On July 7, 1988, Alexander Pandis, a young man with a weight problem and a ready smile, entered a plea agreement in U.S. District Court. “Fraud charges clip high roller,” said the headlines, “Con man tells luxury life, fraud.”

The 25-year-old Pandis had masqueraded as his father in order to steal $62,000 from his parents’ nest egg, and he had toyed with the affections of an 82-year-old woman, eventually leaving her destitute. He had posed as a dealer in rare musical instruments and had made off with some ancient violins, and he had pretended to be the employer of various friends and relatives in order to obtain credit cards in their names for his own use. The plea agreement Pandis signed also noted that he had run a “Ponzi scheme.” The term, which entered the lexicon of criminal investigators about 70 years ago, is used today by many who have forgotten, if indeed they ever knew, the story of its origin. That legend is a curious one, and as it in some ways parallels the story of Alexander Pandis, it seems appropriate here to interject a brief account of the rise and fall of the late Charles Ponzi.

The legend has several versions, but the most authoritative has Ponzi born into an upper-class family in Parma, Italy, in 1882. He was briefly a student at the University of Rome. He emigrated to the United States in November 1903 and spent the next 14 years in Pittsburgh, New York, Providence, Montreal, and Atlanta, working as a dishwasher, waiter, clothes presser, shop clerk, interpreter, and bank manager. In 1917 he settled in Boston, where he found work as a typist and mail handler, and subsequently married the daughter of a fruit dealer in the Italian North End. In August 1919 he received a letter from Spain that included an international postal-reply coupon. That coupon inspired his great scheme.

Ponzi noticed that due to the difference in currency exchange rates, a coupon purchased in Spain could be redeemed in Boston for six times what it had cost in Madrid. Ponzi created the Securities and Exchange Company with the stated intention of capitalizing on that difference, and he dashed off a prospectus wherein he promised to pay 40 percent interest on any sum invested for 45 days. Fifteen investors forked over a total of $870, and Ponzi, true to his word, handed back 140 percent of their funds 45 days later. Ponzi then raised his rate to 50 percent. He attracted 17 new investors and $5,290. Again, he made his payments. Word spread. In May 1920 he took in half a million dollars. In June, 7,824 people invested more than $2.5 million. By the last week in July, he was taking in several hundred thousand dollars a day, and the line of investors outside his office interfered with local traffic.

In a matter of months, Ponzi had become one of the best-known men in Boston. He was said to own 200 suits and two dozen diamond stickpins. He arrived at work in a limousine driven by a Japanese chauffeur. He oozed confidence and goodwill. He announced plans to build an Italian hospital and to give $100,000 to a local orphanage. He was kind to elderly women, pulling them out of the queue outside his office and taking them through a back door to the front of the line. The common man in the North End saw him as a genius, a benevolent wizard. The wizard himself talked of running for mayor. And all the while, his 16 clerks kept on sorting the incoming cash, piling it in closets, desk drawers, even wastebaskets.

The police stopped by to investigate. Two of the policemen decided to invest. Postal inspectors made inquiries, as did state and federal attorneys. Ponzi was gracious. Richard Grozier, assistant editor of the Boston Post, had his doubts about the man; he interviewed Clarence Barron, a local financier and publisher of the paper we now know as Barron’s, who expressed incredulity at Ponzi’s technique, wondering why the wizard was putting his own money in banks at 5 percent interest when he could get ten times that at his own office. The Post’s article went on to point out that the postal coupon market did not seem to reflect the influx of Ponzi’s millions.

The article caused a brief run on the Securities and Exchange Company. Ponzi paid off all comers with a smile. He told whoever asked that his postal coupon story had indeed been a cover, that he simply wanted to keep his investment methods to himself.

The Post dug further. Ponzi’s publicity man defected, and on August 2, 1920, the Post ran a story under his byline that suggested that Ponzi was “as crooked as a winding staircase.” Ponzi sued for libel and again paid off all who had lost hope. His defenders were numerous, and an Italian bank let it be known that Ponzi had credit “to any amount.”

