: altruism and avarice. Now that he was all set, he insisted, he had no need for more investors. But he would continue accepting their money out of the goodness of his heart, so they could join him and his family in savoring the finer things in life.

If there was any reason for the people of Boston to be suspicious of Ponzi, they would not find it in the morning Post. The story read with all the confidence of the advertisements the paper ran that promised disappearing dandruff to wise buyers of Petrole hair tonic, or "sunshiny" stomachs courtesy of Goldenglo tablets, or relief from chronic constipation in a tin of Fruit-a-Tives.

The closest the story came to skepticism was to mention that federal and state authorities had looked into Ponzi's extraordinary investment plan. But the reporter defused that land mine in a single sentence, writing, "The authorities have not been able to discover a single illegal thing about it." Ponzi could not have hoped for a more sterling endorsement.

Adding to Ponzi's delight, below the front-page story was an ad for a prominent local bank, the Cosmopolitan Trust Company. The bank was trying to drum up new deposits by guaranteeing a generous interest rate: 5 percent a year, compounded monthly. To Ponzi, the ad was a divine gift. For months he had been comparing his promised rate of return-50 percent in forty-five days-to the paltry sum paid by banks. Here was the same comparison on the front page of the Post, the self-proclaimed "Great Breakfast Table Paper of New England."

A working man with one hundred dollars to invest, reading that day's Post over a bowl of Grape-Nuts, faced two choices of seemingly equal reliability but vastly different outcomes. Even in the margins of his newspaper, he could calculate that depositing his hundred dollars in the Cosmopolitan Trust Company would yield him an annual profit of five dollars and change. That was assuming the bank did not fail in these days when federal insurance for deposits was barely a whisper of an idea. Or he could entrust his hundred dollars to this Charles Ponzi fellow and watch it multiply over and again during the same year.

If he reinvested his hundred dollars plus interest after each forty-five-day period, he would walk away with more than twenty-five hundred dollars after a year. If he let it ride for a second year, he would pocket more than sixty-five thousand dollars. It was an unimaginable sum at a time when the average U.S. income was about two thousand dollars, the president of Harvard University was paid six thousand dollars, a Men's Ventilated Raincoat could be ordered from the Sears catalog for less than twelve dollars, a can of codfish cakes for a family of three cost twenty-five cents, and the newspaper he held in his hands cost two cents. Only a fool would choose the bank's interest over Ponzi's.

Having read the Post and done the math, would-be investors had begun assembling on School Street long before the Locomobile had even started the trip from Lexington. They came from all corners of Boston and beyond, a miniature League of Nations, with immigrants brushing shoulders with Brahmins, Italians mingling with Spaniards, Irish alongside English, Greeks chatting with Poles. Among them were Swedes, Frenchmen, Jews, blacks, and Portuguese, new and old Americans. Kitchen maids stood alongside businessmen, office boys squeezed against society matrons. It was the one place in the tribal city where the only denomination that mattered was engraved on the bills clutched in investors' hands.

Bookbinder Arthur Case of the city's Dorchester neighborhood was ready to invest a whopping three thousand dollars, just a week after his wife, Clara, had put in one thousand. Their neighbor, candy-factory worker William Hoff, emptied his wallet and came up with seventy-eight dollars. Boston florist Philip Feinstein was ready to place eleven hundred dollars in Ponzi's hands, while Patrick Horan had stuffed sixteen hundred dollars into his billfold. Benjamin Brown intended to add six hundred dollars to the six hundred he had deposited just four days earlier. Stable worker Timothy Donovan of suburban Somerville and Alfred Authoir of nearby Cambridge each expected their fifty-dollar investments to grow into seventy-five dollars by the first week of September. Print shop foreman Percy Stott of Methuen had made the thirty-mile trip to Boston for the third straight day, this time to add one hundred dollars to the two hundred he had already invested.

Luggage shop owner Joseph Pearlstein came bearing not cash but a note signed by Ponzi that would allow him to collect fifteen hundred dollars. He had heard about the Securities Exchange Company from none other than the lovely Rose Gnecco Ponzi, who had stopped at his Dorchester store the first week in June. She had come by to purchase new bags for a trip she and her husband, Charles, were planning to Italy, to visit his mother. Rose Ponzi had proudly described her husband's remarkable financial skills to the luggage vendor, and Pearlstein had been so impressed he had invested one thousand dollars. Now his note was due, so Pearlstein was in line to collect his original stake plus his five-hundred-dollar profit. But he would not invest again. Reluctant to press his luck, Pearlstein was satisfied with one spin of the wheel.

