Ponzi's Scheme

by Mitchell Zuckoff

  Ponzi considered joining his old acquaintance but hesitated. He was as eager to get rich as he had ever been, but he believed he could do it legitimately with one of the many plans he had cooked up in prison. Another reason he turned down his old friend’s offer was a suspicion that taking part in such a crude operation would land him on an Alabama chain gang. Ponzi was thirty. He had just lost four years to prison and he was determined never to go back.

  Ponzi hit the rails again, heading fifty miles southwest to Blocton, Alabama, an Appalachian mining town founded after the Civil War by a New Yorker named Truman H. Aldrich. By the 1880s, Aldrich had made a fortune by establishing the Cahaba Coal Mining Company, which owned eight mines and blasted thousands of tons of high-grade coal from the earth to help power the newly industrialized country. By the time Ponzi arrived, coal was better than gold in Alabama, and boomtowns like Blocton, Scratch Ankle, Coalena, and Marvel were peopled with coal-dusted miners and their families, a growing number of them Italian immigrants.

  For several months Ponzi scraped together a living as a translator, a part-time bookkeeper, and, occasionally, a nurse to injured miners. The Italian camp in Blocton reminded him of small-town life back home, always celebrating a christening, a marriage, or a holiday, and he felt embraced by “a brotherhood of common interests and endeavors and neighborly love.” But conditions were only a step above primitive. The camp’s ramshackle wooden houses had no electricity or running water. Still dreaming of riches, Ponzi began laying plans to make himself the local czar of light and water. Imagining himself a Charles W. Morse in miniature, Ponzi outlined for his neighbors a vision of a corporation in which community members would purchase stock to finance a small power plant that would supply electricity and pump water from a nearby creek. Ponzi, of course, would retain a controlling share to compensate him for his work and leadership. Water and power rates would be set based on Ponzi’s cost estimates, and he promised he would take no more than “a reasonable margin of profit.” He would effectively be owner, supplier, and rate setter of two essential utilities. If it worked, Ponzi would no doubt attempt to duplicate those monopolies in other isolated mining camps.

  Early support from his neighbors was strong, and Ponzi was certain he had come upon his first chance to make real money legitimately. But it was not to be. “Something always happens!” he lamented. “Something so entirely unexpected that it always catches me unaware. Like a flower-pot that lands on a man’s head from a three-story window.”

  The flowerpot in this case was a young woman named Pearl Gossett.

  Gossett was a nurse at the mining company’s hospital. In October 1912 she was cooking a patient’s meal when the gasoline stove burst into flames, leaving her with severe burns on the left arm, shoulder, and breast. Ponzi’s occasional work as a nurse brought him into contact with the hospital staff, and he had grown friendly with a physician, one Dr. Thomas. On a visit to the miners’ camp a few days after Gossett’s accident, the doctor stopped by to share a beer with Ponzi.

  “How’s Pearl?” Ponzi asked.

  “Her condition is very serious,” Dr. Thomas answered. “Almost desperate. Gangrene is setting in.”

  Ponzi asked if anything could be done to help her.

  “Skin grafting, perhaps,” the doctor said. “I wanted to try it. But I can’t find anybody who will give up as little as an inch of his skin for her.”

  Ponzi did not know Gossett well, but others had told him how caring she was. Hearing the doctor say she might die or, at the minimum, lose her arm, “made my blood sizzle,” Ponzi said. “It did not seem fair that a young girl like Pearl should be permitted to die such a horrible death. That girl had been so kind to her patients that it seemed inconceivable that she should meet with such ingratitude.”

  It angered him, Ponzi said, “to think that any person could be so selfish, so cowardly, as to refuse a mere inch of his own skin to save a human life.”

  “How many inches of skin do you need altogether?” he asked the doctor.

  “Forty or fifty, I guess,” Dr. Thomas said. “But I can’t find even ten in a community of two thousand or more people.”

  “You’re all wrong, Doctor,” said Ponzi. “You have found them. I will give all the skin you need.”

  “You? You will give the whole of it?”

  “Yes, Doctor, I will. When do you want me?” Ponzi asked.

