M. Bruno, agent, wished to announce that a branch of the Securities Exchange Company, with headquarters in Boston, had opened an office in Portsmouth. The company welcomed new investors, was in the foreign exchange business, and specialized in International Postal Coupons. Promising 50% interest in 90 days on all monies invested, the Securities Exchange Company was managed by Mr. Charles Ponzi, and all inquiries could be addressed to the local office.
Yes, THAT Charles Ponzi.
Within weeks of the Herald posting, the man who had so infamously lent his name to the mother of all investment schemes (most recently, the 50+ billion scam Bernard Madoff. ran for years without interference) was living the high life in a magnificent mansion and driving a $10,000 car. But trouble was brewing, and after meeting with Massachusetts District Attorney Pelletier in late July he agreed not to accept any more deposits until an investigation into his books had been conducted. Apparently, Ponzi had several million dollars to account for. When it was all over and the massive fraud exposed, the slim Italian immigrant was in jail, most of the money was missing, and his colossal scheme to enrich himself was laid bare as merely a ruse, wherein new investors paid old investors in a round-robbin game of cash flow. By the time the government shut him down his reported assets of 4 million were dwarfed by liabilities exceeding 7 million.It was a grand scheme; attract deposits by promising sky-high interest rates and talk airily of international investments. When the time came to pay off, funnel some of the incoming deposits into the hands of those cashing out and pay as promised. Word would spread quickly, and people would rush to invest.
And invest they did!
Anxious not to be left out, depositors swarmed into Ponzi's Exchange Company offices, thrusting money into his hands. By this method, Ponzi was soon pocketing tremendous sums in no time at all...............until suspicions arose in the newspapers about the impossibility of the thing really working. With that it wasn't long before government investigators closed in and the scheme finally collapsed, leaving fairly equal amounts of debt and unanswered questions for the authorities to sort out.
But the brazen immigrant who came to America nearly penniless was hardly the first to try such a thing. Twenty years earlier, before Charles Ponzi joined Benedict Arnold in infamously adding his name to the English language, twenty six (some accounts said thirty six) year old William F. Miller was busily making a name - and a fortune - for himself doing essentially the same thing.
An office-boy and clerk at various times in his life, Miller tried making money in the stock market but failed. By late 1898, after having lost nearly everything and borrowing to meet his debts, he conceived an idea that just might bring him the money he craved. The Franklin Syndicate, as his new venture was called, was formed in March of 1899 with partner Edward Schlessinger; and perhaps a few others (this was never fully established). Their office was an unremarkable single room - later the entire top floor - at 144 Floyd Street in Brooklyn, and he began his venture by flooding the country with circulars promising 10% per week returns on all monies invested. Ignoring various "too good to be true" cautionary tales from the likes of E.L. Blake, editor of a local financial paper, people flocked to Miller's Syndicate in the hopes of cashing in and getting rich quick. And like Ponzi's scheme years later, hundreds of thousands of dollars began pouring in. At the time of its collapse a few months later, the scam was reportedly netting between $80,000 and $160,000 per week, with various reports having the total take at nearly 1.5 million.Benedict Arnold
By late November, "So great was the crush that the stoop of the house on Floyd Street was broken by the people anxious to invest their money with Miller," said Reno B. Billington, a local lawyer. To enhance his credibility, Miller boasted that he had "an inside pull" and "a sure thing" on Wall Street, and that he regularly traveled to New York City to consult with brokers. But rather than "invest" the funds entrusted to them, Miller and Schlessinger simply split the money between them.
Alarm bells began to ring when the Broadway Bank in New York closed Franklin's account, citing concerns in associating with a company that promised 10% returns per week. The Hide and Leather Bank did the same, worried about an account that withdrew cash to pay dividends instead of drawing checks like most firms. Other banks steered clear of the business, fearful of being drawn into a possible scandal.
women factory workers in Greenpoint, Brooklyn, around the turn of the century.
Despite rumors of imminent collapse, envelopes stuffed with cash continued to stream in to the Syndicate's office, with Miller's reputation as an expert investor holding firm despite reports that he was missing and presumably on the run. By November 26 he was eagerly being sought after by detectives, leaving his victims to fend for themselves. Even so, many people duped by Miller - tradesmen, housewives, laborers, and merchants among them - simply refused to believe that their money was gone and continued to trust in his eventual return, choosing instead to blame the newspapers for all the troubles that plagued him.
With the aid of his lawyer, Robert Ammon, Miller fled to Montreal, but his exact whereabouts weren't a mystery for very long. Homesick for his wife and young child, he was caught there in early December and brought back to Brooklyn to stand trial. Convicted of grand larceny on April 30, 1900, he was sentenced to ten years in Sing Sing prison, but served barely five. Convinced that he was a reformed man, the prosecutor in the case prevailed upon Governor Higgins to pardon Miller, and he was released from Clinton Prison (where he had been transferred due to ill health) in 1905.
Sing-Sing
Prison
While still serving out his sentence, Miller appeared in court as a witness against his former lawyer, who was himself on trial for receiving over $30,000 in stolen money from the Syndicate. Before a packed courtroom the convicted felon, by then suffering from consumption, spoke at length of a lucrative scheme that quickly spun out of control. He related in detail how no money was ever invested in stocks, how he and Schlessinger never intended to do so from the start, and how all dividends "came out of money received."
Due in no small part to Miller's testimony, Ammon was swiftly convicted of receiving stolen money and sent to Sing Sing in 1903, joining his former client. Edward Schlessinger was never caught but was rumored to have fled to Paris, presumably to live out his days in luxury with his ill-gotten gains.
Marc R.
For more information, see Charles Ponzi.
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