The Man Who Time (Almost) Forgot

William H. McMasters Finally Gets His Due for Exposing Ponzi

By Cora Bullock;Photos by Eddie Arrossi

During the ACFE's 22nd Annual Fraud Conference and Exhibition, the 2011 Cliff Robertson Sentinel Award went to William H. McMasters, the Boston publicist who, in 1920, helped take down the most notorious pyramid schemer of them all: Charles Ponzi. 

mcmasters-portraitFor the first time ever, the ACFE presented its annual Cliff Robertson Sentinel Award posthumously. Who was the person who earned such an honor, 43 years after his death? William H. McMasters, the man who exposed Charles Ponzi as a fraud in 1920.

He was Ponzi's publicist for just a short time before he realized his client was a fraudster. McMasters then wrote a scathing exposé for The Boston Post that led to Ponzi's ultimate downfall. The newspaper received the 1921 Pulitzer Prize for its Ponzi coverage. McMasters never even saw the medal and, during his lifetime, he never received public recognition for his role. It is past time to give him his due.


Possibly the most remarkable part of the story is that McMasters wrote the exposé on Ponzi only 10 days after Ponzi hired him. Compare that to the years of reporters' and investigators' questions before Bernie Madoff's scheme finally came crashing down.

On July 23, 1920, Boston Municipal Court judge Frank Leveroni and William S. McNary, treasurer of the Hanover Trust Company, called McMasters - by then a well-known publicity agent - into Leveroni's office to meet Ponzi. They wanted to know if McMasters would consider working for Ponzi, who had become a major Hanover Trust stockholder.

Ponzi was dashing - he wore an expensive suit and was incredibly charming and confident. He outlined his plan for a massive financial empire. He purportedly sent money overseas to be exchanged for local currency, and then his contacts bought postal coupons and mailed them to Ponzi, who exchanged them for stamps, which businesses bought in bulk for a reduced price. (See sidebar: "Who was Charles Ponzi, and what was his scheme?" below.) The bottom line was he was raking in hundreds of thousands of dollars a month from investors with the promise of a 50-percent return rate on their money within 90 days.

McMasters' suspicions began as early as the very first meeting because the rate of return seemed a little too fantastic, but he was honest about his prospects. "I was not averse to having a millionaire for a client, especially one who evidently wanted to spend money lavishly," McMasters wrote in a 1949 accounting of the story.

As his newly hired publicist, McMasters scored Ponzi an interview with The Boston Post (which then had the largest circulation in New England) shortly after his first meeting with Ponzi. The front-page story the next day drew investors like flies to honey. A line formed at Ponzi's office at 6 a.m., and he collected more than $3 million (US $34 million in today's dollars) in just one day. McMasters recalled Ponzi swaggering among the crowd, reassuring them that his staff would help them all.

The story spread like wildfire to "the front page of practically every newspaper in the United States," wrote McMasters. People could not get their money to Ponzi fast enough.

But Ponzi's numbers bothered McMasters. How could it possibly be true for Ponzi to give the returns he was promising? The answer, of course, was that he couldn't.


On July 26, at McMasters' insistence, he and Ponzi went to visit District Attorney Joseph C. Pelletier, U.S. Attorney Daniel J. Gallagher and Massachusetts Attorney General J. Weston Allen. McMasters

Said Dr. Faith Dickerson of her grandfather, William H. McMasters, "He took very principled positions. He maintained them and  fought for them. He was not easily swayed by criticism. He was determined, resolute."

told Ponzi these interviews would increase public confidence in his business, but secretly McMasters wanted to put himself and the Post "in the clear," as he later wrote. Understandably, Ponzi was reluctant, but, incredibly, he said he would go.

Pelletier agreed with McMasters that something unusual was going on, and he told Ponzi to close his offices until a public accountant had audited his books. (Pelletier offered Ponzi an additional day's grace before opening his books, but McMasters insisted that Ponzi close his offices that day.)

