Ponzi's Scheme_ The True Story of a Financial Legend - Mitchell Zuckoff [50]
Torn, he plotted a middle route: Allow the business to keep growing and enjoy the fruits immediately, while continuing to iron out kinks in the system. Not quite as dangerous, illegal, or immoral as the demon’s path, it was nevertheless riskier, less honest, and more unethical than the angel’s. If it worked, no one would be the wiser. If it did not, Ponzi would have to come up with a new idea to meet his obli-gations, or he would have to run. Either way, there was no rush. With Giberti’s help, business would grow slowly and steadily, Ponzi thought, giving him plenty of time to test, refine, and perfect his cash-for-coupons transfers.
Ponzi took his first step down the path between cautious and reckless abandon within days of Giberti’s first cash delivery. On January 3, he returned to Uncle Ned’s pawnshop, not to borrow but to claim what was his. He went to the counter and waited for Max Rosenberg to notice him. With a flourish, Ponzi pulled out a wad of cash and asked only for his gold pocket watch. When Rosenberg produced it, Ponzi repaid the twenty-dollar loan, plus a few singles for a month’s interest. Ponzi might have had enough money to also claim Rose’s diamond rings, but they would have to wait a while longer.
First he needed to keep his other creditors at bay while figuring out how to pay his investors $885 in interest, plus the principal for those who would not let their money ride. Based on current exchange rates, Ponzi thought he could use just four hundred dollars from his initial investors to yield a 50 percent return for all of them, leaving him more than thirteen hundred dollars in “profit.” A more conservative man would have waited to claim even his watch until he’d actually produced that profit, while a more devious man might have immediately claimed the rings as well.
Giberti made himself scarce during the first weeks of 1920, and Ponzi soon realized why: Giberti’s friends had trusted him with their money, and he thought it would be wise to lie low until Ponzi made good. In the meantime, word of Ponzi’s business plan reached a Massachusetts bureaucrat named Frank Pope, whose job as state supervisor of small loans was to protect the public against lenders who charged obscene rates of interest. Pope dropped by 27 School Street. Ponzi easily weathered his first official inquiry. His investors were effectively lending him money at a rate of 50 percent for anywhere from forty-five to ninety days. Pope’s only authority would have been to protect Ponzi from his own investors! Realizing that Ponzi was more than willing to “borrow” money at high rates, Pope returned to his State House cubbyhole. His only action was to call the Boston police, to suggest that they keep an eye on Ponzi and the Securities Exchange Company.
Forty-five days passed and Ponzi somehow began paying his initial investors. When asked how he did it, Ponzi eventually said that he had given the money to a man named Lionello Sarti who worked aboard a transatlantic liner. Ponzi said he’d instructed Sarti to buy as many coupons as possible in Italy and bring them to School Street when his ship returned to Boston. Ponzi insisted that Sarti had showed up in early February with the happy news that coupons were readily obtainable in even the smallest post offices. With advance notice, and perhaps a few well-placed bribes, Ponzi claimed, Italian postal officials could be persuaded to supply them in large quantities.
Over time, skeptics would doubt Sarti’s existence, suspecting that Ponzi had borrowed from Peter to pay Paul. They would point out that