Archives for March 2012

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 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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A Personal Connection-The Economic Impact of a Light Winter

Hank Manz

By Hank Manz  |  Shortly after I was elected as a selectman in Lexington, my outlook on snow began to change.   No longer was it that attractive blanket which made the town look like a Norman Rockwell painting and which, thankfully, covered the leaves I hadn’t raked in the fall.  Snow costs money.  Not only must the town pay overtime for DPW workers, but they must also contract with private plowers to augment town equipment and personnel.  The town must pay for salt and sand and then, after the salt and sand has eaten away and abraded the road surface, the town must pay again for early maintenance.  Plowing sometimes rips up curbing and tears out patches in the road.  More money for repairs.  When budget time comes around as it inevitably does, then the realization hits that, once again, taxes are going to go up if we wish to maintain services.

Fall came and went this year without much in the way of brilliant colors and also without much bad weather except for a hurricane and a winter storm which cost us some trees, but did little in the way of damage to buildings.  I stopped in at Ranc’s for some ice cream on one of the few cold days in January and found Joe less than enthusiastic about the temporarily freezing weather. For the most part, however, the weather has been mild.  At home, with a new, more efficient, heating system installed last summer, we have been much more comfortable, both physically and fiscally than we were last winter. Even with the price of oil up, consumption is far below that of last year—a combination of a better boiler and better weather. The woodpile which feeds our woodstove is getting a bit low so I will have to split some more wood soon. This is a lot easier job that usual given the lack of snow. I suspect that Curt, an owner of a local insurance company, is happier because with no snow and ice, the claims rate has not yet taken the usual seasonal jump. The weather is so warm that the family cat has not had to take up his winter place under the woodstove where I am sure he passes the time wondering why humans insist on making it cold and wet outside. If I spoke Cat, I would probably find out that what he is saying when snow is falling is “Do I have to draw you doltish humans a diagram?”

So it was with a light heart that I broached the topic of no snow with Susan who was until recently the manager of the local branch of Brookline Bank. That led to an extended conversation while she filled me in on the other side of the coin.  No snow means no plowing which is how the private plowers, most of them landscapers or contractors in the building trades, pay for the trucks they use all year round.  No cold weather means fewer oil deliveries which has a heavy impact on oil dealers because they have contracted to buy a minimum number of gallons of fuel from the distributors and now they might not be able to meet those minimums so they could be in trouble.  No cold weather means that even if the local shoe stores avoid getting stuck with a huge inventory of boots which will be out of style by next year, there is a good chance that somebody will lose money on that inventory somewhere.  Of course no snow means that people like me will make their boots last another year even though the pair I wear most often has several hot-glue patches on them. No snow means many local stores are carrying large inventories of shovels, scrapers, sand, salt, and windshield washer fluid.  They should have sold at least half of the stock by now, but now they may be stuck twice—they are paying for storage and eventually they may have to fire sale the leftovers. Susan had at least two dozen examples and I could think of even more as we talked.  It means, for instance, that I might have trouble getting donations for the youth hockey league I help run because local businesses are the main source of those donations.

This was an amazing revelation—snow is an economic engine for the economy of the small town in which I live.  Could it be that the half a million dollars or more the town spends in most years for removal is nothing compared to the economic boost it gives many of the citizens who pay for that removal with their tax dollars? Then they, in turn, can afford to pay their taxes which helps keep the town solvent.

Bursting with my new-found knowledge, I started the task of convincing the citizenry by talking to my spouse.  She wasn’t buying it, even after I pointed out that her own windshield scraper, broken last winter, has not had to be replaced.  Sad to say, only a very small number immediately bought my explanation, including guys like Mike who runs a landscaping business and plows in the winter.  Fortunately, with the Super Bowl over, a weekend snowstorm may excite more interest in plowing than it would have just a few weeks ago.

But I still believe in the economic engine theory and should it snow, I will be sad that the town’s financial problems will be worse in the short term, but glad that Dick will sell some boots, that Mike might get some plowing time in, and that Lexington Ace Hardware will sell at least a few shovels.  To prepare for what must surely come, I will buy my wife a new windshield brush and scraper for her car, but while I am on that errand, I will stop at Joe’s for an ice cream sundae and I will drive very carefully so Curt will not suffer. You know—my boots are looking a bit the worse for wear so just maybe I will be paying a visit to Michelson’s very soon. It has to snow eventually, right? But please, not in April …

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