Then the Post received an anonymous tip, a suggestion that they should look into Mr. Ponzi’s Canadian past, and the paper dispatched a reporter to Montreal. On August 11, the paper reported that years earlier, the financial wizard had established a bank in Montreal with the owner of a small cigar factory, paying the highest rate of interest in the city. They had also accepted remittances to be sent to Italy, remittances that never reached their destination. When the police finally shut down the operation, the cigar man fled to Mexico. Ponzi (then using the name Ponsi) ended up in the St. Vincent de Paul Prison serving a 20-month sentence. The Post subsequently learned that Ponzi had also done time in Georgia for smuggling aliens into the country.

Ponzi’s empire collapsed. His secret investment method was exposed, and it proved to be desperately simple: he was paying off old investors with the money of new investors, borrowing daily from Peter merely to pay Paul. Like modern-day chain letters, the scheme was doomed from the start: it would collapse as soon as there were no new investors, as soon as Ponzi ran out of Peters, which Ponzi did the instant state and federal authorities shut him down. In August 1920, a preliminary audit determined that the Securities and Exchange Company had liabilities of $6.9 million and assets of only $2 million. Later accounts reported that Ponzi had taken in $15 million, more than half of which could not be accounted for. His last investors received 12 cents on the dollar.

Ponzi served three and a half years on federal charges. On his release from federal prison, he was rearrested to face charges filed by the state of Massachusetts. He jumped bail and resurfaced in Florida, where he was indicted for fraud involving the sale of some swampland. He fled again and was arrested in New Orleans disguised as a seaman. The Louisiana authorities dispatched him to Massachusetts, where he served seven years in prison. On his release, the U.S. Immigration Service provided him with a one-way ticket to Italy, and on October 7, 1934, he left the country, never to return.

Like Mr. Ponzi, Alexander Pandis, the young man indicted here last year, also hailed from a comfortable background. When he was 20 he began investing his own money in investment accounts at Charles Schwab. In 1984 he convinced some friends and relatives to open brokerage accounts at Rose & Company giving him investment discretion. Later that year he incorporated as Pandis & Company, and at some point thereafter his corporation began issuing bonds. For the times, they were quite remarkable investments; a bearer bond issued in late 1986, for instance, paid up to 9.65 percent interest per annum. “Interest shall remain free of Federal, State, Municipal, and County taxes,” the bond stated. “The principal and interest on this Bond are guaranteed in full by Citibank N.A. New York, New York.” Other bearer bonds he issued paid as much as 11.25 percent. Citibank, of course, had no idea it was backing such remarkable investments.

Pandis took in more than $100,000 in the scheme. He invested none of the money. Like Mr. Ponzi, he did pay “interest” to some of his investors. He was able to make those payoffs in part because of a chance meeting at a gay nightclub in 1985, when he stumbled upon his best mark, an 81-year-old woman named Rena Flynn.

Rena Flynn, born Rena Marggraf, stage name Renee La Tour, resembles no standard icon of the American grandmother. She is partial to elaborate wigs, sequined gowns, and feather boas. “I had been doing singing a good many years back,” she told me in our first conversation. “I sang in Japan and India, South America, Mexico, and the Balkan countries. I am formally trained and I love to entertain, and I haven’t been doing too well lately but two years ago I played at Park West, Cabaret Metro, some of the hotels, Zanie’s, and so forth. They thought I was a sensation. I am a natural showman. At Zanie’s, the way I appeared was I hosted a debutante from the North Shore for her 16th birthday, and then I did some entertaining for her party. I have about 125 songs. I can do rock, modern music, the 40s and 50s, and all that type of thing.” When pressed about her foreign engagements, she said the singing she did was impromptu, not a formal booking so much as standing up on a cruise ship or in a hotel bar and singing along with the pianist. The Chicago engagements were arranged by a local impresario who failed to pay her.

She happened to be in the now-defunct Paradise Inn one night in the fall of 1985 because she had been recruited by that impresario to appear in a “South American Night” revue. Late in the evening, an elegantly dressed young man came up, said she looked a little bewildered–so elegant a lady in such a saloon–and offered to buy her a drink. Flynn was indeed bewildered–she had been recruited to perform, but she was never called to the stage–and she ordered a 7-Up. She recalls that the nice young man introduced himself as Alex Pandis and said that he played the harp, that he had just finished his final performance with the Chicago Symphony, and that he had received a standing ovation.

