Streets of Gold: Charles Ponzi and the American Scheme
July 23, 1920
William H. McMasters was one of Boston’s top public relations experts. He’d handled political campaigns for everyone from Calvin Coolidge to former Boston mayors John F. “Honey Fitz” Fitzgerald and James M. Curley. It was this reputation that led the treasurer of the Hanover Trust Company to secure McMasters’s services for one of their top new shareholders: an overnight financial sensation named Charles Ponzi.
At fifty-six years old, McMasters had wavy graying hair, a small nose, and prominent lips. A lawyer and Spanish-American War veteran with political aspirations of his own, he was never averse to having a multimillionaire for a client—especially a guy who seemed to be throwing money around with abandon. Whether it was friends, staff, family, or charities, practically everyone Ponzi came across got money. McMasters liked that.
“Mr. McMasters!” Ponzi greeted him. “I’ve heard so much about you!”
The well-dressed lawyer smiled as the exuberant diminutive Italian approached him.
“I am in need of a PR agent,” Ponzi said. “And I have been assured you are the best in the business.”
Oozing charm and confidence, Ponzi shared with McMasters his plans for building a larger financial empire. He told him that he was bringing in hundreds of thousands a month and giving his shareholders a 50 percent rate of return in just ninety days.
McMasters was shocked by the numbers. “A fifty percent return? In ninety days? How is that possible?”
“It’s very possible, I assure you,” Ponzi replied. “Just ask my investors.”
“But how do you do it?” McMasters pressed.
“Well, I can tell you only so much,” Ponzi said. “Otherwise I might give away trade secrets that would put me out of business.”
Ponzi was self-assured, McMasters saw that right away. But he also saw something else, something that filled the seasoned lawyer with doubts. After all, a person who spins the truth for a living can always see when someone else is doing the same.
19 Years Earlier
University of Rome
April 12, 1901
“I am studying hard,” Carlo wrote his mother. He regaled her with stories about his grueling class schedule, the good marks he was making at university, and the laudatory comments of his professors. “I hope you will be proud.”
Of course Carlo knew that she was already proud. Imelde Ponzi had big dreams for her only child, who had ventured from the northern Italian countryside into the city. She had told Carlo again and again, especially after his father died, that he was the family’s future. Only he, with his brilliance, tenacity, and many capabilities, could bring them the wealth and recognition they deserved. He would build “castles in the air,” she often said, whatever that meant.
Perhaps that was why Carlo was drawn to his circle of friends at school. These were young people of sophistication and wealth. They wore the finest clothes, drove the finest vehicles, partied at all hours, and had seemingly unlimited funds. They lived la dolce vita.
Satisfied with his letter to his mother, Carlo had a few more drinks, scrounged together some money for gambling, and stumbled out into the night.
May 4, 1902
One year later, Carlo was sitting in his uncle’s house in Parma. Since his father’s death, his uncle had seemed to think it was his duty to offer counsel and guidance.
“College is over,” his uncle said. “I think it is time you found a job. “Maybe you could apply to be a clerk. Or maybe you could join the postal service like your father. It doesn’t pay much, but you could earn an honest living and contribute to the family.”
The young man winced. Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi was not meant for a life of middle-class drudgery. Working at a monotonous job for meager wages? That was humiliating. And what a disappointment it would be to his mother. They were a rather ordinary middle-class family, but they had million-dollar designs. Carlo’s mother was a descendant of Italian dons—and Carlo believed it was time to return the family to wealth and prominence.
Imelde had been heartbroken when her only son had dropped out of the University of Rome. She was astonished when she learned of his poor marks. She couldn’t believe he had lied to her for so long. Carlo hadn’t set out to deceive her. He never expected to flunk out of university. His rich friends had seemed to coast through their studies and stay in school. He couldn’t figure out why that same strategy hadn’t worked for him.
“I appreciate the suggestion,” Carlo said. “But I need to do something bigger. Something that would make Mama proud. I want to show her that her faith in me was not misplaced.”
“Well, then, what about America?” his uncle asked. Stories about uneducated, poor Italian boys leaving for America to get rich were everywhere.
“America?” Carlo asked, his face brightening.
“In America, the streets are paved with gold,” his uncle said. “All you have to do is reach down and pick it up.”
November 17, 1903
Twenty-one-year-old Carlo Ponzi arrived in the United States amid choppy seas and an icy wind that whipped up the rain and ocean mist. He walked onto the docks and wiped the saltwater from his thick, expressive eyebrows. He barely spoke a word of English and had just$2.51 left in his pocket. The rest, his entire life savings, he had gambled away during the voyage. Ponzi bore no ill will toward the Sicilian who’d cheated him out of his money. To the contrary, he was impressed by the man’s skill.
But his current sorry state was of no consequence to him. At five feet four, Carlo may have been short of both height and money, but he had million-dollar dreams. America would be the place where great things would happen for him. He could feel it. This was his destiny.
