CHAPTER XX

MR. PONZI, HEADING FOR THE ROCKS, MANAGES TO STEER CLEAR OF THEM FOR A WHILE

The Polish deal fell through, as he could not deliver the goods, and I was left high and dry; with no coupons and no profits in sight, and no way of meeting my notes, except by the time-honored custom of robbing Peter to pay Paul. I was a case of either sink or swim, and I admit that I didn't want to sink. Not just yet, in any event, as I figured that as long as there was life there was hope, and I hoped.

Because of that, I have been called an optimist, a dreamer, a visionary, and everything else, including a crook, probably on account of the fact that I didn't get away with it, like many of the bankers I know of and like some of the big corporations I know of. If I had, they would have called me a genius; a wizard, without the quotation marks.

To hope, meant to fight; to fight for my self-preservation. I was threatened with destruction; not by the government or any group of interests and not by any individual, but by an order of things which I had elected to challenge. Let's not make any bones about it. Nobody was responsible for the fix I was in; nobody but myself, even though I might have walked right into it in good faith.

My exact predicament was that every time I paid one of my notes, through the issuance of another note, I added about 75% to my indebtedness; instead of decreasing it. That means that for each $100 borrowed in December, 1919, when I started out, by compounding 75% every six weeks, I owed in August, 1920, about $2,000. Proportionally less, for every $100 borrowed since, but a huge sum nevertheless.

The predicament was relatively critical. With four or five million dollars in cash and every opportunity to beat it for parts not reached by extradition treaties, it could not be called critical. It was ideal. But for a stubborn cuss like me, determined to stick it out to the end, it was more than critical. It was hopeless.

On the other hand, four centuries before, Columbus had started out from Spain on what he thought was the western route to Asia and the East Indies. On the way over he had discovered America. He didn't know it was there, and nobody else knew it, except the Indians. Yet, he ran smack right into it.

I felt about the same way. I knew what I was up against if I stopped. I knew not what I might run across if I kept on. I had unlimited confidence in luck, as well as my ability to exploit it. And on I went headlong, like a bull in a china shop, to smash all precedents and principles of high finance as it was preached, but not practised, in Wall Street.

I believed myself able to cope with any eventuality except death, and that was the last thing I should have worried about. Instead, it was the first thing because I wanted to protect my creditors as well as my family. The answer was life insurance. I decided to take out a blanket policy large enough to cover all my outstanding liabilities. And increasing it from time to time, so as to keep abreast of them.

Acting on the impulse, as I always do, I phoned immediately to an insurance agent. He was inside my office inside of ten minutes.

"I'll tell you want I want," I said to him. "I want a policy on my life for a year for an amount in excess of my outstanding notes. I also want the privilege of increasing that amount from time to time to renew the policy for another year or more. The policy must be made payable to some bank. Let us say the First National Bank. As trustee for my noteholders."

"What is your purpose?" the agent asked me.

"My purpose," I explained to him, is that in the event of my death, my creditors be paid in full out of the policy, leaving my entire estate intact to my family. Free from any impediments. For that reason I want the policy for an amount always larger than what I owe. As my liabilities will grow, I must increase accordingly the amount of my policy."

The insurance agent left promising quick action. I went down to the first National Bank. And put the proposition to the vice-president, in charge of the Trust Department. He approved it and we both went to attorney Blodgett's office to have a regular agreement drawn up.

This instrument, after a series of "whereases" which recited how Ponzi, the manager of the Securities Exchange Company, was engaged in a business dealing with international reply coupons, in the furtherance of which he was borrowing money from the public at a rate of interest of 50% every 45 days, appointed the First National Bank of Boston beneficiary in trust of a life insurance policy in the amount of several million dollars, out of which in the event of Ponzi's death, the said bank agreed to redeem all of the outstanding obligations of the Securities Exchange Company, as evidenced by notes similar in tenor and description to the sample attached to the agreement.

