Dreamers and Deceivers (15 page)

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 idea 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.

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 surprised 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.