He asked for her phone number, and in November he called and asked her to join him for dinner at the Ritz. His manners were exquisite, and they had a fine meal. Alex told her of his wealth and family: his grandmother was considered the first lady of Greece; she had 16 paintings by John Singer Sargent in her home; he himself ran a big charity in New York for wayward girls and boys, and he owned a lavishly furnished apartment there. He told her he was an investment counselor and asked where she invested her money. She told him she had it in a Kemper money market account. He suggested that she could do much better with Pandis & Company.

Rena Flynn was living on social security and a pension left her by her late husband Alfred, but over the years, “through extreme frugality,” she had managed to save more than $100,000. She was taken with young Alex and opened an investment account with him. He brought her some remarkable bonds, paying high interest tax free. He said he would take care of her, and she agreed to put his name on her Kemper account, which held $103,000. He inquired about her will. He brought her a paperweight, which he said he had ordered by telex from Tiffany’s. She agreed to put his name on her safety-deposit box, in which she kept $4,500 in cash, and on her bank account, which generally had a balance of about $1,000. He invited her to his family’s home at Christmas; it was not as grand as she had expected (she was surprised to see paper napkins), but Alex presented her with a model of the scales of justice, purchased “at auction,” and a rare music box. Alex also let it be known that he had just spent $750,000 for a cello and bow that had once belonged to Pablo Casals.

In the weeks after Christmas he took her to fine restaurants in his new Rolls Royce, and in February 1986 he took her to Las Vegas for three days. They stayed in a suite of rooms at Caesar’s Palace, and he bought her a diamond-and-sapphire ring that he said was worth $40,000.

The shower of gifts continued. At a dinner at the Ritz he gave her a diamond ring. That was followed by a much bigger stone–the Clancy Diamond, purchased from Harry Winston in New York. He said it was the largest diamond ever found in Ireland and was formerly owned by Mrs. Post of the cereal fortune. A ruby heart pin followed, purchased at auction from Sotheby’s, and then an onyx and diamond pin with ten stones, representing the ten months he had known her. On her birthday, he presented her with a huge gold necklace that had belonged to the Russian royal family. Later there was a ring that Princess Grace had been wearing when she was killed, and a diamond necklace, once owned by the duchess of Windsor, purchased from an auction house in Switzerland.

He was thoughtful in other ways as well. He took three rings of hers, worth over $4,500, and sent them out to be polished. Her mink coat disappeared; lo, he had sent it to Russia, where a sable coat was being made for her at the cost of $250,000; the Russian tailors needed the mink for measurements, and it was due in September.

He was a brilliant investor; he told her that when he had been in Moscow, Gorbachev had hosted a luncheon in his honor. Alex had an office in the prestigious One Magnificent Mile building. The office seemed strange to Rena–it looked empty–but Alex said he liked to keep things low-key. He had land in Palm Beach on which he was going to build condos, and once the construction was finished, he and the widow Flynn would winter there in the penthouse. He flew to Paris and London, staying at the Ritz and the Savoy, and he engaged an architect for the Palm Beach project; alas, he discovered that the architect had done work for Adolf Hitler, so he fired him and settled for second best. He bought land in Alaska that Exxon had once owned. The conglomerate had found it barren; Alex, however, struck oil, and now Exxon wanted to buy the land back. A deal was in the works. It was all very complicated. Alex had to support the families of seven men who had died in the course of constructing a pipeline on his land. This sometimes left him short of cash. He would borrow from Rena–$50, $200, “just for a few days”–around the time her pension and social security checks would arrive. The life of an investment banker is very hectic, Rena realized, and he would forget to pay her back. She gave him $750 to buy her a television and a VCR, but he kept forgetting to get them.

But he took care of her and she loved him. He proposed marriage. Rena wasn’t sure that marriage to a man almost 60 years her junior was a good idea. She thought his parents would be shocked. He said he wanted her to have his name. He said she would be cremated when she died, and he would keep her ashes with him until he too passed on, and then the two would be buried together in the family crypt in Greece.

