IN 1907, CHARLES BIANCHI stepped off a train at Montreal’s Bonaventure station. He had spent the previous four years in the North-Eastern US, working the sorts of jobs an Italian immigrant could get while mastering English. With no luggage and only a dollar in his pocket, it’s not hard to imagine he was desperate.
By his own account, Bianchi walked two blocks from the station to the city’s financial district, where he spotted an Italian bank and demanded an interview with its owner, Louis Zarossi. Impressed that he had been tricked into thinking Bianchi an important man, Zarossi hired him on the spot. Over the following months, Bianchi worked his way up from clerk to bank manager.
Banco Zarossi proved an unusual company. It offered its immigrant clientele up to triple the going interest rate; a bit of financial wizardry managed not, as Zarossi claimed, by slashing exorbitant profits, but by siphoning money from what depositors entrusted the bank to send their families in Italy, and compensating complainants using incoming deposits. It was the old trick of robbing Peter to pay Paul, and it couldn’t last. The bank had been operating for only a year or so when Zarossi skipped town with a bundle of company money, leaving many in Montreal’s Italian community without their life savings, and Bianchi without a job.
So Bianchi—who also used the alias “Ponsi”—resorted to theft. He forged a former client’s cheque and cashed it for $423.58. Then, before heading south, he stuck around Montreal to invest in, among other things, a shiny new suit. Suspicious police visited his apartment a few days later. Perhaps shocked that his high expectations had been dashed, or reluctant to appear dishonest—both recurring themes in his life—Bianchi offered no resistance. Before the police accused him of anything, he presented his wrists and a verdict of his own: “I’m guilty.”
Had he emulated his former boss and fled in a timely manner, Bianchi might have gotten away with it. Instead, he was convicted to three years at the Saint Vincent De Paul Penitentiary in Laval.
Zarossi did not invent the swindle that led to his bank’s collapse, though if the set-up sounds familiar, that’s because it has been duplicated many times. Last June, Bernard Madoff was sentenced to 150 years behind bars for fleecing his investors of billions. In recent years a generation of bankers has institutionalized a similar kind of casino capitalism. Indeed, surveying the damage wreaked by collateralized debt obligations and lawful greed, economist Paul Krugman concluded, “What we’re looking at now are the consequences of a world gone Madoff.”
As it happened, Zarossi’s most famous imitator was Bianchi himself. Eight years after leaving Quebec, he set up his own investment debacle in Boston, under his real name: Ponzi.
THE ORIGINAL “PONZI SCHEME,” hatched in December 1919 and exposed mid-1920, involved investing in coupons that were redeemable for international postage stamps in any country. Enclosed in immigrants’ letters home, the coupons were designed to help impoverished old-world relatives reply quickly. Ponzi claimed he bought coupons in bulk from countries with deflated currencies, shipped them to countries with healthy currencies, and exchanged them for stamps, which were sold at a slight discount to net profits of up to 300 percent.
The catch, of course, was that Ponzi had only about $30 worth of coupons, making his scheme practically impossible, if not theoretically illegal. But once Ponzi had seemingly proven to initial investors that he could deliver 50 percent interest in forty-five days, Bostonians began sinking their life savings into his business, the Securities Exchange Company, in larger numbers every week, and often left them to collect interest indefinitely. By July of 1920, he was raking in a million dollars a week and waving to ever-larger throngs of cheering new investors. As long as more people were buying in than cashing out, Ponzi could pay off every claim he faced by stealing from other deposits.
Did Ponzi pick up his peculiar financial acumen at Montreal’s Banco Zarossi? There are certainly similarities between the two short-lived operations: both were headed by beaming Italians who treated incoming deposits as their own, aggressively courted working-class immigrants and paid uncommonly high interest rates.
But at least one theory suggests the opposite—that Ponzi masterminded Banco Zarossi’s collapse, hoping to make off with a fortune. By the time Zarossi left, Ponzi had not only become the bank’s manager, but was also romantically linked to his boss’s daughter. Having gained Zarossi’s full confidence, it is possible Ponzi intended to exploit it. Ponzi might even have dreamed up the scam years earlier, modeling it after the million-dollar con that shook New York in 1899. Engineered by William “520 percent” Miller, it promised 10 percent interest, and lasted eleven months before Miller fled—coincidentally, to Montreal.
In his autobiography, however, Ponzi has nothing but praise for Zarossi. He describes his boss as “big-hearted, good-natured, liberal, and jolly,” calling him “a victim of circumstances and bad associations rather than a man of evil intent and dishonest inclinations.” Predictably, Ponzi portrayed himself in much the same way. Even toward the end of his life, he seemed to believe that he could have made good on all his debts, if he’d only had enough time.
Perhaps, then, Ponzi did pick up something from Zarossi. Perhaps their successes—and failures—were driven by a shared, pathological optimism, a sanguine belief in their own talents that left them unprepared for repercussions. Zarossi fled without taking his young family, and Ponzi—in Montreal, and later in Boston—never left town. It was the same optimism that encouraged Boston’s hordes to exchange their savings for promissory notes; the still-familiar optimism that makes it easy to take risks with other people’s money.