Having settled the problem of my death, I turned to those dealing with my everyday life. I was being constantly investigated. That was a nuisance. I couldn't put a stop to it. The postal inspectors were persistent. They were slowly creeping up on me. With a volume of data hard to beat. But they were up against it too. Even if my claim that I was dealing in coupons was fraudulent, the way I redeemed my notes precluded prosecution. Prosecution could not begin until I defaulted my payments. However, I had to always by on my guard.

That state authorities were not generally nosey. Or troublesome. But now and then they would show signs of life. And cause a little excitement.

One morning, for instance, I received a telephone call from my agent in Manchester, N. H. He told me that the Insurance Commissioner had forbidden him to continue operation until he had obtained a license. The matter was serious. It threatened my entire structure. A defeat in New Hampshire would have invited attack from all of the New England states where I maintained branches. I jumped into a hired car and drove to Manchester.

On my arrival there, my agent gave me the details of the occurrence. Then we went to my banking headquarters and conferred with one of the officers there.

"I am glad you came over," he said to me. "Because the situation is particularly dangerous and must be handled skillfully."

"Is there any inside story to it, beside what Bruno has already told me?" I asked him. Bruno was my agent.

"Yes," he replied. "In fact, it's mostly inside work.

"Politics?" I suggested.

"Some," he admitted. "But pressures from financial interests, more than anything else."

"Do you know the source?" I asked him.

"Not with a mathematical certainty," he answered." But I can guess There is, perhaps, more jealousy among banks than among other competing organizations. And it is well known that we are one of your depositors and that you carry a large balance with us."

"But, undoubtedly, you must have a pretty good idea how to handle the situation?" I hazarded.

"I have," he admitted. "Probably as much as anyone else."

"What do you advise me to do?" I asked.

"My advice is that you retain a prominent attorney to handle both the legal and any other aspect of the matter," he suggested. "It may be a little expensive, but it will prove worth while in the end."

"Have you any particular attorney in mind whom you may recommend?" I inquired.

"Yes," he said. "Go and see this attorney in this building, mentioning my name. Bruno will come with you. He knows him."

Bruno and I went upstairs to call on the lawyer.

"We must take the position that your business does not come within the scope of the Blue Sky Laws," he advised, after having listened to me.

"Precisely," I agreed.

"The commissioner contends that Bruno should submit an application for a license," he went on analyzing the case. "But an application requires a detailed account of your business secrets, such as, I am sure, you would not care to divulge. So, an application is outside of the question. We will dispute this jurisdiction."

"Can we conclude the matter today?" I asked,

"I hope so," he said. "We will start immediately for Concord and have a conference with the insurance commissioner."

The lawyer was some driver! At the wheel of his Stutz he just ate up the road. Regardless of the curves and anything else I never flirted as close to a crash as I did that day. He would have broken all records down at Daytona Beach!

In Concord, the commissioner gave us an immediate hearing. He and my attorney had some lively controversies. But the conference ended as conferences generally do. The commissioner took the matter under advisement.

The commissioner drove back to Manchester with us. And I had him all to myself on the rear seat during the return trip. We talked. The commissioner was very much interested in the operations of the Securities Exchange Company. He enjoyed the details. And I did not miss the opportunity of painting a pretty picture for his benefit. In Manchester, we parted.

In the evening, Bruno and I called again on my attorney there by appointment.

"Well, what are the latest developments?" I asked him.

"I have had a long talk with the commissioner after you left," my attorney replied, "and he seems to concede that he has no jurisdiction."

"Good for him!" I burst out. "When will he announce his decision?"

"Perhaps, tomorrow," my attorney said. "He was telling me that he was very impressed with the explanation you gave him on the way back from Concord."

"Really?" I said.

"Yes," he confirmed. "In fact, I am personally convinced that he would not hesitate to make a small investment with you."

"That sounds too good to be true," I stated. "Can you arrange that?"

"I doubt it," he replied. "Because he had no money."

"Heck! That does not matter," I told him. "He can have one of our notes without paying a cent for it. The pleasure of having his name on my books with worth more than money to me."

"Do you want him?" my attorney asked.