They marched into Gallagher's office, then on to Allen's office, where, for three hours, they asked question after question. McMasters wrote that Ponzi put on a good show. "When he was cornered, he used the old technique that such a question could not be answered as it would disclose his financial secrets to the big bankers of Wall Street and Threadneedle Street and the Paris Bourse [then the financial centers of England and France]," wrote McMasters. "Once, Attorney General Allen said to him, ‘Mr. Ponzi, if you can do these things that you claim, you will be the greatest Italian whoever came to America.' To this, Ponzi smiled and said, ‘Don't forget Columbus, Mr. Allen!' "

According to McMasters, once Ponzi's offices closed, a few nervous investors demanded their money back, which Ponzi quickly refunded, but most of his clients still had confidence in him.

McMasters wanted to confirm his suspicions, so while the books were with the accountant, he talked to investors outside of Ponzi's office for two days, observing their ticket stubs, which showed how much Ponzi owed them. "… That he was hopelessly insolvent had become a fixation in my mind," he later wrote. It was time to act.


boston-post-ponzi-articleMcMasters approached Richard Grozier, the Post's assistant editor and publisher, about running an exposé on Ponzi. Grozier balked because he was afraid Ponzi would sue him for libel. However, McMasters got a promise from Nathan Tufts, the district attorney of where Grozier lived, that the publisher would be immune from lawsuits if the article proved untrue. So, McMasters wrote the article with the spectacular headline, "Declares Ponzi Is Now Hopelessly Insolvent." Grozier paid him $6,000.

That Monday morning of Aug. 2, "when Ponzi opened his Boston office … the line was more than a half-mile long." McMasters wrote of terrified investors in tears, some even fainting. But Ponzi paid off these investors for more than a week. He sued the Post for $5 million, and he made speeches railing against the paper. Even the attorney general told McMasters on the day the article appeared that he had made a mistake in running such a scathing story before any official reports.

However, McMasters persevered. He responded with another Post article on Aug. 3, which ran with a separate article by a reporter who confirmed with Pelletier his conversations with McMasters and Ponzi. McMasters then asked the attorney general to request that investors mail letters saying how much Ponzi owed them. The "overwhelming" response helped prove his exposé — there were simply too many investors owed too much and not enough money to pay them.

A week later, another Post article reported that Ponzi had been in the federal penitentiary in Atlanta for violating immigration laws, and he also had been convicted of theft in Montreal. The final nail in the coffin was the post office's official report that "Ponzi had never bought a dollar's worth in postal coupons abroad or cashed in a dime's worth in the United States," wrote McMasters.

Ponzi was convicted of mail fraud in 1920 (because he had used the U.S. mail to plead with investors to reinvest their money), and he served five years in jail. After his release, he still wasn't through with his schemes. He had to stand trial on state larceny charges, but while out on bail, he ran a scheme in Florida selling expensive real estate that turned out to be swampland. He was arrested and convicted of that crime, but then he tried to flee the country. Ponzi was caught yet again and served seven years in prison. After that, the U.S. had had enough and deported him to Italy in 1934. There he scammed the Italian treasury and then fled to South America. He died a pauper in a charity ward in Brazil in 1949.


In an interview with Fraud Magazine, McMasters' granddaughter, Faith Dickerson, Ph.D., a psychologist who conducts research on schizophrenia, said, "I remember visiting my grandfather and my grandmother as a very young child in Cambridge, Massachusetts, in their walk-up apartment. He was elderly, but an imposing gentleman." Dickerson accepted the Sentinel Award for McMasters at the annual conference.


A young Dr. Dickerson poses with her grandparents, William H. and Lillian McMasters.

She recalled that he always sat in the dining room of his small apartment, banging away on his typewriter, still producing work, including a column for the local newspaper, Cambridge Chronicle. "He completely had his faculties. He was stern and commanding, but very engaging and intellectualized. I don't ever remember him not wearing a suit and also a top hat when he went outside," she says.