As he exited the ship, he was wearing his best suit. He’d learned from his former classmates in Rome that one always had to look the part. With a smile on his lips and a twinkle in his eye, he was sure he looked as if he had just walked out of one of Boston’s finest homes. Carlo dutifully submitted himself for inspection to the officer at the U.S. entry point. Like every other immigrant arriving in America, he vowed that he had never been in jail or the poorhouse, and that he had no communicable diseases. It was all rather demeaning for someone of his merit, but what could he do?
“What’s your occupation?” the officer asked.
“Student,” Carlo replied.
Walking through the inspection gates, he felt an unpleasant texture beneath his finely polished Italian shoes. As he looked down, he made a surprising discovery: The streets of America were not paved with gold. They were in fact caked in mud.
April 4, 1908
Luigi Zarossi chomped on a cigar and eyed the young men carefully as he listened to them outline their plans for the bank.
In a matter of months, Charles, with his steady smile, confident gaze, and infectious optimism, had won his boss’s trust. Zarossi had promoted him from assistant teller to manager of the bank in record time. A bank manager—his mother couldn’t help but be impressed with that!
Charles’s English, if not his finances, had improved enormously over the last few years. He had drifted from one job to another, working in all sorts of odd places, including as a dishwasher at a restaurant, where he’d slept on the floor to save money. But he knew none of those jobs were going to help him achieve his dreams. It wasn’t as though he was starving—he wasn’t. He knew he could lead a perfectly comfortable lower-middle-class existence like any number of his fellow immigrants. Find an Italian woman. Raise some Italian kids. But that wasn’t for him.
In his frustration, he sometimes turned to dice or card games to try to make some extra money, but, for whatever reason, luck rarely took his side. That was why, after hearing about an Italian immigrant who had started a successful banking business in Canada, he’d decided to head north.
And so he was starting over again. He was now in a new country, with a brand-new name to match: Charles Bianchi. “Charles” was more acceptable than “Carlo” and “Bianchi” was Italian for “White.” White like a piece of paper. A blank page. A clean slate.
Under the direction of the jovial Luigi Zarossi, Banco Zarossi catered to Italian immigrants, luring them in with promises of competitive interest rates and fair dealing—not to mention speaking their native language. Banco Zarossi became one of the fastest-growing financial institutions in Canada, but Charles knew it was also a trouble done. Zarossi had been dipping into customers’ deposits to pay for some bad investments. His boss was a nice man, Charles thought, but a stupid one.
It was during his time at the bank that Charles ran into Antonio Salviati, a friend from the old country. Salviati was still the same slick guy he’d known at the University of Rome, complete with the small scar on his cheek from a knife fight. It was Salviati who had helped Charles come up with the plan they were now presenting to Zarossi.“Mr. Zarossi, what if you could offer customers a ten percent interest rate on their accounts?” Salviati asked.
Charles smiled and said, “They would be beating down our doors!”
“I agree with you—but, Charles, you understand banking enough to know that such an interest rate is impossible. We’d never be able to turn a profit.”
Charles exchanged a look with Antonio. “Mr. Zarossi,” he said, “haven’t a good number of the bank’s customers given you money to wire back to their relatives in Italy?”
“Well, take the money, but don’t actually send it,” Salviati advised. “Use it to pay off your debts instead.”
Zarossi’s eyebrows rose. “But what will happen when the customers realize their money never reached their relatives?
“That’s why we should pay a ten percent interest rate,” Charles said. “To bring in big depositors.” He explained that by the time anyone was wise to the scheme, the bank would have more than enough money to wire to customers’ families in Italy.
Charles smiled. “Everyone will win. The customers will get ten percent interest. You will be able to pay off your debts. And more and more money will flood into the bank’s coffers.”
Ponzi’s confidence was infectious. “Yes,” Zarossi said, puffing on his cigar. “Maybe this plan could work.”
May 1, 1908
Alone in his room at the boardinghouse, Charles threw his clothes into suitcases. His train was leaving in thirty minutes. He hoped it would free him from both Montreal and from his latest mess.
He quickly looked around the room for anything he might have forgotten. Suddenly he heard a knock on his door. Then another.
“Who is it?” he asked. Opening the door, he saw two somber-looking men. Although they were dressed in plain clothes, they had the aura of law enforcement. His heart raced. Why had he lingered in Montreal? He should’ve been gone by now. He thought he would have had more time.
“Are you Charles Bianchi?” one of the men inquired. His tone did not suggest a friendly call.
“No,” Charles replied. The Bianchi name hadn’t brought him new luck after all, so he tried another. “My name is Clement.”
“I’m Detective McCall,” the man said. “I know who you are.”
“Okay, okay,” Ponzi replied, with a sigh. “I’m guilty.”
Nobody had said a word two days earlier when Charles had walked into the main office of Canadian Warehousing. And why should they? After all, the company was a customer of Banco Zarossi, and Charles had visited them often.
Entering the director’s empty office, he had opened a desk drawer and written himself a check for $423.58. He thought the precise number was an especially nice touch, making it seem more credible. At the bottom he signed the director’s name. Then he put the check into his suit pocket and walked out the door.