She began to get huge bills that Alex had run up in her name at fashionable stores. He assured her that he was taking care of them. He bounced some checks that had both of their names on them. She began to feel she was riding some sort of roller coaster. Alex would be sweet and loving and then would take a trip without leaving her any money. Several times she had to borrow $10 from a neighbor for food. She felt humiliated. Her heartbeat seemed irregular. She had pains in her head. She went to the hospital twice, but they could find nothing.

She decided she wanted her old life back. She asked Alex for the money she had had in her Kemper account. He said he would raise it somewhere if she was getting ill over it. He threw an elaborate party for her at the Ambassador West.

He said he realized that she had been through a lot for him. When he entered negotiations to sell an interest in his company to the father of a friend, he said he would add a bonus to Rena’s investment in recognition of her patience. He told her he would pay her $200,000. He said he should never have borrowed money from her in the first place. Perhaps he would pay her $300,000.

In the meantime, he brought her a surprise, a television and VCR, which he said had cost $1,200 at Sears. The man who came to repossess it two weeks later, however, had been sent by Polk Brothers. The day after the TV was repossessed, she received bills from Lord & Taylor for $1,600, for merchandise paid for in bad checks in her name. She angrily set down the course of events in her journal: “When he called I told him off and he said he bought the set at Sears. Denied it. And I told him this was terrible, forging my name, a woman 83 years old, and he said he would take care of everything. This will never occur again, all the time he kept saying all he had done for me in the past months far outbalanced this wrong. Kept saying I love you and would do nothing to hurt you.”

“When love enters into it,” she wrote, “it makes it very hard. I am all alone and he says he will always take care of me.” He took some videotapes of her act with him on a trip to New York so he could show them to David Letterman and get her on his show.

Alex decided to back out of the deal with his friend’s father. He told Rena that he would have had to take on his friend as his partner and that he would be obligated to that family forever. He was working on another plan, however, with a company in California–his oil company and the California corporation would merge, and there would be two million dollars for just the two of them–Rena and Alex. Rena decided not to give up hope; Alex appreciated that of all of his friends, she alone had stood by him through the hard times.

He arranged for the two of them to go back to their suite in Caesar’s Palace. Afterward they would move on to Beverly Hills, where he would finish the oil deal and appear on national television. He had Rena write checks for the tickets, checks in which she had no confidence; he wanted one fare for himself, another for his cello, and a third for a male friend. He also wanted to fly under another name, and he chose Alfred Flynn, the name of Rena’s late husband. She thought that was “pure insanity.” In her journal she noted that the ticket agents were reluctant to give him a ticket, “but he bluffed his way saying I was his grandmother.” She also wrote that he threw away the low-numbered checks “to make a higher number to make them think we had used that many checks.”

In Las Vegas, Alex met with a Japanese man who offered him a far better deal for his oil holdings, so he called off the California trip. The foursome–Rena, Alex, Alex’s friend, and Alex’s cello–returned to Chicago. Not long afterward, he asked to borrow $200. She lied and said she only had $50, and she gave it to him because she felt he had spent a lot of money on her in Vegas.

Not long thereafter, three bills from Saks Fifth Avenue arrived, for more than $2,000. She photocopied them and was going to see a lawyer, but according to her journal, she “thought it over and all the good he had done and was so kind to me and spent a lot of money on me and love is something money cannot buy and life is short and he had also said on Friday night we should try and recapture our love and start over from the beginning. So I made a call yesterday to his phone saying our love could not be destroyed like this and to forgive me for everything wrong and he said and admitted he was wrong too and said I love you with all my heart. . . . So he came and he was in his car and jumped out and it was so sweet and had me get in the car and kissed me so all was forgiven and never to be repeated. Well we headed for the Loop because he said he wanted to open a joint account in the First National Bank for us . . .”

He said he would replace the television immediately. But time passed and her television did not arrive. She wanted to go to Spain for a vacation. She wanted to be able to write a check herself whenever she wanted to. As it was, Alex had her checkbooks, her passport, and even an ID card. He had also taken the bonds he had sold her. She had nothing. “I cannot go on any longer with this nightmare,” she wrote in her diary. “I cannot deal with this situation any longer. It’s about 19 months.”