Though he was not one to roll around on the carpet with his only grandchild, he wrote her poems and Valentines. McMasters was extremely protective of his wife, Lillian, a musician and artist, whom he married in 1911. She appeared to be vulnerable and delicate, taking naps and whisking out hankies to flutter, but she lived to be 103.

William Henry McMasters was born June 9, 1874, in Franklin, Mass., on the outer perimeter of the Boston area. His father died in an industrial accident at the sawmill plant in which he worked nine months before McMasters was born. His mother, Jane, ran a rooming house and later married a Swedish-American carpenter. McMasters worked a variety of jobs as a boy; he drove cows, picked berries, chopped wood and even watered circus animals.

Despite his impoverished background, he was intelligent and quick-witted. He attended high school at Dean Academy in Franklin, and then, at the age of 16, he left the school to learn to be a telegraph operator. He returned to high school and graduated, went straight to law school (he skipped college; back then, one didn't need a college degree to go to law school), then he left school permanently, without his degree, to volunteer in the U.S. Army Signal Corps during the Spanish-American War.

After the war, McMasters became a reporter for various Massachusetts newspapers. He eventually became a publicist, which is how his life intersected with Ponzi's.

Dickerson knew little of McMasters' role in the Ponzi story because her family didn't talk much about it when she was growing up. Ponzi was not such a household name back then. To Dickerson, McMasters had done a lot of other things that were more recent and more interesting. He worked on the Calvin Coolidge Memorial Foundation, and he corresponded with political leaders, including Speaker John William McCormack of the U.S. House of Representatives.

She knew McMasters had been involved in political campaigns, but it wasn't until after he died in 1968 and her family talked of donating his papers to the Boston Public Library that she became aware of the extent of his role in the exposé.

A closer look at McMasters' personality reveals that his Ponzi exposé was inevitable. "He took very principled positions. He maintained them and fought for them. He was not easily swayed by criticism. He was determined, resolute," Dickerson said.

McMasters worked on the publicity campaign for women's suffrage in Massachusetts. And in the 1930s, he was in the forefront in championing old-age pensions, before Social Security.


After Ponzi, McMasters enjoyed working as a publicist for such famous politicians as Boston mayor James M. Curley and John F. Kennedy's grandfather, Honey Fitz, in his run for mayor of Boston. He had worked on Calvin Coolidge's gubernatorial campaign in Massachusetts in 1918, and he maintained a lifetime admiration for the unpopular president.

McMasters taught journalism at Mount Ida Community College from 1947 to 1957. He wrote a Broadway play, "Undercurrent," several novels and many mystery stories. He was such a prolific writer, he even decided, at the age of 91, to write a poem a day for six months. He died in 1968 when he was 93.

dickerson-memorabiliaMcMasters was unhappy that he never received any public appreciation or recognition for his role in exposing Ponzi. He collected numerous articles that subsequently were published about the scheme, and they all gave Grozier and the Boston Post the acclaim.

McMasters' archives show his connection to Ponzi profoundly affected him. He spent years writing version after version of his Ponzi story and submitting these pieces to various publications. He even wrote a movie script featuring himself as the lead and hero. You can see his PR ways at work when he changed a title of one article from "The Ponzi Saga" to "America's Most Glamorous Swindler."

McMasters also kept the multiple manuscript rejection letters that publications had sent him. "He was self-directed, self-initiating and very high energy," said. Dickerson. "He didn't seem deterred by rejections. They didn't stop him from making the next effort."

His accounts are full of wonderful little details, such as when he first met Ponzi: "Then [Ponzi] gave his thin bamboo cane a dandified switch and touched the tip of one of his two-toned shoes." He noted Ponzi was 5'4" tall.

"He's really consistent in the story he tells, but it seems that [he thought that] if he kept writing and writing about his experience with Ponzi, that it would be picked up," says Dickerson. "Ironically, that's what happened, because his 1962 manuscript did finally get picked up, although 40 years after his death."