"Do I want him?" I replied. "Just listen to that! Do I want him? I want him so badly that I simply cannot live without him!"

"I believe I can fix that," my attorney promised. "But it would never do to issue him a note without proper consideration. Let's do the right thing."

 "I am listening," I said.

"You and Bruno arrange it so that the Commissioner may borrow some money from the bank," he suggested. "Let him invest what he borrows and when he collects from you he can pay back the bank's loan."

"That's easy," I agreed. "How much shall I let him have?"

"Shall we say two thousands?" said my attorney.

"O.K. with me," I replied. "We will go right down to the bank and arrange it."

The bank readily agreed to loan the commissioner $2,000 on his personal note, with the understanding that Bruno would have guaranteed the loan.

"Well, how did you come out?" one of the bank employees asked, meaning the hearing.

"I think we won the day," I replied to him.

"Is the commissioner going to give Bruno a license?" he inquired.

"I don't think so," I told him. "He seems to agree that he has no jurisdiction. By the way, is the commissioner's credit any good at your bank?"

"I hardly think so," the bank employee answered. "His financial circumstances are rather limited."

"Well, it does not matter," I said. "I want you to let him have $2,000 on his personal note for sixty days. Bruno will stand responsible for the loans. Is that satisfactory?"

"Entirely," he agreed. "I'll let him have ten thousand if you say so."

"No. Two thousand will be enough," I told him. "When his note comes due, if he does not pay it, just have it charged to Bruno or to my account."

"May I ask the purpose of the loan?" inquired the bank employee.

"Sure," I replied. "He is going to invest the $2,000 with me."

"That is certainly rich!" said the bank employee laughing.

When I left Manchester that evening, I had accomplished more than I had hoped. Two days later, the insurance commissioner announced that my agent did not need a license. Right after that, he went to the bank. The attorney also went to the bank and drew out some money. His own money. Fifteen thousand dollars. And also invested them with Bruno.

Shortly after the Manchester incident, I was "invited" to participate at a conference in the office of the Commissioner of Banks in Massachusetts. I could have declined the "invitation". The commissioner had no way of compelling my attendance. But, on the other hand, I couldn't very well stay away and let him think that I was afraid. After all, his questions were not apt to embarrass me. What he didn't know about coupons and foreign exchange would have filled a good sized library.

I went up to the State House and was ushered right into his office. In those days, I did not have to warm my heels at anybody's door. The Bank Commissioner greeted me cordially. Almost effusively. Like a cannibal greets a missionary. Because he knows he is going to have him "for" dinner, chopped up in little pieces, like Hungarian goulash. I could almost see him smacking his lips in anticipation. The Hank Commissioner, I mean, not the cannibal.

The table was all set. The "guests" were seated. That is, a couple of assistant attorneys general and a foreign exchange expert from one of Boston's banks. Not much of an imposing gathering. The Commissioner himself, I felt, was not conversant with foreign exchange and the two assistant attorneys general didn't know any more about the law than the man whose assistants they were. The foreign exchange expert was like the rest of experts. He had the gift of expressing what he didn't know in a way that nobody understood. That's why he made a hit every time he opened his mouth.

After one glance at that conclave, I knew it was cinch. I was almost ashamed to match wits with them. It was like stealing candy from a baby. But they were the challengers. And I couldn't very well let them get away with their lollipops.

The conference didn't last long. It couldn't. My opponents ran out of arguments even before I was half through with mine. The foreign expert had to admit that my claims as to foreign exchange were correct. The two assistant A. Gs. had to acknowledge that my activities were not in violation of any state law. The Bank Commissioner had to concede that my company did not come within his jurisdiction.

We parted the best of friends. Sorry, in fact, that we couldn't chum around oftener.

One of the assistant attorneys general was actually hooked. He drew me aside and told me that he wanted to come down to my office and invest some money. The Bank Commissioner was non-committal on that subject.

"Why don't you come up and see me sometime?" I think he said, or words to that effect. But, in any case, he left out the "dark and handsome". Afraid, perhaps, that Mae West might call him a copy cat.