SAINT VINCENT DE PAUL Penitentiary, which overlooks the Rivière des Prairies in Laval, Quebec, is a rectangular enclosure scattered with a few stone buildings and surrounded by towering, turreted stone walls. Built in 1873, it was Canada’s first federally constructed prison and was used for over a century before the nearby Port Cartier Institution replaced it in 1988. Today, the grounds are used for a sorting operation, but a glance indoors still reveals the expected features of an abandoned jail: broken glass, dark corridors, barred rooms. The structure remains gloomy and imposing.
Ponzi was incarcerated in Saint Vincent de Paul on November 24, 1908. His cellmate, Louis Cassullo, was a man Ponzi later described as “one of those prowling, petty, sneaky thieves whose counterparts in the animal kingdom are the hyenas and the jackals.” But for the next twenty months, they were seldom apart, sleeping on “sacks of corn leaves and cobs” by night and pounding lumps of rock into gravel by day. Ponzi joked that he alone would have crushed enough stone to flatten Quebec “smoother than a pancake” had his education and charm not earned him a promotion. He became a clerk once again, first for the prison blacksmith, then the chief engineer, and eventually the warden himself.
Later in life, Ponzi described the Laval prison as “no kindergarten,” but rather “the Bastille.” Indeed, in 1908, the only sense of place within the penitentiary’s walls would have been the peaks of the neighbouring church and, perhaps, the faint sound of the river churning by. But the prison was also the kind of closed system Ponzi always thought he could beat. He remembered his life there as strict but fair, yet another opportunity for personal advance: “each man stood on his own merits…to start from the bottom of the ladder and work his way up with good behavior and industry.”
He climbed the ladder. The warden even developed a fatherly affection for his clerk, which is probably what precipitated Ponzi’s early release. Ponzi recalled typing up yet another pardon on July 10, 1910—sixteen months short of completing his three-year term—only to discover his own name at the bottom. The warden was waiting nearby, warm congratulations on his lips. When interviewed for the article that exposed Ponzi’s American scam many years later, he remembered his former employee as a model prisoner.
Ponzi donned a prison-issued suit and wasted no time boarding the train back to Montreal, so it’s unlikely his unsavoury cellmate got a goodbye. Even so, it was easy to reconnect ten years later. Cassullo appeared in Boston when the Securities Exchange Company was already collecting thousands of dollars a month, and quickly gained the upper hand. “I was under his power,” Ponzi remembered. “I was going straight. He was still going crooked.” Fearing his past would be exposed, Ponzi offered Cassullo a job.
As a business associate, the fellow Italian was a thorn in Ponzi’s side. Cassullo demanded a high salary, pilfered incoming deposits, spooked customers and employees alike, and forged Ponzi’s promissory notes for cronies. Cassullo vanished before the police moved in. It’s not clear how exactly the Boston Post got wind of Ponzi’s years in a Canadian jail, but as a subsequent prison term went unnoticed (Ponzi wound up in an Atlanta jail in 1910 for smuggling Italian immigrants from Canada), all signs indicate Cassullo was the leak that eventually brought a reporter to Montreal and the Securities Exchange Company to its knees.
WHEN THE BOSTON POST broke the story with the August 11, 1920 headline “Canadian ‘Ponsi’ Served Jail Term,” the Securities Exchange Company had already survived a week-long run that drained several million dollars from Ponzi’s various accounts. The panic had been prompted by three things: a former employee’s claim that Ponzi was “hopelessly insolvent,” a postal service statement that not enough coupons existed to sustain the alleged operation, and Ponzi’s own offer to partially shut down the company for an audit.
Through it all, Ponzi maintained a near-flawless bravado. He desperately hoped his chaotic bookkeeping would confound the auditor, that the reports from Montreal would be inconclusive, that he would be able to temporarily cover his debt using funds from a bank he now controlled, and that, if worst came to worst, he could sell the company. By the end of the week, Ponzi’s shrill confidence had begun to reverse the tide. He claimed the Company still had “piles of money,” slowing the run to a trickle. The night before the Post printed its exposé, he even improvised a cocky speech at the local Kiwanis Club, eliciting cheers from the crowd.
But when he saw just how damaging the article was, Ponzi was finally at a loss. First, he denied that he was the same man. The Post, however, had run his Canadian mug shot on the front page, along with quotes from Quebecers identifying a more recent photograph of Ponzi as “Ponsi” or “Bianchi”—in one case, “Bianchi, the snake.” Later, he gave a bizarre interview about the hypothetical feelings of “Ponsi,” whoever he was.
It was not until the afternoon that he delivered a statement to the press outlining both of his stints in jail. He compared himself to a then-prominent Wall Street financier who had also served time, suggested society owed him another chance, and dissolved into very genuine tears.
The announcement two days later that he was broke was anticlimactic by comparison. Ponzi faced eighty-six charges and eventually pleaded guilty to two counts of mail fraud in a federal trial. Despite the sympathy of the judge, he was sentenced to five years in jail. He was released after only three and a half, but landed in jail several more times until his deportation to Italy in 1934. He died in a hospital’s charity ward in Brazil fourteen years later.
Ponzi’s burial—in an unmarked pauper’s grave—occasioned flattering obituaries in the press worldwide. Remarkably, after everything he’d done, the Montreal-trained grifter continued to inspire public confidence. But then, confidence games had also become a speciality of American money markets. Ponzi’s scandal ushered in a decade of greed-fuelled finance rather than tighter regulation; audacity was in the air. A short time after his initial arrest, Ponzi appeared as a write-in candidate in the New York election for state treasurer. It was the 1920s, the dawn of a new century, and anything could happen.