Ponzi's Scheme_ The True Story of a Financial Legend - Mitchell Zuckoff [76]
Swig winced, too, when state bank examiners inquired about his relationship with Ponzi, who, by mid-July, had more than $400,000 on deposit at Tremont Trust. Always dubious about Ponzi’s claims, and increasingly uncomfortable with the added scrutiny from regulators, Swig wrote Ponzi a caustic letter on July 21. “If what we have heard about your plan of business is true, then certainly we do not care to accept your deposits, no matter how large they may be,” Swig wrote. “And even if reports are untrue, we do not care to accept your future deposits because you have taken unfair advantage in using our name as you have. We therefore advise you that henceforth your deposits will not be accepted, and you will favor us by closing your account.” Ponzi did as Swig asked, but he refused to take a Tremont bank check. He demanded the money in cash, just to give Swig a taste of his own medicine. Though Ponzi’s account was closed, another $185,000 of his money remained at Tremont Trust, stuck there by the attachment filed by Daniels with his lawsuit.
With Ponzi the owner of so much stock in Hanover Trust, that bank’s officers could not follow Swig’s example even if they had wanted to. But Hanover president Henry Chmielinski and treasurer William McNary, a former congressman who served as chairman of the bank’s board of directors, felt it essential to take precautions. Only a month earlier, Ponzi had threatened to withdraw his deposits immediately, a potentially catastrophic event, and now the risk was far greater. Lately, Ponzi’s account at Hanover Trust had been rapidly rising, falling, and rising again. It fell when investors in the Securities Exchange Company redeemed their Ponzi notes at 27 School Street, then walked to the bank with checks written against Ponzi’s Hanover Trust account. It rose again when Ponzi deposited piles of cash from his latest depositors. The cycle took place almost daily. But Hanover Trust officials recognized that if Ponzi’s income were interrupted, the danger existed that withdrawals would greatly exceed deposits, and Ponzi’s account would be hugely overdrawn. Unless his account were quickly replenished, Hanover Trust would likely collapse, putting the bank’s officers and depositors at risk of ruin.
On July 22, with bank examiners breathing down their necks, Chmielinski and McNary insisted that Ponzi provide Hanover with enough security to hold the regulators at bay and guard the bank against the roller-coaster shifts in his account. Ponzi agreed to put $1.5 million in a thirty-day certificate of deposit, enough to withstand any anticipated run of withdrawals on his account. Although it satisfied the bankers, Ponzi realized it put him in a tight spot, tying up a large amount of cash for a minimum of thirty days at the same time the lawsuit by Daniels had frozen some of his other bank accounts. It was more impetus for him to hasten his plan to get out of the faux-coupon business and into something more tangible and sustainable.
Ponzi took the first step on July 23 by hiring publicity man William McMasters, a former Boston Post reporter who had come recommended by Ponzi’s lawyer, Frank Leveroni. McMasters had earned his stripes by handling publicity for the mayoral campaigns of John “Honey Fitz” Fitzgerald and James Michael Curley, as well as the 1918 governor’s race for Calvin Coolidge. McMasters’s first job for Ponzi was to promote the financier’s dream of becoming a banking magnate, the next J. P. Morgan. At a starting salary of a hundred dollars a week—fifty less than he had asked for—McMasters’s first move was to place advertisements promoting Ponzi’s contest to increase business at Hanover Trust and his idea to launch a string of banks that would share profits with depositors.
But Ponzi, and by extension McMasters, was quickly swept up in more urgent business. That same day, a Boston Post reporter dropped by to follow up on the