He took her to dinner at La Tour to celebrate her birthday. “Very elegant,” she wrote. “The waiters in tails and such food–unbelievable. My birthday cake was a puffed pastry in layers with fresh blackberries and chocolate and cream sauce swirled around and a candle. Well after a turbulent night sick from such rich food, Alex called me at 10:30 and wanted to borrow two hundred dollars from me right away. Well, previous to this I had received bills from Lord & Taylor sent in my name for $1,500 dollars [for] goods purchased. I was wild and told him over the phone so when he came I met him at his car, gave him the money, and told him off that this was a criminal act. I left him in a fury to find as I got in that Mrs. Clark asked me about my rent. I was so shocked. He had told me he had paid it for two months. A deliberate lie.”

Alex, Rena noted, had called a friend of hers several times, a friend who had lent her money for food and who was advising her not to have anything more to do with the young investment banker. In the wake of Rena’s confrontation with her landlord, her friend spoke to Alex and called him a liar, a crook, and a thief.

Alex, in turn, called Rena. “[He] screamed that I had told her every little thing about us and our relationship was to be private and he was ready to have me go with him to his lawyer and give me all my money and be through with me. He hated me, called me everything. . . . He said he would meet me in [his lawyer’s] office for transaction this Thursday but he would not be present. Said let [your friend] go with you. I won’t be there. I am going on a trip of indefinite length. Nobody ever called him a crook or a thief in his life. He was highly regarded in Chicago and respected. Had 200 people working for him. A man of honor and integrity.”

By evening Alex softened. He called to say he could not just cut off his affection like that. He said he would send a messenger on Friday with her $200.

The messenger did not arrive. “I really should put a stop to this but I am so involved now and also a great possibility I will be very wealthy as I do not think Alex would have relinquished the deal with [his friend’s father] if he wasn’t sure of a cash settlement on the oil deal in Alaska with the Japanese man. . . . He said how we both suffered through it all and we deserved the most luxury now but never a word about my hundred and thirty thousand, rings, coat, etc. . . . Alex tells me the television will be here for sure Tuesday. Well, we will see. . . . I am also worried as Alex told me he had deposited checks in Exchange National Bank and if I was asked if that was my signature I should say yes. So again he has forged my name. It all looks very dubious to me and dangerous. I feel I am dealing with an unknown man.”

At about this time, federal authorities had come to just about the same conclusion that Flynn had–that they were dealing with a man of dubious, dangerous, and unknown character.

Patrick Foley, the assistant U.S. attorney who prosecuted the case, says that he first heard the name Alex Pandis after credit-card-company fraud units notified federal authorities. “We thought credit card fraud was the extent of his fraudulent conduct. Initially it appeared to be a 20, 30, 40,000 type fraud–not that big a deal. Credit card cases are difficult. They involve a lot of paper, a lot of receipts, it’s very tedious. We’d look at these plane tickets he’d bought and there would be one ticket for Pandis and one ticket for cello, and we’re sayin’, “Now who is this guy Cello?”‘

The federal government has determined that credit card fraud (in legal terms, the “unauthorized use of an access device”) should be investigated by the same people who investigate counterfeiting–the Secret Service. Special agent Rick Alto eventually discovered that Pandis had 16 cards at his disposal. Some were in the names of friends or relatives who had invested with him; in some of those cases, Pandis had claimed to be the applicant’s employer, stating that the applicant needed a card for his or her work with Pandis & Company, and that as their boss, he too would have authority to use the card.

Alto also noted that Pandis had previously been arrested by the Chicago Police for passing bad checks. Detective James Mack of the Police Department’s financial-crimes division recalls that in a casual conversation with Alto, the name Pandis came up. “Strange you should mention him,” Mack said, “we’re looking for him too.” Mack and his partner, Detective Gregory Danz, had been contacted by an attorney representing someone who had invested in some wonderful bonds–these paying 8.63 percent, tax free–who was alarmed because she did not receive her interest. Not long after the Secret Service and the police realized they were looking for the same man, Detective Mack took a phone call from an interior designer named Jaison Kimberly. Kimberly had heard a tale of woe from a neighbor, a bewildered woman he did not know well, a woman whose sequined gowns and feather boas he had admired. And so the Chicago Police and the United States Secret Service came to know Rena Flynn.

