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“The real inside story of the most serious journalism of the last century and a brilliant portrait of America.”—Bob Woodward
Pulitzer’s Gold
A C e n t u r y of Public Service Journalism
R oy
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H a rr i s
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reporting on the roaring
The Boston Post work already had a powerful supporter on the board in Robert L. O’Brien, who called it “a piece of newspaper enterprise of the first importance.” That opinion carried extra weight because O’Brien edited the rival Boston Herald—which had been thoroughly whipped on the story by the Post. And he was far from alone as a fan. Calvin Coolidge, then the Massachusetts governor, praised the stories, as did a host of local politicians, many of whom had been flat-footed in their enforcement role while the Post unmasked Ponzi’s duplicity. The jury wrote in its nomination letter that the jurors were “in doubt which of these enterprises was more deserving of the Prize”—the New York Post or the Boston Post—but the board saw a clearer choice. The Ponzi reporting was simply the perfect Joseph Pulitzer–style campaign: great reporting of hard-to-get information, helping protect the “common man” from scams, and taking the form of shocking front-page news that stirred terrific controversy. The investigation had also required editor Richard Grozier, son of publisher Edwin A. Grozier, to face serious financial risk from the brazenly litigious Ponzi and from legions of adoring followers who saw the Post as out to hang their innocent hero. These fans were ready to drop the Post as a result, especially as rival papers were proclaiming Ponzi a financial wizard well into the Post’s investigation. The Post’s work also drew on the expertise of Clarence W. Barron, who had started the successful Boston News Bureau in the city’s financial district. In 1902 he had spread his influence south to New York by buying a company called Dow Jones and its main product, the Wall Street Journal. Barron, whose name lives on in the weekly Dow Jones paper Barron’s and whose descendents controlled Dow Jones for 105 years (until 2007), was to be both an expert source for the Post and something of a guest columnist as the paper broke the news in the Ponzi case.
Clipped by Coupons Edwin Grozier, after working for a time under the Boston Globe’s Charles H. Taylor, had actually served the first Joseph Pulitzer at the World in the pre–yellow journalism years. Grozier loved Pulitzer, describing his mind as “like a flash of lightning, illuminating the dark places.” But eventually Grozier left the editorship of the Evening World to return to Boston [ 173 ]
Figure 11.1 After first disclosing Boston financial scam artist Charles Ponzi’s criminal record in Canada under the name “Ponsi,” the Boston Post on April 11, 1920, shows how Ponzi would look with a moustache painted on his mug shot. Below the clean-shaven Ponzi is another big news story for Boston, about a New York Yankees ball player familiar to locals. The headline says “Ruth Injures Knee Sliding.” Source: Used by permission of the Boston Globe, courtesy Boston Public Library.
reporting on the roaring
and buy the troubled Post, asking Taylor’s permission in that age of gentlemanly exchanges. “If you have even the slightest objection,” he told Taylor, “I won’t consider purchasing the paper.” Taylor responded that if Grozier “can gather up any of the crumbs that fall from the Globe’s table, you’re welcome to them”—to which Grozier retorted: “If I can, I shall go after the cake, too!” Grozier saved the paper with a series of Pulitzer-like stunts and promotions, printing the names of every child that contributed to the Post’s campaign to buy elephants for the local zoo. Like Pulitzer, he played up crime stories, winning subscribers with the heavy coverage of Lizzy Borden and other grisly crime stories. He also promoted Irish causes, which stuffier Boston papers did not, and he cut the price to one cent from three. In time, the paper’s circulation actually exceeded that of the World, with its much larger market. When Grozier took ill in 1920, though, it was his son Richard who proved himself by challenging the Ponzi phenomenon as it swept his city. The thirty-eight-year-old, slight-of-build Charles Ponzi, nattily dressed in his trademark boater hat and cane, had a flair for selling and a wonderful head for business—as long as that business was crooked. Unbeknownst to Bostonians who first heard his get-rich-quick promises in early 1920, he had a past full