Charles didn’t want to take money from one of his customers, but what choice did he have? The scam at the bank had collapsed in just a couple of months, far sooner than any of them had expected. Customers received quick word from relatives that their money hadn’t arrived—and that was it. Within days, Salviati had disappeared and Zarossi had fled to Mexico City with all the cash he could find.
But Ponzi had decided to remain—at least long enough to spruce himself up before returning to the United States. He walked from store to store, buying two new suits, an overcoat, a pocket watch witha chain, shirts, ties, and suspenders. He looked the part of a successful businessman.
Now those very clothes were being inventoried by Detective McCall, who also found what was left of the forged check Ponzi had cashed—a "little over two hundred dollars.
“Carlo Ponzi,” also known as “Charles Ponzi,” aka “Charles Bianchi, ”aka “Charles Clement,” was under arrest.
That night, Charles wrote to his mother in Italy from the St.-Vincent-de-Paul Penitentiary:
Dearest Mother, your son has at last stumbled on excellent fortune in the country. I have taken a position as special assistant to the warden in the institution, who can well use my fluency in language in conversing with some of the inmates. It is a three-year contract, darling mother, and during that time I shall not have to worry where my next meal or warm bed to come from. . . .
When he finished writing he shifted fitfully on his mattress, which was made from a sack of corncobs and husks. For Ponzi, the despair of being locked in a cell was nothing compared to the empty feeling of being dead broke. As he clawed at his makeshift pillow, he resolved never to let it happen again.
Three Years Later
Moers Junction, New York
June 7, 1911
“On your feet, wops!”
The U.S. border inspector walked through the crowded coach train and scrutinized the six men before him. They were obviously Italians. Five of them were big and burly and looked clueless. The sixth, however, was a short guy who appeared confident and composed.
Back in Canada, Charles Ponzi had told the five big Italians to board the train quietly and sit with him. He had ushered them on board as a favor to his old friend, Antonio Salviati, who was still managing to evade the authorities in Canada while undertaking a new scheme: smuggling Italian immigrants into the United States.
When Ponzi handed his ticket to the conductor, the five men were to follow suit. They were not to say a word or cause any trouble. Intelligence, however, was not their strong suit. The moment an officer began to question them they started jabbering away in Italian. The jig was up moments later when their paperwork didn’t check out.
The officer looked directly at Ponzi. “You’ve brought these men into the United States in violation of the immigrations laws,” he charged. “I did no such thing,” Ponzi protested. “We were all merely on the same train.”
“None of you have a permit to enter the country,” the officer said. As an Italian citizen, Ponzi needed a visa since he had never bothered to obtain citizenship when he’d first arrived in America eight years earlier. “We were interviewed by the inspector on the Canadian side of the border. If we were inadmissible for any reason, it was his duty to inform us!”
“We don’t need you to tell us the law, Mr. Ponzi.”
Charles lowered his head and closed his eyes. His run of bad luck had apparently not yet ended. He was on his way to another prison, and this time for one of the most serious of offenses: attempting to smuggle aliens into the United States.
Atlanta Federal Prison
Charles Morse was a filthy-rich Wall Street mogul—exactly the kind of man Charles Ponzi had always wanted to be. Now Morse was Ponzi’s fellow inmate. The authorities had closed in on Morse over his involvement in a speculation scheme and the alleged misappropriation of bank funds—not unlike Ponzi’s own crimes back in Canada. As Morse described what he’d done, Ponzi hung on his every word. Morse had been known as the “King of Ice” in New York due to his ice delivery business. He’d also had a successful shipping company, which had made him a player with some of the biggest names around—not just in the city, but in the entire country. Even now, Morse bragged to Ponzi that his lawyers were pushing President William Howard Taft to show him leniency because of the mysterious illness he was suffering from.
Ponzi had noticed that Morse’s curious malady always seemed to be most acute right before he was to be seen by the prison doctor. Then, moments later, he seemed to be fine again. Ponzi knew something was up, but he never said a word. He just watched.
The illness intensified the entreaties of Morse’s wealthy friends for Taft to pardon him on humanitarian grounds. When news spread through the prison that Taft had finally granted the release, Morse quickly started planning a European vacation.
Over their periodic chess games, Morse told Ponzi many times that his sentence was one of the most brutal ever imposed on a citizen of the United States. “There is no one on Wall Street who is not doing daily what I did,” he said.
Ponzi listened to his idol’s words carefully, especially now that the great man was departing. “Always have a goal, Charlie, a goal that keeps getting bigger.
“It’s all a matter of keeping your sights high. There are millionaires outside who make mistakes every day, but their sights are high and when things go wrong the money is there to cover their losses.” Their wealthy friends seem to be there as well, Ponzi thought.
Charles later found out that Morse’s illness had been just another one of his schemes. He had been eating soap shavings to put toxins temporarily in his body. In America, Ponzi was starting to realize, if you had money and power, you could get away with almost anything.