Several events helped bring the story of McMasters to light. The Madoff scandal helped everyone revisit Ponzi. "Then a book ["Ponzi's Scheme: The True Story of a Financial Legend"] came out, by Mitch Zukoff, that purported to tell the story of Ponzi and pitted the story, as most people had, of Ponzi versus the newspaper editor," says Dickerson. "My grandfather basically had been written out of the history. Everyone saw the hero as this newspaper publisher who decided to go forward with the exposé, and it just happened that my grandfather wrote it, which is barely even mentioned."

She felt distressed that, once again, her grandfather had been overlooked. But then she received what she calls a "stunning" call from Ralph Blumenthal of The New York Times a little more than two years ago, who later wrote a May 4, 2009, story for the Times on McMasters, "Found Manuscript Unmasks Details of Original Ponzi." 

Blumenthal had found a 1962 manuscript by McMasters at John Jay College that outlined his role in exposing Ponzi. "Blumenthal had come across the manuscript that was considered so precious, he couldn't photocopy it, and it was maintained in very careful conditions where there was dim light, and one had to have gloves to turn the pages," says Dickerson.

"I thought that was very ironic because my grandfather couldn't give away his story when he was alive," laughs Dickerson. "Now all of the sudden this document is so precious and kept under lock and key like this famous antiquity, which I think would have pleased him."

The Times article caught the eye of Allan Bachman, CFE, the ACFE's education manager, and he called Dickerson. The Sentinel Award made her look at her grandfather with new eyes.

"I identified my grandfather as a journalist and publicist," says Dickerson. "Fraud examiner? I never quite saw it in those terms, but now I see it fits completely."











Cora Bullock is assistant editor of Fraud Magazine.  



Who Was Charles Ponzi, and What Was His Scheme?  

Charles Ponzi was an Italian immigrant, flashy and fast-talking and eager to make his fortune however he could. He had been convicted of theft in Montreal and served time in the federal penitentiary in Atlanta for violating immigration laws. But no one in Boston knew about that when he opened his Securities Exchange Company in late 1919 to tout his latest scheme: postal reply coupons.

In 1919, immigrants were flocking to the West, leaving behind families for whom the only communication would be through the mail. To handle the sudden influx of packages and letters, the Universal Postal Union had created postal reply coupons. When someone sent a loved one a letter, they included a postal coupon. The recipient could then buy stamps with the coupon to mail a return letter or package.

Ponzi advertised that he could make a killing by working the fluctuations of the international currency market. He promised his investors an unheard-of 50 percent return on their investment in 90 days, but he paid in 45 days.

This is how Ponzi would outline his scheme: He sends his Italian contacts U.S. dollars. They exchange that for lira, then buy postal coupons and send them back to Ponzi. Ponzi cashes in the postal coupons for stamps. He then sells them at a discount to "larger firms downtown," giving his investors their return and pocketing the rest.

People, eager to get rich quick, lined up in droves. Most investors were working-class people, offering up as little as $10, but there were plenty of them. In the month of May 1920 alone, Ponzi took in $500,000 (nearly $6 million in today's dollars).

In reality, he wasn't buying any coupons. He merely used new investors' money to pay previous investors, so he had to continually add new investors to keep running the scheme. This looks like a pyramid on a chart, hence the name "pyramid scheme." If too many investors demand their returns, or even their original investment, back at once, then the whole thing collapses.

In all, Ponzi took money from 30,000 investors, for a total of $10 million (a little more than $114 million today). Like the more recent infamous pyramid schemer, Bernard Madoff, most of his victims were of modest means, some losing their entire life savings.

(Sources: "Frankensteins of Fraud," by Dr. Joseph T. Wells, CFE, CPA, copyright 2000, Obsidian Publishing Company; and How a Master Scammer Met His Match: Ponzi vs. the Postal Inspection Service.)

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