of fraud and forgery, having served prison terms in Montreal and Georgia. Almost as ardent a stamp collector as he was a con artist, he had devised a plausible-sounding investment plan—with implausible returns of 50 percent in ninety days—based on foreign exchange rates in a post-war Europe of collapsing currency values. To get those returns for investors, Ponzi pledged that he would put their dollars into humble-sounding instruments called “International Reply Coupons,” or IRCs. These actually did exist; IRCs had been created by a global agreement before the war to help governments fix the values at which their nation’s postage stamps would be redeemed. Countries designed coupons with floating redemption rates reflecting what currency was being used in the transaction to allow the international mailing of letters. Thus mail posted at a certain rate in, say, the United States would be delivered to Spain or Italy, no matter what happened to rates in those countries when the U.S. mail was sent.5
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In 1919, Ponzi examined one of the IRC certificates that an associate in Spain had sent him and began to think. We know something of his thought process because of accounts he gave about his adventures later in life. As Boston journalist Mitchell Zuckoff writes in his 2005 book Ponzi’s Scheme, “in a flash of insight, some might even say genius, Ponzi saw something more, a global currency whose value fluctuated wildly depending on where it was used.”6 Ponzi did some calculations: if one U.S. dollar could purchase five IRCs in Boston, it could buy sixty-six IRCs in Rome once the dollars were exchanged for the severely devalued Italian lira. It was a moment reminiscent of The Producers’ Max Bialystock plotting with Leo Bloom how they might make more money with a flop than with a Broadway hit. To make money with this kind of exchange himself, Ponzi would have to start with a hoard of original dollars to buy the IRCs in countries with devalued currencies—a hoard he did not have. Then he would have to buy and transport the huge bundles of coupons that would have to be involved if any meaningful profit was to be produced. That’s if it was even legal. “But those critical details would wait for another day,” Zuckoff writes. Ponzi decided instead to use his brainstorm to sell others on investing in Ponzi’s own securities. That would get him his bankroll. He would then deliver the promised returns by paying them off with the investments of later investors.7 His international trade in IRCs never began. What did begin was a promotion based on persuading others that Ponzi could manipulate the system to turn a huge profit for them. For fifty cents he registered the name of a new company at the end of 1919: Securities Exchange Company, a name that existed over a decade before a federal government “Securities and Exchange Commission” was to appear to protect the investment community from scams like Ponzi’s. Shamelessly Ponzi began building a foundation for his scheme that was designed to insulate him from the authorities. At the police commissioner’s office, he made a point of putting money in the Boston Police Relief Association and promised more. Just for fun, he put out feelers with postal officials about whether the exchange he had dreamed up for IRCs might actually be possible. Could he redeem IRCs for cash—a key part of his scheme—if he had them? No, he was told. But by that time the promotion was already going crazy, with ninety-day, 50 percent Securities Exchange Company notes flying out of [ 176 ]
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his downtown Boston shop. The post office began examining his scheme. It would “begin” for many months without result. But Ponzi was bringing in $30,000 per week at the start. Then more and more, both in tiny investments and soon in $10,000 chunks. He was also digging himself deeper into a hole each day, of course. Each coupon was a debt he had no hope of repaying without plundering later investment dollars. As his secretary kept doling out the company promissory notes, she wrote investors’ names on index cards. The names multiplied quickly with the cash. From 1,525 investors he brought in $40,000 during May. Ponzi bought an expensive house in the suburbs and a fancy car for the commute. His lifestyle was lavish. New ways had to be found to keep drawing investors, but Ponzi’s pitch kept working. He cut the payout time in half and touted that “a little dollar could start on a journey across the ocean and return home in six weeks, married and with a couple of kids.”
