February 4, 2016 8:58:05 AM
Everyone knows what a Ponzi scheme is, although the man for whom it is named, Charles Ponzi, is pretty much forgotten. Everyone knows who Bernie Madoff is, although half a century from now perhaps he will be forgotten, too. We have also forgotten George Graham Rice, although his contemporaries knew the name well. There is now an entertaining biography of one of the top American con artists: My Adventures with Your Money: George Graham Rice and the Golden Age of the Con Artist (St. Martin's Press) by T. D. Thornton. It isn't just a biography of Rice, but also a look at what he was selling and why it was so attractive, what sort of people wanted to buy from him, and how the era made it possible. Rice worked very hard, and was really good at what he did, and much of the book is a rollicking story of high-stakes tomfoolery.
Rice got an early start on bilking people by scamming his family. He was born in 1870, Jacob Herzig of Jewish immigrants prosperous in the fur business in New York's Lower East Side. He observed how cheats could rig dice and card games, and used the same principles to cheat at marbles. He was prodigiously smart, and a smooth talker, but honest application bored him. He went on to live a dandified youth by bouncing checks on the family business; the father honored the checks but had the son arrested. Jacob was sent to a reformatory where he befriended an elderly con man, Willie Graham Rice, learned some of his friend's techniques, and adopted his name.
Among the principles that Rice learned was that con men had to play upon the greed of others. A certain amount of greed may drive all commerce, but con men took advantage of the eagerness of their marks to be involved in a shady deal, like buying a share of supposedly stolen gold for a pittance, only to find that the gold is no such thing. Then the sucker would be unlikely to complain to the law, because of embarrassment and fear of exposure of his own cupidity. "It's not that Americans were more naive back then," writes Thornton. "They weren't. It's just that the truth about the most legitimate investments was never so tantalizing as the made-up deceptions of con men." The fake gold swindle and similar ruses were small stakes; when Rice emerged from the reformatory, there was an expansion in securities markets with their associated anonymity that was a perfect arena for a smart con man, and the mark was not the man on the street but thousands of investors, some with deep pockets.
Rice's first endeavor was based on horse racing. He would not be the one betting on the races; he formed a race-tipping service for subscribers of his racing paper. The subscriber database (or sucker list) were those who were eager to put up subscription fees for the benefit of getting advanced word on fixed races. Rice's firm crowed about its successes, and Rice was indignant when the firm did so well that shoddy imitators began to play the same tricks. Rice took out warning ads in the racing papers proclaiming, "Anyone doing business in Chicago representing himself to be our agent, IS A SWINDLER!" The scheme had a good run for a couple of years, and then federal authorities closed it down. Rice had taken in millions, but he never held on to money for very long; like many con men, he had an affection for gambling (in Rice's case, it was the then-popular card game faro), and he was the sort of unskillful gambler that thought he could beat a card game he knew was fixed.
Still, Rice was nothing if not versatile. He went west to Nevada, where prospecting towns were springing up. Not for him was the toil of digging; instead, he formed a brokerage to sell penny mining stocks; he might be said to have originated the penny stock system. There were plenty of worthless mining properties, but if he could bribe mining engineers to say they were not worthless but priceless, and if he could get advertisements out to distant states, he had a good income. He was good at publicity and getting newspaper articles written about himself and his lucrative business. He even arranged a colossal boxing match in the camp of Goldfield, Nevada, a mixed-race bout that went forty-two rounds and lasted two hours and forty-eight minutes, a record that current boxing rules ensure will never be broken. If you wondered: yes, the match was fixed.
The mining business boomed and failed, and Rice returned to Wall Street. He wasn't part of the official Stock Exchange, but entered the Curb Exchange, the outdoor market that was unregulated. It was a perfect environment for Rice; those at the Curb Exchange were dealing not just in buying and selling stocks, but also shifty loans and bribes to public officials. Rice hired a clipping service to scour for obituaries or articles about philanthropists' latest donations to find new marks. He kept a meticulous database of suckers, with listings like this one: "Prominent philanderer. Age 72. Gave $100,000 to college and another 3,000 acres of land. Supports former mistress, Broadway chorus girl."
It was within the arena of the Curb Exchange that Rice met and partnered with Arnold Rothstein, a powerful gangster who may have been America's first organized-crime boss and who was implicated in the notorious fix of the 1919 World Series. Rothstein's legal team was to prove invaluable for Rice, who became a target for a crusading New York prosecutor. Rice's legal success had two parts. First, the lawyers used the "clog-and-snarl" strategy during the trials for fraud, bringing in reams of confusing evidence and challenging every assertion by the prosecutors, to the confusion of the jury. Second, if he was hounded out of one scheme, he quickly rebounded with another. He did get a four year sentence handed to him a few weeks after the market crash of October 1929, and he served it in a penitentiary in Atlanta, where Al Capone invited him to share his cell and the luxuries therein. "I'll take Al's word," said Rice, "quicker than anybody on the stock exchange."
The bust of the depression years changed everything. The public was more wary, and the government more vigilant. The age of the big, flashy con was over, and it is hard to trace Rice's last years. No newspaper included an obituary when he died in 1943. Thornton has cheekily lifted the title of his book from a memoir Rice himself wrote in 1913, a bit of pilfering that Rice would have appreciated. Rice's book bore this dedication: "To the American Damphool Speculator, surnamed the American Sucker, otherwise described herein as The Thinker Who Thinks He Knows But Doesn't--greetings! This book is for you! Read as you run, and may you run as you read." It is a measure of Rice's confidence and skill that he could write a con man's memoir and then continue taking the suckers in. His was an astonishing, not an admirable, career, fully worthy of this lively and funny biography.