Detailed history of Charles Ponzi

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His Last Name Is Scheme
By DAVID MARGOLICK

Published: April 10, 2005


More than 80 years after Charles Ponzi's spectacular rise and fall, his name is still synonymous with ''swindle.'' And although it is invoked to describe a variety of brazen, gargantuan rip-offs, it really applies only to swindles of a certain kind, longer than a one-shot deal but inherently limited in duration, in which people are promised windfall profits from can't-miss investments -- to be paid, when they are paid at all, only out of money collected from subsequent dopes and dupes.

There is another particular subtlety to the classic Ponzi scheme: not just anyone can pull one off; doing so requires cleverness, charm and charisma. That all these the original Ponzi had aplenty is clear from ''Ponzi's Scheme,'' Mitchell Zuckoff's entertaining portrait of the dapper rogue who persuaded 30,000 people, Bostonians and others, many of them Italian immigrants like Ponzi himself, to entrust him with their hard-earned, pre-inflationary dollars.

For a few months in 1920, Boston was the site of an astonishing daily ritual. Every morning hundreds of people, their numbers swelling week by week, lined up in front of Ponzi's office -- the Securities Exchange Company, he called it -- often with their life savings in their pockets. They would hand over their greenbacks to tellers behind old-fashioned caged windows, their bills piling up so fast that when the drawers were filled with them, they would be tossed into wire baskets. In return, each would receive a small, ornate certificate, promising a 50-percent return in 45 days.

That this cockamamie, pie-in-the-sky scheme ever existed at all, let alone that it grew so enormous and lasted so long, was a testament to the credulity, desperation and greed of the public, as well as to the laziness and incompetence of both the press and the authorities.

Born in northern Italy, Ponzi had come to Boston in 1903 at the age of 21. He splurged on a second-class ticket rather than take steerage; in style, breeding and aspirations, he was less one of those huddled masses yearning to breathe free than he was a hustler yearning to be rich. Early on he was sent to prison for forgery and smuggling, where he impressed one supervisor with his head for figures and his ''obsession for planning financial coups.'' But his were not small-bore get-rich-quick ideas, but complicated market manipulations that would make him millions.

His time served, Ponzi returned to Boston in 1917, married and took a job as a clerk and stenographer. And he schemed. His tool of choice turned out to be an innocuous enclosure he received in a letter from Spain: an International Reply Coupon, designed to purchase postage stamps in foreign currencies at fixed, outdated rates of exchange. Buy them in bulk in European countries whose currencies had been ravaged by World War I, redeem them in the United States for sturdy American dollars, and presto! You had a tidy little profit. ''A little dollar could start on a journey across the ocean and return home in six weeks, married and with a couple of kids,'' is how he put it.

It was simple, apparently legal and offered people of even modest means the chance to invest. There was, of course, the small matter of how to convert postage stamps into cash. But as Ponzi quickly discovered, that would not be necessary. Nor, for that matter, was buying coupons, or doing anything at all in Europe. With successive waves of people entrusting him with their cash, Ponzi needed only enough money to pay off those people redeeming their coupons. Of course, with the prospect of increasing their savings exponentially every couple of months, few ever redeemed anything.

Ponzi opened for business in December 1919, and soon the first few customers began trickling in. There was no need for advertising; word of mouth sufficed. In February 1920, he took in $5,290; in April, more than $140,000; in May, more than $440,000; in June, more than $2.5 million; and in July, nearly $6.5 million -- this at a time when the president of Harvard earned $6,000 a year. In seven months, 30,000 people had entrusted Ponzi with almost $10 million of their money. He was a wealthy man -- that is, if you didn't count the $15 million he owed them.
He bought himself an impressive home in suburban Lexington, carried $10,000 bills in his elegantly tailored suits and sported a gold-handled walking stick on the streets of Boston when he was not in the back seat of his chauffeur-driven Locomobile. All of this only added to his aura and his popularity. Admirers stood outside his office to cheer his arrival every morning, and followed him wherever he went. When one fan designated him the greatest Italian ever, he demurred; Columbus and Marconi still had him beat -- at least for the time being.

Inevitably, the whole jerry-built edifice came tumbling down. The press, specifically, The Boston Post, finally unmasked him and his operation, goading lethargic officials into investigating. For a time, the persecution only enhanced Ponzi's appeal. At any point, after all, he could have fled back to Italy with his millions; instead, by staying put and insisting upon reimbursing any anxious investors suddenly demanding their money, he only appeared more trustworthy. Ponzi became the underdog's tribune, standing up to the plutocratic Brahmins, fighting to give little people a chance to improve their lot. He seemed to enjoy paying out money as much as collecting it; it was the long lines, the attention, the action, the adulation that mattered most.

Ponzi's investors, it turned out, were not the only dreamers; so, too, was Ponzi himself. Never did he think he was doing anything wrong. Always, he thought he would find a way out of his fix, a way to make everyone whole: taking over a bank, buying into a macaroni company, turning much of the American freight and passenger fleet from World War I into his very own steamship line. With all of its pejorative connotations, ''Ponzi scheme'' may actually be a bit unfair to Ponzi, conjuring up someone who was more mendacious and greedy than the real Ponzi actually was.

He was finally arrested in August 1920 -- his assets were $3 million short of his liabilities -- and convicted of a variety of federal and state offenses. After several years in prison, he was deported to Italy in 1934, carrying a suitcase with no money to speak of but plenty of newspaper clippings. His marriage in ruins, he lived in poverty and died in the charity ward of a Brazilian hospital in 1949, at the age of 66.

Zuckoff, who teaches journalism at Boston University, tells Ponzi's story amicably and briskly, and keeps the complicated financial intricacies understandable. There are occasional bad puns and tortured metaphors, as well as periodic digressions -- into the history of con games, for instance, and the familiar story of Boston's Mayor James Michael Curley -- that seem like padding. More serious is his excessive reliance on Ponzi's autobiography. Since so little else of what Ponzi said can be believed, why trust his own version of events? The answer, of course, is that it's just so colorful. Even from his pauper's grave, it seems, Charles Ponzi is still working his charms.



David Margolick is a contributing editor at Vanity Fair and the author of ''Beyond Glory: Joe Louis vs. Max Schmeling, and a World on the Brink,'' to be published later this year.