The crowd also included a fourteen-year-old boy in short pants named Frank Thomas. He earned $7.20 a week running errands, and he was eager to invest ten dollars with Ponzi. Charlie Gnecco of Medford, six miles away across the Mystic River, was there for his fourth and largest investment of the month, one thousand dollars. And why not? His baby sister, Rose, was happily married to the man in charge of the whole operation. If she had faith in Ponzi, well then, Charlie Gnecco did, too. Carmela Ottavi of nearby Chelsea brought two thousand dollars to add to the six hundred she had invested twelve days earlier. Ponzi's chauffeur, John Collins, had already thrown in five hundred. Watching the crowd from the front seat of the Locomobile, he resolved to add seven hundred more.

While some had come because of the Post story, others had heard from friends and relatives of the profits to be found on School Street. Although the Post seemed to have only just discovered the Securities Exchange Company, the streets of Boston had been buzzing about it and Ponzi for months.

From the Hardcover edition.
Mitchell Zuckoff|Author Q&A

About Mitchell Zuckoff

Mitchell Zuckoff - Ponzi's Scheme
Mitchell Zuckoff is a professor of journalism at Boston University. He is the author of three previous books, most recently Ponzi’s Scheme: The True Story of A Financial Legend. As a reporter with The Boston Globe, he was a finalist for a Pulitzer Prize and the recipient of numerous national writing awards.

Author Q&A

A Conversation with Mitch Zuckoff

What drew you to this story?

I was a banking reporter for The Boston Globe in the early 1990s, when banks were failing almost weekly. At one point someone mentioned in passing that so many Boston banks hadn’t failed so quickly since the days of Ponzi. “Huh?” I said. “Ponzi, as in Ponzi Scheme?” I had heard of the scheme, and I had a decent understanding of it, but I had no idea he had been based in Boston. I started looking into it, and then I was surprised to learn that no one had written a nonfiction account of his amazing run. For the next several years, I did what reporters call “saving string.” Every time I came across something involving Ponzi himself or a modern-day Ponzi scheme, I tossed it in a file, not knowing if I’d ever get a chance to put it all together and make sense of it. Then, when the dot-com bubble burst and a rash of huge companies started failing under the weight of accounting scandals and alleged fraud, I knew the time was right to pull out that file and start figuring out how to tell this story.

Could a “Ponzi Scheme” happen today and, if so, what is an example?

Not only could a Ponzi Scheme happen today, they’re happening literally as we speak. In fact, when I was writing this book, my father, a retired New York history teacher, received a warning from the New York City Comptroller’s office listing 10 investment scams to watch out for. Number one on that list were Ponzi Schemes. Just this week, I’ve been reading about the owner of a Boston radio station who confessed to running a Ponzi Scheme for nearly two decades, involving tens of millions of dollars from investors. He admitted what he had done when one of his investors–a Greek Orthodox church–came looking for $1.5 million, and he simply didn’t have it. He had spent it. Barely a week goes by that a new version of Ponzi’s Scheme doesn’t make headlines. They take a variety of shapes and forms, but ultimately all have a couple of things in common: Early investors who are drawn to them by promises of huge returns are paid with the money of later investors, and at some point the whole house of cards comes crashing down. Even the collapse of Enron has been characterized as a Ponzi Scheme, and in some ways it certainly qualifies. When former Enron Chief Executive Ken Lay was hauled in front of the Senate Commerce Committee, Senator Peter Fitzgerald of Illinois told him: “Mr. Lay, I've concluded you are perhaps the most accomplished confidence man since Charles Ponzi.” I saw that and said to myself, “Ponzi lives.”

In uncovering the story of Charles Ponzi, you also named similar con artists: Minister Jernegan and Charles E. Fisher, Ferdinand Borges, Sarah Howe, William Franklin Miller. Why are they not as renowned as Ponzi?

Given human nature, I suspect that the first time someone minted a coin thousands of years ago, someone else was immediately trying to figure out how to snatch it. There have always been folks looking to make an easy buck by luring someone else into a financial web. Before Ponzi, his version of the scam was referred to as “robbing Peter to pay Paul.” But let’s face it–that doesn’t fit too well in a headline. There’s something sonorous about Ponzi’s name that makes it fit. I mean, would you really want to call it a “Miller Scheme”? More seriously, I think it stuck with Ponzi for several reasons. First, he was an enormously charismatic guy–most newspaper stories during his run took note of how he was always smiling, always cool under pressure, and always immaculately dressed. He was quick-witted and charming, and the newspaper men and women who covered the story were enormously amused by him. In fact, some were so taken by Ponzi that they even invested their own money in his company! The result was a tremendous amount of press attention, and that helped to attach his name to this scheme. One other factor, I think, is that the aftermath lingered so long — years of lawsuits, court cases, deportation hearings, etc.–that it reinforced his name in the public mind as defining a certain kind of swindle.

