Tuesday, May 05, 2009

The mother of all swindlers - Charles Ponzi!

Lost Manuscript Unmasks Details Of Original Ponzi
Published: May 4, 2009
In the summer of 1920, William H. McMasters, one of Boston’s top publicists, was in a pickle. A new client, a dapper and charming Italian immigrant named Charles Ponzi, was raking in millions on promises to pay investors 50 percent interest in 45 days.
Charles Ponzi served three years for forgery before his investment scam. The mug shot is from the book “The Lawless Decade,” by Paul Sann.
"If he was everything he claimed, I would have a client such as no man ever had in the publicity field,” Mr. McMasters wrote in a newly found and never published memoir. But, he reflected, “if he was crooked or deluded, I must make up my mind to have him stop taking the money from the public.”

As fate would have it, Mr. McMasters decided that Ponzi was indeed a fraud and wrote a newspaper exposé in The Boston Post. The front-page article declaring that Ponzi was insolvent and had used incoming deposits to pay off earlier investors proved instrumental in unmasking him as history’s most infamous swindler — at least until Bernard L. Madoff came along. Mr. McMasters remained convinced of his service to humanity — “I do not anticipate that another Charles Ponzi will ever appear in the financial world,” he wrote.
Now that bittersweet narrative, so far known only in fragments, has emerged, offering insights into Ponzi’s downfall, the machinations of the press, and one momentous week that rocked the financial world nearly 90 years ago.
The memoir — “The Ponzi Story,” typed on 206 double-spaced pages and completed around 1962, six years before Mr. McMasters died at 94 — is part of a trove of 2,200 books, manuscripts and pamphlets on swindlers and their frauds, hoaxes and confidence games acquired a year ago and recently catalogued by John Jay College of Criminal Justice.
“We bought it before the financial crisis,” said Larry E. Sullivan, the school’s associate dean and chief librarian, calling the collection “oh so timely.” But, he said, “McMasters was the clincher.”
The works — including titles like “Frauds Exposed” by Anthony Comstock, an 1880s anti-vice crusader; “ ‘Yellow Kid’ Weil,” the biography of a legendary Chicago swindler; “Famous Imposters” by Bram Stoker, the author of “Dracula;” and “The Rise of Mr. Ponzi,” the swindler’s curious self-published, and self-serving, 1935 autobiography — were purchased for $22,000 from an antiquarian, Patterson Smith, in Montclair, N.J.
The volumes, noncirculating but open to researchers by appointment, had been assembled by a retired Navy lawyer, William D. Gall of Waukegan, Illinois who had found the McMasters work in the Old Book Store in Fairlee, Vermontt in 1990. The book dealer, John Larson, had no idea how it got there. Mr. Gall, who died last year, had consigned the collection to the Montclair shop for sale.
“I think this is great stuff,” said Mitchell Zuckoff, a Boston University professor who published a biography, “Ponzi’s Scheme,” in 2005 and while using material from other McMasters writings had no idea that the publicist’s memoir existed. “My gut tells me he didn’t get his due, but I’m not sure he was a complete Lone Ranger, either,” he said.
Mr. McMasters’s granddaughter and closest living relative, Faith B. Dickerson, a psychologist in Baltimore, said she too had also been unaware of the completed work, though she had copies of various shorter versions. “His role has been shortchanged in Ponzi accounts going back to the 1920s,” she said.
Mr. McMasters was a pre-eminent public relations man when he took on Ponzi as a client in July 1920. A lawyer who had served in the Spanish-American War, he had handled publicity for the campaigns of several Massachusetts political figures, including Calvin Coolidge, John F. Fitzgerald (President John F. Kennedy’s grandfather) and James M. Curley. Mr. McMasters himself ran unsuccessfully for governor in 1938, wrote a play produced on Broadway and exposed a baseball betting scandal.
Ponzi, on the other hand, was already a convicted felon, though Mr. McMasters and the world did not find that out until later. Born in Italy in 1882, he arrived in 1903 and made his way to Montreal, where he served three years for check forgery.