  “We cannot put the thing off for very long,” the doctor answered. “But I don’t want to hurry you, either. You might want to prepare for it. Sort of brace up. When can you be ready?”

  “I am ready now,” Ponzi said.

  Dr. Thomas looked hard at Ponzi, making certain he would not flinch. “Evidently,” Ponzi said later, “what he saw in my eyes decided him.”

  “All right, then,” Dr. Thomas said. “Come along.”

  That night, doctors removed seventy-two square inches of skin from his thighs. Ponzi spent the next few weeks in the hospital, bandaged from hip to knee. When he had nearly recuperated, Ponzi got another visit from Dr. Thomas. The nurse needed more skin.

  “Go as far as you like,” Ponzi answered.

  On November 5, another fifty square inches were taken from his back. He spent most of the next three months in the hospital, battling pain and pleurisy. The donations would leave him with broad white patches of scar tissue on his back and legs. Gossett remained scarred as well, but she recovered.

  An account of Ponzi’s giving the skin off his back and legs to help a nurse made the local newspaper. Ponzi proudly sent a copy of the clipping to his old boss at the Atlanta prison, A. C. Aderhold, who would keep it tucked away for years. The newspaper story spurred talk among prominent Blocton citizens about recommending Ponzi for a medal and a reward from the Carnegie Hero Fund, established eight years earlier, in 1904, by industrialist Andrew Carnegie to honor acts of civilian heroism. But the effort never got off the ground, and Ponzi received no formal recognition.

  By the time he was released from the hospital, other plans were being made to supply the mining camp with water and light. Another opportunity lost, Ponzi returned to the drawing board.

  Ponzi left Blocton a few months later, meandering south to Florida, where he moved from town to town painting signs, houses, and anything else that paid. He signed on to paint an iron-hulled freight and passenger steamer named the S.S. Tarpon as it cruised from port to port along the northern Gulf Coast. But he quarreled over pay with the Tarpon’s fierce captain, William Barrows, and Ponzi found himself stranded in Mobile, Alabama. He took up painting again, but when work slowed he looked for jobs in a newspaper’s help wanted ads. One read: “Librarian Wanted at the Medical College.” He got the job for a meager thirty dollars a month.

  Ponzi took his meals at the home of the college caretaker and spent nights in a room on the first floor of the medical school. His on-campus lodgings made him easy prey for the pranks of medical students. One night when a storm knocked out the lights, they carried an embalmed corpse from a classroom to Ponzi’s room and tucked it in his bed. “I laid him on the floor of my room,” Ponzi recalled. “We both slept peacefully, but I woke up first.”

  He moved to a rooming house owned by Mrs. T. C. White, who grew fond of him as she listened to his endless fantasies about becoming rich. He spent nights locked in his room, Mrs. White said, “and when we asked him what he was doing he would say that he was figuring and not to worry him.” One time he made an arrangement with a local automobile dealer to raffle off a new car. But Mrs. White drew the line when he began inviting young women to the house—not for dates, but for a jewelry sales business. When she told him he could not make the house an office, he abandoned his plan but told her that he would someday have a fine office downtown.

  He found new rooms at the home of the college’s caretaker, Gus Carlson, and once he boasted to Carlson’s daughter-in-law that his picture would be in all the newspapers. She joked that it would be when he was hanged.

  “Either that or I will be
a millionaire!” Ponzi answered.

  He grew friendly with Carlson’s son, Gus Junior, who watched as Ponzi routinely spent whatever money he made on girls or friends. Ponzi especially delighted in buying ice cream for the children who gathered during the afternoon to play on the college lawn. “He would never let you spend your money,” Carlson said after Ponzi left town, “no matter if he was spending his last cent on you.”

  Through his work in the library, Ponzi learned that doctors in Birmingham were lobbying to uproot the medical school from Mobile. Doctors in Mobile were fighting to keep the school, and Ponzi sided with his new friends in Mobile. He became upset when he discovered that a member of the school’s faculty was secretly scheming in favor of the Birmingham move while publicly opposing it. Motivated by loyalty to his adopted home and new friends, Ponzi intercepted a letter the two-faced faculty member was sending to a leader of the Birmingham contingent. He steamed it open, “and there before me was the evidence that he had been double-crossing the college right along. He was working hand-in-hand with the Birmingham bunch.”