Ponzi’s scheme is rather far-fetched. Why were people drawn to Ponzi and why did they so readily believe him?

Oh, I don’t know about that. You know, to us, in retrospect, it might seem far-fetched. But you have to keep in mind the context of when this was taking place–1920. First off, a lot of the people who invested with Ponzi at the outset were familiar with the international postage stamps–called International Reply Coupons–that were at the heart of his operation. These investors were immigrants, and they sent IRCs to their families back in the old country to pay for stamps, which then were used to send letters back to America with news of the places and people the immigrants had left behind. So this wasn’t an odd or exotic financial instrument to these people.

Another reason, the one I find most remarkable, is that when it comes right down to it, Ponzi’s idea was not only theoretically possible, it was legal! His idea was similar to what sophisticated financiers do even today–it’s a form of what’s called arbitrage. Ponzi’s Scheme involved buying IRCs in countries where the currencies had been devalued as a result of World War I. The leaders of those countries were too worried about rebuilding after the war to focus on shifting values in what were essentially penny stamps. Realizing this, Ponzi recognized that it was possible–on paper, at least–to exploit the fact that an IRC bought in one country for, say, a penny might be worth five times as much in another country. Of course, it was ultimately impossible to carry out his idea on the scale he dreamed about. There simply weren’t enough IRCs in existence, and even if there were, transporting them from one country to the next would have eaten up all the presumed profits.

When you ask why people were so drawn to Ponzi and why they so readily believed him, I’d have to point you again toward his remarkable charisma. He should have been a drum major–people just instinctively fell into step behind him. And to top it off, he had a finely honed sense of human nature. At the height of his popularity, when a few people suspected him and thought he might take the money and run, he brought his elderly mother to the United States from Italy. By settling his mother and his wife into the beautiful home he had bought, Ponzi dispelled a lot of doubts.

How did you go about researching Ponzi’s life?

I’m a newspaper guy by training, so that’s where I began. I was fortunate to have access to crumbling old files from The Boston Globe library, so I started by getting all those stories. Then I expanded my horizons, going to The Boston Herald library and copying all their Ponzi clips, too. Then I pretty much holed up for a couple of months in the basement of the Boston Public Library, copying microfilm of literally every story written about Ponzi by more than a half-dozen Boston newspapers as well as a number of out-of-town papers, most notably The New York Times. For months after that, I branched out, collecting files kept by the National Archives and Records Administration and the Massachusetts court archive, several universities including Harvard, several historical societies, you name it, anywhere original documents relating to Ponzi were kept. All the while, I was scouring Ponzi’s own version of events, his largely overlooked autobiography. Not that I didn’t trust him, but I wanted to verify as many of his claims as possible, independently. After all that, I was fortunate to track down descendants of his wife Rose. They never had children, but Rose had lots of nieces and nephews. Those family members–the Gneccos–had kept all the letters Ponzi had sent to Rose over more than 25 years. The letters gave me tremendous insights into his behavior and his incredibly loving relationship with his wife. All the other documents I collected revealed the public Ponzi. The letters showed the private man, and they were a real treasure.

Why do you think it is important for people to know about Ponzi?

Guys like Ponzi will always be with us. They understand what I consider a fundamental principle of human behavior–maybe you’d call it a flaw of human behavior: too good to miss trumps too good to be true. What I mean by that is the siren song of what sounds like an incredible moneymaking opportunity tends to drown out the sober voice in our heads that tells us to be careful, we’re heading straight for the rocks. Understanding Ponzi, knowing just how he operated, just how he built this multimillion-dollar business out of thin air in a matter of months, gives all of us a better chance of steering clear when one of his imitators comes down the river.

From the Hardcover edition.



“This is the first full nonfiction account of the Ponzi scheme, and Mitchell Zuckoff . . . has made it as agreeable as the ‘smiling, cane-twirling banty rooster of a man’ behind it. . . . A history that is both solid and entertaining.”
–Chicago Sun-Times

“In his charming book . . . Mitchell Zuckoff vividly recounts the story of Charles Ponzi [with] impressive research and elegant writing.”
–Boston Sunday Globe

“Thanks to Mitchell Zuckoff . . . who has given Ponzi exactly what he deserves: a thorough account of his life and a candid but sympathetic portrait.”
–The Washington Post Book World

“Zuckoff’s biography of this charming rogue . . . provokes our wonder precisely because his subject is so brazen–and yet so naively captive to his own illusions.”
–The Wall Street Journal

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