Monday, January 25, 2010

Who was Charles Ponzi?

Recently I received a copy of the autobiographical The Rise of Mr. Ponzi (Despair, Ink., 2009) as a present. The book includes Ponzi’s own account of his life between his arrival in Boston from Italy in 1903 and his arrest in 1920 as well as a lengthy piece by Chuck Bougir. Bougir completes Ponzi’s life story and offers a sympathetic analysis of this “financial genius.”

Ponzi’s story is complicated, so I’ve decided to devote three posts to it. Today I will summarize his checkered life in North America up to the time of the international reply coupon scheme for which he is best known. In a second post I’ll cover the brief period from his wild success to his 1920 arrest as well as the events leading up to his eventual deportation in 1934. Finally I’ll look in more detail at his foray into the foreign exchange market. (These summaries, of course, can’t capture the richness of the original text.)

Ponzi, a mere 5’2” in stature, disembarked in Boston “bedecked in expensive clothes of the latest European cut and followed down the gang-plank by a couple of stewards laden with several pieces of baggage. . . labeled ‘First Class’” (p. 10) but with only $2.50 in his pocket. He had started out with $200 but lost most of it to a card shark onboard.

For four years after his arrival Ponzi went from city to city and from menial job to menial job. Finally he traveled to Montreal and, five minutes after entering the Banco Zarossi, was signed on as a clerk. Life was looking up for Ponzi. But soon enough Zarossi, the bank's proprietor, started to “invest” in other businesses. “The new enterprises needed money. And he began to dip into his depositors’ accounts; the same old story of a lot of bank executives.” (p. 16) Enter another shady character, a charge of forgery, and Ponzi ended up in the St. Vincent de Paul Penitentiary where he spent almost two years. Once released, he decided to leave Montreal for upstate New York. With him on the train were five Italian immigrants whom he had been asked to look after. The U.S immigration service was vigilant; it hauled Ponzi and the five immigrants off the train once it crossed the border. Ponzi was accused of smuggling aliens, the five men were held as material witnesses, and in the end Ponzi was sentenced to a two-year stint in a Georgia penitentiary.

The big house in Atlanta was a gilded cage, “the potential abode of every big man in the country . . . from cabinet members and members of Congress to national bank officials and postal clerks.” (p. 45) One of his fellow inmates was Charles W. Morse, the banker and stock market manipulator who was a leading actor in the Panic of 1907. Morse had been given a 15-year sentence but received a presidential pardon after only a little more than two years. The news accounts of his release referred to his ill health (apparently brought about by eating soap and other stuff): “may live only few weeks,” “too weak to be removed from sick ward,” “pardoned in death’s shadow.” Morse lived another 21 years!

Ponzi served his full term and was released in July 1912. Some more jobs in the South and finally back to Boston in January 1917 as a “foreign correspondent” for an export company. By then Ponzi was 35 years old, had been in the U.S. for 13 years, and had little to show for his life. Two years later, “tired of working for expectations that didn’t pay either my rent or my grocery bills,” (p. 94) Ponzi left his job and set out on his own. He rented an office even though he didn’t have a business. When the building in which that office was located was taken over for renovation he moved to “a dingy, little office on the fifth floor” of the Niles Building on School Street, across the alley from City Hall. “The necessary furniture and equipment, such as desks, chairs, typewriters, files and even a multigraph, came from instalment houses. Books, directories, etc., some from my house and some from second-hand book stores. I put in a phone. A supply of engraved stationery. And had a sign painted on the door serving notice to the world that Charles Ponzi was an exporter and importer.” (p. 95)

The problem was that Ponzi had no clients. He wanted to become a commission agent for domestic and foreign firms but needed a way to reach prospects. He decided to publish a free trade publication that would be subsidized by advertising, some of it targeted. “The Trader’s Guide” would be put out by “The Bostonian Advertising & Publishing Company.” “A long name which only meant an additional sign on the door and new letterheads.” (p. 98) Unfortunately Ponzi needed funding to launch the guide and could find it nowhere. “In a moment of despair” he applied for a $2,000 loan at the Hanover Trust Company. The bank president summarily denied his loan request, and soon enough The Trader’s Guide was but another dashed dream.

But Ponzi was energized by the bank president’s remark that his account was “more of a bother than a benefit to us.” A few months later Charles Ponzi owned the bank “lock, stock and barrel” (p. 102) and had the satisfaction of blocking a motion to raise the president’s salary.

(to be continued)

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