He eventually returned to Boston and devised a novel scheme to build a financial empire based on prepaid coupons that nations issued for postal replies. By buying the coupons at a fixed rate, he could exploit international currency fluctuations by redeeming them at a higher price.
But after offering depositors high interest rates, Ponzi never really dealt in postal coupons, which turned out to be too unwieldy for large-scale speculation. Instead, he just paid off his first depositors with money from later investors who would also have to be repaid. In the end, he was short as much as $10 million — the equivalent of more than $100 million now. He pleaded guilty, was sent to prison, then was deported to Italy and died in Brazil in 1949.
While Ponzi, in his autobiography, barely mentioned Mr. McMasters, the publicist undeniably played a role in his unraveling — a greater role, according to Mr. McMasters, than that acknowledged in existing accounts.
After being hired by Ponzi, Mr. McMasters said he arranged an exclusive interview with the striving financier in The Boston Post, since defunct but then the largest-selling morning newspaper in the country. Ponzi’s promised high rates were already drawing eager investors, but a front-page splash on July 24, 1920, under the headline “Doubles the Money Within Three Months,” aroused a frenzy.
Times Topics: Ponzi Schemes
Privately, though, Mr. McMasters was beginning to have his doubts. “I have never heard of such steady returns on any investment,” he wrote.
Mr. Zuckoff, in his biography, said Ponzi called the United States attorney, the Massachusetts attorney general and the district attorney for Suffolk County, which included Boston, and offered to explain his operations and to be audited. But Mr. McMasters wrote that he had pulled the strings to arrange Ponzi’s interview with investigators. “It was the first time I had seen any real evidence that he was a thief at heart,” Mr. McMasters wrote.
Later, poring over records, Mr. McMasters said he realized that “the only money he had in his hands as of right now was money taken from investors,” adding, “The huge profits that he discussed so glibly were mythical and nonexistent.”
“Once I had reached that conclusion,” he continued, “I knew that I was faced with a duty that I owed to the public if I expected to stay in business for the rest of my life.” That night, he said, “I decided to write the exposé of his fantastic story.”
He offered the story to Richard Grozier, the Post’s general manager and assistant publisher, telling him, “How would you like to have a story blowing him up sky high?” But the newspaper wavered. In an unusual move, Mr. McMasters said, he secretly secured a promise from Nathan Tufts, the district attorney where Mr. Grozier lived, to provide the publisher immunity from prosecution “in case the story turned out to be untrue and libelous.”
Over the objections of the city editor, Mr. Grozier gave Mr. McMasters the go-ahead, arranging to pay him $5,000 for the article plus a $1,000 bonus if all turned out well — the huge sum (the equivalent of $64,000 today), according to the publicist, payable in cash to be untraceable if the story backfired.
With the blaring headline, “Declares Ponzi Is Now Hopelessly Insolvent,” Mr. McMasters’s article dominated the front page on Aug. 2, 1920, sealing Ponzi’s fate, especially after The Post unearthed Ponzi’s criminal record in Montreal a week later.
“It was a nail in the coffin,” said Mr. Zuckoff, noting that other reporters had also begun chipping away at Ponzi’s scheme. When The Post won a Pulitzer Prize for the story the following year, Mr. McMasters should have been happy, but he wasn’t. “No mention was made of my having given the paper its first shot at Ponzi,” he grouses in his typescript. “Instead it was made to appear that The Post editors had gone after this first story, which was not so.”
“The truth is that I almost had to beg the publisher to take the story,” he wrote. But, he said, the newspaper “in its self-laudation could hardly give credit to anyone outside of its staff.”
“This interpolation is inserted for the benefit of any young newspaperman who may read it,” he concluded in the typescript he would not complete for 42 years. “It cautions him not to expect too much for the things he may do for his paper. If he gets paid for his work, that is all he can expect.”


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