October 6, 2015 10:34:03 AM
Everyone knows what a Ponzi Scheme is, the process of making money by recruiting new investors so that the original investors get paid by the entrance of the new ones, until there is an eventual collapse. The name comes from Charles Ponzi, who built his scheme by selling postal coupons. If language and eponyms were logical, however, we would call it a Koretz Scheme. Ponzi got caught and prosecuted quickly, after his scheme had run just a year. Leo Koretz had already been taking on new investors for years before Ponzi, and his scheme ran for a couple of decades, and it wasn't just based on postal coupons. Ponzi will forever be remembered, but Koretz can resume his role as a superior con-artist, thanks to Empire of Deception: The Incredible Story of a Master Swindler Who Seduced a City and Captivated the Nation (Algonquin Books) by Dean Jobb. Jobb teaches journalism, and much of this biography is drawn from Chicago newspaper stories, originally fawning as Koretz rose, and then incredulous when he disappeared, and condemnatory when he was caught. A lot of people lost fortunes, many of whom should have known better, and some of whom were investing the best way they could find to get a good return. This could be a disheartening story, and ought to be, but darned if the trickster isn't still a charming con-man whose rags-to-riches-to-prison story is a romp.
This enthralling account begins with Koretz at the height of his acclaim, the honoree of an elegant banquet at the posh Drake Hotel in Chicago in 1922. The diners had all become rich at Koretz's guidance, and the jolly dinner included a reference to him as "Our Ponzi," a joke that showed their supreme trust in their master investor. Koretz worked hard to get such confidence, but he didn't show it. His family had immigrated from Bohemia to the United States when he was eight years old. He proved to be a good student and fundraiser for good causes. He clerked at a law firm after graduating and got his law degree in night school. He joined a law firm but he also started offering fake mortgages to a client who had ready money, and he also profited off bogus claims on Arkansas rice farms.
In 1908, he was himself swindled in a bogus deal for land in Panama. In the tradition of enterprise overcoming adversity, he made the swindle his own. The distant country's Bayano region was rich with timber, he originally claimed, and then he was to go on to proclaim that huge oil deposits had been found, and to hint that he had turned down Rockefeller's offer to buy him out. But he did it all quietly and modestly; his were not strong-arm tactics. He discouraged investors, refusing to admit new ones until they begged him for admission. Making the shares hard to get made them more valuable. He "reluctantly" took on members of his synagogue, friends, and relatives as investors, and if prospective investors had any doubts about giving him their money, they could reason that his own family was investing, and he would not bilk his own kin. Koretz was modest, friendly, socially graceful, and circulated well in champagne soirees. He married a woman who adored him and had no idea where the money was coming from, and he had a grand mansion, fancy cars, and plenty of prohibition-era liquor. He also had an eye for the ladies and enjoyed the attention of mistresses.
Koretz knew that his schemes would eventually fail and that his lavish lifestyle would not continue. Also, his friends who were investors began to have reasonable questions about how all the elaborate plans of extracting and exporting oil from Panama were playing out. Koretz had taken advantage of the Bayano lands being so far away that no one would be able to investigate them. As a late ploy, he took advantage of the distance once again: he sent the investors who had wondered about their Bayano holdings on a grand fact-finding trip, assuring them they would be impressed with the extensive drilling operations and export facilities. He knew that they would find nothing but jungle and alligators, but the audacious scheme allowed him, while they were away, to close up his Chicago operation and flee to New York and then to Nova Scotia. By the time the cable came from Panama from an investor to his brother, a banker in Chicago ("NO OIL, NO WELLS, NO PIPELINES, NO ORGANIZATION"), Koretz was clean out of town and untraceable, even with the newspapers baying for his capture.
In Nova Scotia, he invented a new life for himself as Lou Keyte, an ostensible writer. He bought a big seaside mansion and ingratiated himself with at least some of the populace by giving lavish parties there. He had new friends and mistresses, and had all the local respect that money could buy. He was to enjoy it for eighteen months, before everything fell through, starting with the suspicions of a humble tailor who questioned that this rich newcomer had expensive clothes with the name Leo Koretz on the labels. That name sounded familiar, and the tailor thought perhaps it was connected to the recent trial in Chicago of the Leopold and Loeb case. The state's attorney, Robert Crowe, had convicted the thrill killers (but had been unable to secure the death penalty). He and Koretz were contemporaries who had started their legal careers in the same firm. Crowe needed a publicity win, and arranged for the arrest and extradition of Koretz, who gave up without resistance, pleaded guilty, and went to prison. In a way, as Jobb tells the story, he had one more scam to pull in thwarting justice, and it is an intriguing one.
There is poignancy in the plight of the wife Mae Koretz, who was shattered by her husband's financial and sexual betrayals. She did her best to make amends to those Koretz had bilked. Mostly, though, this is a jolly story of a clever criminal who scammed rich people who could take their losses and were too embarrassed about them to make much of a fuss. (There were some less well-off investors whose losses were cripplingly real.) There was plenty of crime in Chicago at the time, with political offices for sale and the famous gangland wars, all of which Jobb covers as part of the local color. We have swindlers still; Bernie Madoff used many of the techniques Koretz did. None of us will be financially swindled by Leo Koretz, but readers are liable to be willing suckers for involvement in his unjustly obscure but amazing story.