A Certain Charisma (Part 4 of 5)
Asked about the investment opportunity, a well-known economist responded that it seemed peculiar that, if Ponzi could make that much money with International Reply Coupons, why did he tie so much of his own money in bank accounts earning just a few percent annual interest? Why wouldn’t he put everything he had into the exchange of coupons? The economist went on to point out that it was ludicrous to believe that such a gambit could yield millions of dollars. A small-time operator might be able to make a few dollars on their own, but that was about the limit of the “riches” that could be had. His comments were published in the newspapers. Questioned about it, Ponzi just laughed and said the so-called “expert” must not know much about foreign exchange.
But there were others questioning the viability of his business, powerful men at the state and federal level. The Post Office indicated that the offices that dealt with overseas shipments maintained an inventory of coupons that typically numbered in the tens of thousands. While that may seem like a lot, it could never account for the massive amounts needed to sustain the exchange that Ponzi claimed. Because of his claims, the United States Post Office began cashing no more than fifty cents worth of coupons to any individual at any time. Some countries suspended issuance of coupons altogether. It did not matter, Ponzi declared, his system worked around those barriers. People believed him. They kept investing.
Investigators demanded an audit to which Ponzi surprisingly agreed. He had to know that the books would never balance, but he was already scheming, thinking of new businesses that might generate funds enough to cover the deficit, businesses that he insisted would be legitimate. If he had had several years to develop these so-called legitimate businesses, perhaps he would have been able to work things out (though it’s doubtful), but he had only days, certainly no more than a couple of weeks.
And then the Boston Post became engaged. Smelling a major scoop, the Post assigned an investigative journalist to scour Ponzi’s past. And what did he uncover? Mr. Charles Ponzi had served time in a Canadian prison for forgery. He had also been involved with a bank that failed when its owner fled overseas with embezzled funds. Had the journalist looked further he would have discovered prison time in Alabama as well. Ponzi denied the accusations, claiming it had to have been someone else with a similar name.
Nevertheless, Ponzi agreed to stop issuing new certificates while the audit of his Securities Exchange Company was being conducted. He did, however, keep the doors open to pay off those certificates that matured and to return the principal to any investor who had lost faith in his business due to all the negative publicity. At first there was a flood of investors demanding their money. Ponzi did not hesitate, cheerfully paying those who demanded it. His demeanor always remained positive and optimistic, so much so that after the first few days the flood subsided to a trickle. So great was the trust that clients placed in Ponzi that a surprising number kept their money invested despite what was being reported. In fact, there were numerous demands to purchase more certificates, demands that Ponzi could not honor because of his pledge to investigators not to issue new certificates during the audit. Incredibly, others offered to loan him money to cover any deficit that the audit might reveal. The man seemed to have a certain charisma. People just could not believe that his entire business was a scam.
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