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A dreamer as much as a schemer
Ponzi’s Scheme depicts 1920s con man as self-deluded charmer
By Jessica Ullian
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In 1920, thousands of Bostonians, from laborers to aristocrats, invested a portion of their savings with Charles Ponzi, who founded a small investment firm that promised a 50 percent return within 45 days. Such a spectacular opportunity sounded unlikely and ultimately proved impossible. But Ponzi’s brief and astounding success was fueled by his charm, his charisma, and most important, his own deep-seated belief that the plan would work.
“It was one of his flaws as a dreamer as much as a schemer,” says COM Professor Mitchell Zuckoff, who tells the story of Boston’s World War I–era financial scandal in his new book, Ponzi’s Scheme, published this month by Random House. “It was thoroughly implausible, but he didn’t focus on that. He focused on the possibility, even if slim.”
Ponzi’s legacy is in the vernacular — the phrase Ponzi scheme refers to a type of pyramid scheme in which a new investor’s money is used to pay off an earlier investor’s return. But while many people know the phrase, few people know of the man. Zuckoff, a former reporter for the Boston Globe, was initially among the uninformed — when he began the project, he assumed Ponzi would turn out to be an “irredeemable swindler, just a bad guy.” His research proved otherwise. After collecting hundreds of stories, documents, and anecdotes involving Ponzi — most tellingly the letters he wrote to his wife, Rose — Zuckoff says he discovered a “complex person” with “a sort of sweetness, an underlying humanity.”
“He had good intentions,” he says, “although his actions didn’t always demonstrate that.”
Ponzi was born in Lugo, Italy, in 1882, and came to the United States in 1903 after dropping out of the University of Rome. He traveled around the country for several years, landed in jail twice — once for check forgery, once on a charge of smuggling aliens into the country — and arrived in Boston in 1916. He met and married his wife, Rose, soon after, and came up with his infamous scheme in 1919.
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In his new book, Ponzi’s Scheme, Mitchell Zuckoff explores the life of Boston con man Charles Ponzi. Photo by Kalman Zabarsky |
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Ponzi’s business, the Securities Exchange Company, was founded on the premise of using international postal reply coupons — whereby people could buy a coupon in one country and redeem it for stamps in another — to exploit discrepancies between strong and weak currencies. Ponzi, Zuckoff writes, decided to buy coupons in countries with weak currency and cash them in in the United States. The idea itself was perfectly legal, says Zuckoff. “The problem was that it was thoroughly impractical.”
As it turned out, Ponzi never had to deal with the impracticality of his plan. The idea attracted so many investors that he never redeemed a single postal coupon. Instead, he simply used the incoming cash to pay off investors when the 45-day interest period was up. He launched the scheme in January 1920, and by July approximately 20,000 people had invested more than $9 million.
Zuckoff believes the ploy worked, at least initially, partly because Ponzi had such faith in his own system, and partly because of the prevailing sense of enthusiasm that characterized the postwar period. “These people, in 1920, focused on the idea that after the war, every immigrant would be rich,” Zuckoff says. “It was the same as the belief that the stock market would never crash.” Ponzi himself fell victim to the optimism, buying expensive clothes and a chauffeur-driven car, and styling himself as an economic savant.
A scant eight months after he began the company, however, the fraud was uncovered, thanks in large part to the efforts of Richard Grozier, the publisher of the Boston Post. The paper won a Pulitzer Prize in 1921 for its role in the exposé; Ponzi was convicted of fraud, went to jail, and was eventually deported.
Zuckoff became interested in learning more about the erstwhile financier in the early 1990s, when he was a banking reporter at the Boston Globe, but didn’t begin the project in earnest until 2002, when the country was caught up in the latter-day fraud scandals of Enron and WorldCom. “If there was ever a time to try to sell a book idea about Charles Ponzi,” he says, “this was it.”
His research led him to Ponzi’s birthplace in Italy, to the U.S. Judicial Library in Washington, D.C., and all over the School Street building that had housed the Securities Exchange Company. He talked to Rose Ponzi’s nieces, nephews, and cousins, looked up the census records of Ponzi’s investors, and read Ponzi’s unpublished autobiography, found in the Library of Congress.
The key to writing Ponzi’s Scheme, however, was finding that Rose’s family had preserved the letters he wrote to her after his conviction. Most of the accounts Zuckoff found described Ponzi as charming but brash, and the autobiography, while largely accurate, Zuckoff says, was tainted with “hyperbole and self-aggrandizing.” The letters provide the other side of the story.
“You get such insight into a person when he’s writing for the private view of someone he loves,” Zuckoff says. “It brought him so much more to life for me.”
The idea of structuring a book using historical research was new for Zuckoff, whose previous books, Choosing Naia and Judgment Ridge (coauthored with COM Journalism Professor Dick Lehr), focus on current or recent events. But searching out old documents and archived records proved to be an interesting challenge, particularly after 25 years as a news reporter. He found the process so enjoyable that he plans to research the past again for his next book, a biography of P. T. Barnum. “Spending time in the 1920s, I saw all these amazing parallels,” he says. “I was really taken by the idea of finding a unique American who defined an age, and whose effects are still being felt today.”
Such a description applies as well to Ponzi, whose unique quality proved to be his fatal flaw: he was not the typical con artist, a “take-your-money-and-run kind of character. Most flimflam artists and swindlers, the first thing they do is figure out an exit strategy,” Zuckoff says. “He was going to try and make his scheme work. Ponzi never figured out the ‘and run.’”
25
March 2005
Boston University
Office of University Relations