“Can It Be Real?” Enter the newspapers. On June 9, the Boston Traveler was the first to promote Ponzi in the news columns, with an all-capital headline saying: “WE GUARANTEE YOU 50 PERCENT PROFIT IN 45 DAYS.” The postal inspector that a Traveler reporter questioned failed to signal any problem with the investment and added a tantalizingly mysterious note: “We haven’t figured out how they make their enormous profit, but they seem confident of their ability to do so.” That triggered more investor interest. But basically newspapers didn’t pay much attention for a few more weeks. There was lots of news cramming the front pages: Prohibition had gone into effect nationally in January. States were also debating a constitutional amendment to give women the right to vote. In Massachusetts, a murder in a Boston suburb was being blamed on two Italians, Nicola Sacco and Bartolomeo Vanzetti. Governor Calvin Coolidge was considering a run for vice president. Further, notes journalist Zuckoff, sports pages were full of Babe Ruth “pounding home runs for the New York Yankees after his stunning sale the previous winter by the Boston Red Sox. The Babe’s move fueled the question of whether New York City might eclipse Boston as the ‘Hub of the Universe.’ Most Bostonians doubted it.”8 [ 177 ]
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It was July 4 before the Boston Post got involved, beginning a two-month flurry of stories about Ponzi. It started with a courthouse reporter’s piece about a million-dollar lawsuit that a Ponzi associate had filed against him. The plaintiff couldn’t be found to comment but Ponzi, as usual, had plenty to say. It was just a case of someone wanting money from him because he was so wealthy, he said, and any legitimate claim would be “satisfied because I have got two million dollars over and above all claims of investors against me in this country.” The article then went on to note that Ponzi “is today rated as worth $8,500,000—purchaser of business blocks, trust companies, estates and motor cars.” To the question of “Can it be real?” posed by the story, federal, state, and city authorities were said to be answering “that they have been unable to find that he is doing anything illegal.”9 Richard Grozier was incredulous at the 50 percent profit claim though. He asked the Post city editor Edward J. Dunn to have some reporters look into Ponzi and his company more closely. One worry on his mind was that a number of Post employees, mostly in the press room, were investors with Ponzi. Various other investigations had also started to go with the postal investigation and bank examiners were talking with Ponzi’s bankers. Using investor money, Ponzi set up a $1.5 million short-term certificate of deposit at the bank to placate inspectors. City editor Dunn had two reporters, “P. A.” Santosuosso and Herbert L. Baldwin, on the case. They turned to Clarence Barron as a source. Barron, short, bearded, and weighing 330 pounds at age sixty-five, had established himself as quite a Boston character. He had a reserved suite at the Ritz Carlton across from the Boston Public Garden to go with his Beacon Hill home and an estate in the posh South Shore community of Cohasset. The page of news his Boston News Bureau provided was aimed for Boston’s high-finance readers, who paid the princely sum of one dollar for it. Yet Barron had strong views about Ponzi and his popularity, and he was a great interview. It ran under the headline “QUESTIONS THE MOTIVE BEHIND PONZI SCHEME: Barron Says Reply Coupon Plan Can Be Worked Only In Small Way.” Identified as being “recognized internationally as among the foremost financial authorities of the world,” Barron was quoted as saying: “No man of wide financial or investment experience would look twice at a proposition to take his money upon a simple promise to pay it back with a 50% increase in three months.” Barron further [ 178 ]
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raised the question of whether there could possibly be enough supply of postage to soak up the millions that Ponzi said was being invested. The public reaction to all this cold water on the hot investment? The biggest rush yet from people wanting to buy. When Edward Dunn walked around the corner from the Post to check on the scene, his observation was: “Pigs being led to the slaughter.” The scenario was to play out for several more weeks, each new skeptical story seeming to stimulate business rather than stifle it. On July 30, New York’s postmaster was quoted as saying that the small number of postal reply coupons in existence made it “impossible” that a multimillion-dollar fortune could be created from them. Barron sharpened his old charges about it being a case of “robbing Peter to pay Paul,” adding some sarcasm about the possibility that Ponzi could apply his investment formula to solve all of Europe’s woes. “Surely,” he said, “the allies could spare him a million and within three years clean up that debt tangle.” The Post cartoons pictured a worried-looking Ponzi trying to keep his “pot of gold” boiling. An editorial by Grozier said, “It Cannot Last.”10 But the charming Ponzi, now identified as a man of the people, was past criticism to many. In fact, the heavier the attack, the more his cult-figure status seemed to grow. He milked it unmercifully. In one of his frequent impromptu speeches to crowds he said: “Now please don’t think that I’m boasting, but I have forgotten more about foreign exchange than C. W. Barron ever knew.” When someone in an audience suggested he was the greatest Italian in history he said: “No. I am the third greatest.” He rated