Notorious swindler Charles Ponzi once called Lexington his home

Charles Ponzi

By Jim Shaw  |  The ghost of Charles Ponzi is alive and well and thrives in the greed of modern day swindlers like Brad Bleidt and Bernard Madoff. And, for at least one Lexington resident who fell victim to Madoff’s $50 billion swindle, this is not an amusing story or a whimsical account of an interesting fellow who happened to live in Lexington. For this 85 year-old victim whom we have chosen not to identify, the pain is very real and his future is now uncertain.

With the recent arrests of Massachusetts money manager and radio mogul Brad Bleidt and Wall Street billionaire Bernie Madoff, the “Ponzi scheme” has become the focus of national and international news coverage. It has also surfaced as dinnertime banter in homes across the country. But just who is Charles Ponzi, and why are people so fascinated with his story?

Here in Lexington, the name Ponzi holds a different connotation — neighbor. You see, the world’s most notorious swindler – Charles Ponzi – lived right here in Lexington in a beautiful estate on Slocum Road. At the height of his most infamous criminal enterprise, Ponzi called Lexington his home town.

Ponzi first arrived in Boston by ship in 1903. He claimed to have only $2.50 when he first arrived. With no real luck securing gainful employment, Ponzi soon moved to Montreal, Quebec where he found work as an assistant teller at the newly opened Banco Zarossi. At the time, the bank was paying 6% interest on deposits, which was twice the average rate. This created a huge influx of new depositors. Soon, however, the bank’s real estate investments began to collapse causing economic chaos. In an effort to prevent a mass exodus of depositors, they began paying the interest with money from new deposits. Ponzi took notice of this and the seed was planted.

When the number new depositors drastically declined and they could no longer meet their obligations to existing depositors, the bank was shuttered and its owner fled to Mexico with much of the bank’s remaining cash.

Once again, penniless and unemployed, Ponzi went to visit one of the bank’s former clients. Finding no one there, Ponzi helped himself to the company’s checkbook and forged a check for over $400. He was caught and convicted and spent three years in a Quebec prison.

Ponzi returned to the US and quickly got caught up in an effort to bring illegal Italian immigrants into the country. He was convicted and spent two years in an Atlanta, Georgia prison.

After his release, Ponzi made his way back to Boston where he met and married Rose Gnecco. Ponzi made a lame attempt at honest employment, but his greed and the promise of great riches lured him towards what many consider to be the crime of the century.

One day while opening his mail, Ponzi happened across an International Reply Coupon (IRC). These coupons were intended to be sent overseas for the purpose of return postage. But Ponzi soon realized that there was a value differential. For instance, with the Italian post-war economy in a major decline, the cost of postage in Italy had decreased. So, theoretically, someone could buy IRC coupons in Italy and send them to the US where they could be sold for a higher value. Ponzi went to work and soon bragged that after all of his costs, he was realizing a profit of 400%.

Ponzi decided to bring in investors and promised them a 50% return within six months. His scheme immediately attracted hundreds of eager investors who blindly handed over tens of thousands of dollars. Overnight, Ponzi was a very wealthy man.

 

The Ponzi House

Ponzi was now part of high society and required all of the trappings of his great wealth. He lavished expensive gifts upon his wife and friends, and dined in the fanciest restaurants. The only thing left was a home appropriate to his stature. He settled on a beautiful estate on Slocum Road in Lexington.

I’m not certain if Ponzi had the home built or if it already existed, but the beautiful stucco mansion that was built in 1913 still stands today. For Ponzi, the home showcased his need to flaunt his new found success.

Now, there are several accounts of just how much money Ponzi had amassed and how many investors fell victim to his scheme. One account says that Ponzi duped over 10,000 individuals for $9.5 million. Another account places the number of victims at 40,000 with over $15 million invested with Ponzi. A quick calculation at www.measuringworth.com indicates that $9.5 million in 1920 dollars is worth over $1.5 billion in GDP value (yes, that’s billion with a “B”) in 2009.

Nearly as fast as his meteoric rise in wealth and influence, came his precipitous downfall. You see, like any pyramid scheme – the basis of Ponzi’s big idea – success only thrives as long as there are new investors to pay back original investors. When the pool of new investors dried up, the jig was up for Ponzi.

In a story printed in the Boston Post in July of 1920, Ponzi’s character, and business acumen was called into question. Most of Ponzi’s early investors stuck with him because they had experienced tremendous profits. Ponzi was forced to hire a publicity person who eventually turned on him as well. The PR guy, William McMasters, quickly determined that Ponzi was a fraud and later stated, “The man is a financial idiot. He can hardly add…He sits with his feet on the desk smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons.”

Postal regulators soon raided Ponzi’s Boston office and found to their amazement that Ponzi actually had very few of the postal coupons that had fueled the frenzy of his multi-million dollar empire. It was all a complete fraud. Because Ponzi had used the U.S. Postal Service to communicate with his investors, he faced serious mail fraud charges. In all, he was charged with 86 counts of federal mail fraud in two separate indictments. In return for a lighter sentence, Ponzi pled guilty to one of the charges and served five years in prison. After about 3 years, he was released to face state charges for swindling investors. While awaiting trial, Ponzi jumped bail and fled to Florida where he was eventually captured and went on to serve another nine years in prison.

After his release, Ponzi was deported to Italy and eventually traveled to Brazil where he died in 1949 penniless and alone.

Wikipedia refers to Ponzi as “one of the greatest swindlers in American history.” I have a little trouble with that because I associate the word great with people who have had a profoundly positive impact on society. I’m happy that Wikipedia allows people to edit it’s content because I think I’ll go back and correct it so it more accurately reflects who Ponzi was: “one of the most notorious swindlers in American history.”

That would be more appropriate. And, I think our 85-year-old neighbor who was victimized by Bernie Madoff would agree.

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