  Ponzi brought the letter to the acting dean, who demanded the resignation of the duplicitous faculty member. But it did not end there. The college president, who sided with the Birmingham forces, did not appreciate a Mobile librarian tampering with mail. The president crossed out the budget line for Ponzi’s job. Ponzi was disappointed—he liked the school and its students, he enjoyed the steamy weather in Mobile, and he cherished the friends he had made. “I should have known it wouldn’t last,” Ponzi said afterward. “If it had, it would have interrupted a long circle of bad breaks.”

  He left Mobile in ragged clothes, with empty pockets. He headed for New Orleans just in time for the hurricane of September 1915. The storm made plenty of business for a sign painter, and he kept busy through Mardi Gras the following spring. From there he moved farther west, to Wichita Falls, Texas, a straitlaced cotton and cattle town halfway between Dallas and Oklahoma City. The town was pretty much owned by two brothers-in-law, Joseph Kemp and Frank Kell, who controlled the banks, the dry goods business, the grain elevators, much of the land, and the railroad lines. Soon they would grow richer with the discovery of oil.

  As a sideline, in 1910 Kemp and Kell had formed the Wichita Falls Motor Company, whose rugged flatbed trucks were soon turning up throughout North and South America and everywhere else from Europe and India to China and the South Sea Islands. Ponzi found work as a sixteen-dollar-a-week clerk in the foreign sales department, helping the company live up to its motto: “The Sun Never Sets on a Wichita Truck.”

  The company’s extensive foreign business was done by mail and cable, transacted in a half dozen or so languages that Ponzi knew either fluently or passably. In addition, Ponzi had to school himself in the esoteric business areas of foreign currencies and exchange rates, shipping routes, customs tariffs, and postal and telegraph fees. It was the kind of knowledge he realized he could use to make a name for himself.

  First, though, he had to get out of sleepy Wichita Falls. His chance came in December 1916, when he got word that Italy was seeking emigrants as reservists to reinforce its armies for the Great War. Ponzi was prepared to fight for his homeland, so he went to New York and boarded a steamer bound for Italy. But he never made it out of the harbor.

  Before the ship weighed anchor, he learned from the local consul’s office that the Italian government would not pay reservists’ fares or expenses for the trip home. Fighting was one thing; paying for it was another. Incensed, Ponzi left the ship, though not in time to remove some of his luggage, which went on to Italy without him. By some accounts, he was so eager to avoid paying the fare he jumped overboard and swam the short distance to the pier.

  Stuck in New York, Ponzi again scoured the help wanted ads. One seemed written just for him. The J. R. Poole Company needed a clerk for its import-export business. The salary was only fair, about sixteen dollars a week, but Ponzi liked the location. After thirteen years of roughing it through North America, Ponzi was returning to the city where he had first landed in search of gold: Boston.

  Richard Grozier during his difficult years at Harvard.

  Mary Grozier

  CHAPTER FIVE

  “AS RESTLESS AS THE SEA”

  Edwin Grozier’s devotion to the Post did not leave much time for family. As he put it, “There were many times when I worked twenty-four hours a day for several days in succession.” Even when he was not on News-paper Row, work followed him home. A frequent guest at his dinner table was the Globe’s General Taylor. One observer wrote of Grozier, “The bulk of the work in every department of the paper—business, circulation, editorial—all fell on his shoulders. He did not know what it was to rest. . . . All his work was for the Post and there his heart was—with the paper, its employees, and its readers.”

  With his heart at the Post, the job of rearing his children fell to his wife, Alice, a serious woman who oversaw the care of their son, Richard, and daughter, Helen. Edwin Grozier was at once distant from and demanding of his children. One of the few pastimes father and son shared was chess. Thanks to Edwin’s success, the family lived increasingly well, taking lavish vacations when he could be pried away from the Post and hiring servants at their home in a bowfront town house on Boston’s fashionable Newbury Street. A friend of Edwin’s recalled visiting the family there and seeing young Richard dreamily drawing tiny boats and ships on a painted ocean.

