Ponzi's Scheme_ The True Story of a Financial Legend - Mitchell Zuckoff [71]
Over their initial dinner at the Copley Plaza, Ponzi’s new financial manager, Roberto de Masellis, had suggested that Ponzi consider going into the banking business. Ponzi had taken a step in that direction with his investment in the Hanover Trust Company, but now he hoped to go further. He imagined turning Hanover Trust from a sleepy, midsized bank into a financial powerhouse, which in turn would make his nearly 40 percent ownership of the bank soar in value. The first step, he thought, would be to sap the deposits of other banks and draw them to Hanover Trust. Once the bank had more deposits, it could make more and larger loans, which would burnish its balance sheet and ratchet up the stock price.
First, Ponzi planned a contest with a monthly prize of one thousand dollars to the person who brought the most new business to the bank. To determine a winner, Ponzi would print up thousands of what he called “introduction cards,” each one with spaces for the signatures of a contestant and a new depositor. A card would be turned in whenever a new account was opened, and the contestant with the most cards at the end of each month would win the prize. To get the ball rolling, Ponzi hung a sign outlining the contest on a wall at the Securities Exchange Company office. At about the same time, he quietly paid his debt to Fidelity Trust, settling the lawsuit the bank had filed against him in March and for the moment putting himself on good terms with Boston’s banking community.
A second piece of his plan involved increasing Hanover’s attractiveness to depositors and shareholders by creating a power- and profit-sharing program. It was a radical notion, one that Ponzi knew would be branded a Socialist plot by Brahmin bankers and their supporters.
The third element of Ponzi’s plan was to monitor which banks lost the most depositors and, as a result, suffered the steepest decline in stock price. Ponzi would then buy large blocks of those banks’ stock at a rock-bottom price, replenish the banks’ vaults with deposits of his own, and reap the benefits when the stock price rose again.
As usual, Ponzi ignored or understated the obstacles. “There was absolutely nothing to it. It was a cinch,” he believed with his trademark optimism. In his mind, his quick-and-easy realignment of Boston’s entire banking structure represented “an opportunity to switch, gradually, from the coupons venture into a more conservative line of business. . . . To get out from under all together, and retire a multimillionaire, in a non-distant future.”
An even more elaborate scheme sprang to Ponzi’s mind when he saw an announcement that the United States government was seeking bidders for several thousand mothballed freight and passenger ships that had been built during the Great War and declared surplus afterward. By Ponzi’s calculations, the ships were worth $2 billion but could be had for the bargain price of $200 million. Ponzi figured he could raise the money within a month simply by expanding the Securities Exchange Company from the Northeast to the entire nation.
The bigger challenge, he thought, was figuring out how to make a profit from a fleet of three thousand ships. He lay awake for several nights before latching onto an ingenious, if impossibly impractical idea. Ponzi figured the ships would actually cost him $320 million—the $200 million price tag, plus $100 million for the 50 percent interest on the money he was “borrowing” from investors, plus $20 million in commissions to the agents who collected the initial $200 million.
To repay that sum, he would form two companies, the Charles Ponzi Steamship Company, which would own the fleet, and the International Shipping & Mercantile Company, which would lease and operate the ships.