Crime and Scandal

Charles Ponzi, The Financial Idiot Who Drove Boston Money Mad in 1920

Charles Ponzi in his office. Photo courtesy Boston Public Library, Leslie Jones Collection.

Charles Ponzi in his office. Photo courtesy Boston Public Library, Leslie Jones Collection.Charles Ponzi sent Bostonians into such a frenzy over his get-rich-quick scheme in 1920 that police had to subdue enthusiastic investors. They overflowed from his North End banking office and blocked traffic.

The dapper little Italian had convinced people he could double their money in 180 days.

"At every corner, on the street-cars, behind the department store counters, from luxurious parlors to humble kitchens, to the very outskirts of New England, Ponzi is making more hope, more anxiety, than any conquering general of old,” reported Marguerite Mooers Marshall in the New York Evening World.

In less than a year, the swindle unraveled, giving the financial world a new phrase: Ponzi scheme.

High Hopes

He was born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi in Parma, Italy, on March 3, 1882 to a family of at least some means. He spent four years partying at the University of Rome La Sapienza and then came to the United States. He had $200, a fashionable wardrobe, his mother’s blessing and hopes to make a fortune.

He arrived in Boston on the SS Vancouver on Nov. 3, 1903, having gambled and drunk away all but $2.50 on board.

After four years of working odd jobs in the Northeast, he moved to Montreal. He was hired as a teller at the Bank Zarossi. which catered to Italian immigrants. Founder Louis Zarossi offered customers twice the interest rate they could get elsewhere. New deposits were used to pay the high interest. The bank failed and Zarossi fled to Mexico – a victim of circumstance and bad associations, according to Ponzi.

Again unemployed, Ponzi got caught forging a check for $423.58. Sentenced to three years in a federal prison, he told his mother who was still in Italy that he got a job as a special assistant to the prison warden.

In 1911 he returned to Boston and started smuggling Italian immigrants into the United States. He got caught again and spent two years in an Atlanta prison.

Back in Boston he met stenographer Rosa Gnecco, the daughter of a North End grocer. He didn’t tell her about his past, but his mother did in a letter from Italy. Rosa married him anyway.

The Ponzi Scheme

Ponzi with his gold-handled cane. Photo courtesy Boston Public Library, Leslie Jones Collection.

Ponzi with his gold-handled cane. Photo courtesy Boston Public Library, Leslie Jones Collection.

He tried his hand at several businesses until he stumbled across the key to the scheme that made him rich.

People could buy an International Reply Coupon in one country for the price of a stamp and redeem it in another country for the equivalent value of that nation's stamps. Ponzi realized that IRCs could be exchanged in the United States for more than their value in Europe because of the massive currency devaluation across the continent.

He started out by paying agents to buy the IRCs for him in Europe, then he redeemed them for U.S. stamps and sold the stamps.

He then sought investors, promising returns of 50 percent in 45 days, or 100 percent in 90 days. He repaid those early investors with money from later investors – and for a while, there were plenty of them. About 20,000 investors gave him $10 million. Boston went money mad.

At his height, Ponzi was pulling in $250,000 a day and could finally live large. He bought a mansion in Lexington, Mass., with a heated pool and air conditioning. He promised a donation of $100,000 to the Italian Children's Home in Jamaica Plain. He carried a gold-handled cane, sported a diamond stickpin and drove around Boston in a chauffeured limousine.

He made so much money he took control of a bank that rejected his loan application and bought a brokerage firm for the pleasure of firing his former boss the next day.

“If five-spots were snowflakes, Ponzi would be a three day blizzard." wrote Neal O'Hara for the Boston Traveler in July 1920. "This baby can turn decimal points into commas on almost any bank-book.”

On July 26, 1920, his scheme started to unravel. The Boston Post reported 160 million international reply coupons would be needed to cover investments in Ponzi’s scheme, but only 27,000 were in circulation.

The story caused panicked investors to crowd outside his office demanding their money. Ponzi handed out coffee and donuts along with $2 million in three days, assuring everyone they had nothing to worry about.

A Financial Idiot

Ponzi with his wife and mother.

Ponzi with his wife and mother.

But according to Ponzi’s publicity agent, William McMasters, he was a financial idiot who couldn’t add. McMasters went to the Boston Post with the revelation that Ponzi was robbing Peter to pay Paul.

Investors were invited to testify at the Massachusetts Statehouse. Ponzi himself visited state officials in the building.

Time magazine described the scene:

As the dapper little man with the straw hat, the walking stick and the boutonniere emerged from Boston's State House, a cheer went up for "the greatest Italian of them all." Charles ("Get-Rich-Quick") Ponzi shrugged off the compliment. "No," he admitted, "Columbus and Marconi were greater. Columbus discovered America, Marconi discovered the wireless." Hysterical voice from the crowd: "But you discovered money!"

He was arrested on August 12, 1920, and charged with 86 counts of mail fraud.

In his self-serving and unapologetic autobiography, The Rise of Mr. Ponzi: The Autobiography of a Financial Genius, he wrote,

My house of cards had collapsed! The bubble had busted! I had lost! Lost everything! Millions of dollars. Credit. Happiness. And even my liberty! Everything, except my courage. I needed that to take my medicine like a man. To meet the future. Unquestionably, I was licked. For the time being. But no man is ever licked, unless he wants to be. And I didn't intend to stay licked.

The Best Show

Charles Ponzi spent 3-1/2 years in federal prison, then faced state charges after he was released. He was convicted, but appealed his conviction and fled to Florida, where he sold swampland. He promised investors 200 percent returns in 60 days.

He was soon caught, tried and convicted again. He shaved his head, grew a moustache and tried to flee the country as a merchant seaman. He got caught in New Orleans and was sent back to Massachusetts, where he served seven more years in prison. He was deported upon his release.

Ponzi spent the last years of his life in poverty in Rio de Janeiro, sometimes working as a translator. He died in a charity hospital on Jan. 15, 1949.

Before he died, he granted one last interview. He told the reporter,

Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.

This story was updated in 2017. 

 

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8 Comments

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