  The family summered at an elegant home on Commercial Street in Provincetown, on Cape Cod, with a park and a beach across the street. But Edwin often remained in Boston, missing the chance to see his slender son, Richard, join the other boys diving off a dock for pennies tossed to the bottom of the cool harbor waters. He also found little time to discover that his son had an inventive, if restless, mind, with a gift for math and science.

  When Richard was twelve, his parents sent him north to bucolic Exeter, New Hampshire, to attend one of the most prestigious boarding schools in the country, Phillips Exeter Academy. For tuition and expenses of about $325 a year, a young man at Exeter could be reasonably certain of winning entry into an Ivy League college. But Richard lasted barely three months, earning D’s in math and English, and a failing grade in history. He returned home after one term, in time for Christmas.

  A year later, his parents insisted he try again. He returned to Exeter, this time maintaining a C-minus average over the next four years, with an occasional A in math or physics, and a few failing grades in Latin and history. He seemed comfortable, though, winning election as president of his dorm and as captain of the chess team, and warming his father’s heart by becoming secretary of the school newspaper, the Exonian.

  As planned, Richard was accepted at Harvard in the class of 1909, a collection of 434 pedigreed young men who had every reasonable expectation that they would rule the world. Half were from Massachusetts, and more than half, including Richard, were Protestants, with twenty-six Catholics, sixteen Jews, five Christian Scientists, three Free Thinkers, and two atheists thrown in for diversity. Fifty-four were the sons of men who had attended Harvard, and three-quarters declared themselves Republicans. One of those was Theodore Roosevelt Jr., whose father was president of the United States at the time. Classmates also included T. S. Eliot, Walter Lippmann, and scores of other young men destined for fortune and various levels of renown.

  Whether he was intimidated or just uninterested, it was not long before Richard began following a path almost identical to Ponzi’s at the University of Rome. He developed a taste for fine wine and champagne, ate sumptuous meals at fashionable restaurants, smoked cigarettes in a rakish holder, and put his gentle voice and handsome face to use wooing older women. He had chestnut-brown hair and sensitive dark eyes, and his finely tailored clothes hung perfectly on his trim five-foot-ten frame. With the world at his feet, he found little time for classes. Richard Grozier seemed especially determined to fail freshman English composition, a galling prospect for his newspaper editor father. />
  In November 1905, not three months after his arrival at Harvard, Richard received a letter from the freshman dean, Edgar H. Wells: “I am very sorry to tell you that the Administrative Board at its meeting last night voted to put you on probation for your unsatisfactory record. Probation means that you are in serious danger of separation from College, and unless from now on your record both in attendance and grades is thoroughly satisfactory you may be sent away without further warning.” Wells wrote a similar, though somewhat more polite, letter to Edwin Grozier.

  There was a cachet to laxity among certain Harvard students. This was especially true among the “club men,” who thought a grade above a C was a waste of effort. They dressed in expensive but casual disarray, disdained rah-rah school spirit, and refused to date the brainy women at Radcliffe. Outwardly, Richard fit the profile. His only nonacademic activity was his membership in the Exeter Club. He played no sports, joined no groups, and despite his newspaper heritage spent no time at the school paper, the Crimson. He lived like a prince in Dana Chambers on Dunster Street, a private dormitory in an area near the college known as the “Gold Coast,” where students of means escaped the drafty, dingy housing provided by the college. A flattering description of the club men of that era would be “cool”; a less-generous one would be “feckless.” Richard resembled them in many ways, but in one important respect he differed: arrogance. Richard had none. He was charming and gracious, with a gentle voice and an aversion to limelight. Women adored him. He might have been a loafer and a lothario, but he was not a lout.

  Upon receiving the dean’s letter, Edwin Grozier began a campaign to save his son from the ignominy of being exiled from Harvard. He took a piece of Post stationery and wrote a careful reply to Wells: “Richard is a boy of more than average ability, and there is no good reason he should not stand well in his class. Unfortunately he seems to have a habit of acquiring a great deal of information about everything except the studies he is actually pursuing. It is, of course, a great disappointment to his parents that he should not attend properly to the business in hand.” Edwin Grozier vowed to do everything possible toward “obtaining the desired result.”