Columbus and Marconi higher. Finally, to shouts of “Ponzi for mayor” and “Ponzi for governor,” he suggested in a comment sure to win him fans that he might throw his support to an anti-Prohibition candidate. The Boston Traveler, ever the Ponzi supporter, ran a sports column comparing him with Babe Ruth. The bankers are trying to retire Ponzi “with the banks full,” the writer said. “Just like trying to retire you with the bases full, hey Babe?” The New York Times observed that in the city to the north, “public distrust seems to be shifting from Ponzi to his critics and assailants.” But the Post wasn’t finished. Its reporters were still gathering information, and sources were starting to step forward in response to its stories. It delivered a one-two punch. First, when Ponzi’s own public relations man, William McMasters, a former Post reporter, became suspicious of his boss, he did some snooping around the office and found incriminating [ 179 ]
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information—offering it to Grozier. The Post editor paid $5,000 for it, something the ensuing article did not disclose. Under McMasters’s own byline, the article said that Ponzi had earned nothing from investments outside the United States and was at least $2 million in debt. His article ran on Monday, August 2, under the page-one headline: “DECLARES PONZI IS NOW HOPELESSLY INSOLVENT: Publicity Expert Employed by ‘Wizard’ Says He Has Not Sufficient Funds to Meet His Notes—States He Has Sent No Money to Europe nor Received Money from Europe Recently.” Why had McMasters chosen to speak up? “As a publicity man,” he wrote, “my first duty is to the public.” While that statement might have stopped a few readers in their tracks, more than a few believed the rest of his claims. At last investors lined up outside Ponzi’s office with withdrawals in mind, pulling out $400,000 on Monday alone. But some Ponzi fans still weren’t convinced.11 That would take one more Post story. On August 8, Ponzi was comfortable at home in his bathrobe as he settled in for two hours with Post reporter P. A. Santosuossa. The questions were about his life before coming to Boston. There were holes in the story—holes that Santosuossa was looking for because he had heard rumors that Ponzi had a criminal record in Canada. Still, the reporter didn’t have enough to confront Ponzi about it. After the interview was over, though, the Post’s Montreal correspondent provided the tip the paper had been itching for: that someone named Charles Ponsi, spelled with an “s,” had been imprisoned there a decade earlier for forgery. The charge had stemmed from his employment at Banco Zarossi. Santosuossa called Ponzi back at home with his follow-up. Ponzi laughed off the direct question of whether he was the same Ponsi, who also used the alias Bianchi. Had he been in Canada at that time? Yes. Had he worked at that bank? “I might have.” For the Post, the next step was to immediately dispatch a reporter to Montreal—it was Herbert Baldwin—to nail down the report once and for all. His interviews were successful, bringing numerous confirmations from the Ponzi photo Baldwin displayed. With the addition of a mustache, he was told, it was the same man: the forger Ponsi, alias Bianchi. Or, as one said, “Bianchi, the snake!” Being Ponzi, the trader still made efforts to deny it even after a story bylined by Baldwin ran on August 11, with its headline—“Canadian ‘Ponsi’ Served Jail Term”—and with details of the forgery conviction. [ 180 ]
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When he was told what the story would say and was asked to comment, Ponzi told the Post reporter: “Then you are going to get the presses ripped out of your building.” But the bravado didn’t last. Just over a month had passed since the unquestioning July 4 story in the Post.12 Now Ponzi’s life unraveled fast. “It was this revelation that finally burst the bubble,” said the Post in its nomination letter to the Pulitzer board. “Practically the last doubts were swept away.” From the arraignment on through trial, conviction, and sentence, any remaining doubts certainly vanished. As the authorities swarmed, Ponzi admitted to having served the Georgia prison term as well. Ever chatty, Ponzi said to the Post’s Baldwin at a moment toward the end of the trial: “You did a fine job on me. If it hadn’t been for that story in the Post, maybe things would have been a lot different for me today.” Much later, Ponzi was to detail the entire scam. “My business was simple. It was the old game of robbing Peter to pay Paul,” he said. “The whole thing was broken.”13 The Public Service Pulitzer was to be the highlight of the next three decades for the Post. A long period of decline began. Edwin Grozier died in 1923 and Richard Grozier died in 1946. The next gold medal to a Boston publication would be the Globe’s Pulitzer, won in 1966. That was ten years after the Globe had bought the Post’s library and the rights to its name. 1921—The Boston Post for its exposure of the operations of Charles Ponzi by a series of articles which finally led to his arrest.14
Swope’s World If Charles Ponzi was the perfect charlatan for the Jazz Age, the New York World’s Herbert Bayard Swope may have been the perfect journalist to represent the forces of truth, justice, and the American way. The winner of the very first Pulitzer Prize—in 1917, for his reporting on the German empire from Europe in the early years of the war—Swope was thirty-eight when he returned to the United States in 1920 and became a key player for Ralph Pulitzer’s paper. With all his gifts, Swope was in a good position to [ 181 ]