In the meantime, the FBI was not idle. Pandis, masquerading as an instrument dealer, had absconded with about $250,000 in violins, cellos, violas, and bows. In the musical-instrument industry, it is common practice for dealers to lend a violin or a bow, for example, to an individual who has a good reference, with the understanding that the borrower will return the instrument or buy it within two weeks. (The practice allows musicians to take an instrument to whatever hall or auditorium they generally play in to hear how the instrument sounds there.) Pandis borrowed instruments from dealers in New York, Grand Rapids, and Saint Louis and then sold them at cut-rate prices to dealers in Chicago. According to Foley, Pandis was using the name of a man who worked for an auction house as a reference: “The guy had no idea his name was being used,” Foley says. “It was the kind of name you could throw around and people would go ‘Whoa!’ It was a meal ticket.”

All of this eventually landed Pandis in Foley’s office. “Sometimes there is a fine line between someone who is crazy and someone who is brilliant,” Foley recalls, “and he was right on the envelope–very bright, very intriguing, a man with obvious psychological weaknesses who apparently found that by providing gifts, money, travel, dinners, and hotel rooms to his friends, he got some sort of short-term satisfaction.

“Sometimes in criminal cases the criminal almost wants to be caught. Something like that may have been at work here–so much of what he did he did in his own name or in the names of relatives, all of it blatantly fraudulent conduct.” Foley saw Pandis as a young man gone awry, a man who obviously needed direction. Foley says that as a young state’s attorney in juvenile court he had seen plenty of kids with psychological problems, kids who had no conception of right and wrong. So he was sensitive to the psychological dynamic, and he felt some compassion for Pandis.

In their first meeting, Pandis spent about five hours detailing his crimes. He said that he was laying it all on the table, that he knew the jig was up, that the game was over. Since he was cooperating, Foley did not place him under immediate arrest. They made an appointment to meet again a few days later.

Before that second meeting could take place, however, Foley discovered that he too had been conned. The FBI learned that on the very day he had scheduled a meeting with Foley, Pandis was planning to meet a violin dealer to collect some money for the sale of some stolen instruments. The dealer had learned the instruments were stolen and called the FBI. The FBI agent in charge and the dealer set Pandis up for arrest.

“That’s when I realized this kid had no control at all,” Foley says, “and in order to protect him and society we had to lock him up.” Pandis was arrested on January 27, 1988.

He pleaded guilty in May to “knowingly, willfully, and unlawfully committing mail fraud, and to use of unauthorized access devices.” At his sentencing hearing two months later, Julius Echeles, his attorney, asked for a short sentence, arguing that Pandis’s problems stemmed from “growing up as a fat young man,” that he needed the Rolls Royce and other accoutrements of success as status symbols. “He needed it to impress,” Echeles said. “He had parties for his victims. . . . He needed their adulation.”

Prosecutor Foley, however, asked for a long sentence, arguing that of the more than half a million dollars that Pandis had taken in from his schemes, not a penny had been recovered, and that Pandis’s excuse that he was a troubled person, that he needed the money to satisfy his ego, was lame in comparison to the havoc he had wreaked in the lives of his victims.

The judge, calling Pandis “an enigma,” handed down a six-year sentence.

Alexander Pandis now resides at the Federal Correctional Institution in Butner, North Carolina, a prison that provides more extensive psychological counseling than most. He declined to be interviewed for this story, and through an attorney asked that it not be written in order to spare his parents–named in newspaper accounts at the time of his arrest and sentencing–further embarrassment. He has said that he is sorry for his crimes and that he intends to make restitution to his victims.

Rena Flynn, who unknowingly was funding Pandis’s Ponzi scheme, scrapes by these days, still paying off phone bills run up by her friend Alex, still getting periodic phone calls and letters from angry creditors. She lost the “Clancy diamond” before she could have it evaluated, but the other jewels Alex so graciously gave her proved to be fakes. Her mink coat was never returned from Russia, her rings never came back from the polishers. Now 84, she says she hopes that this story will help her revive her show-business career so that she can recover her lost fortune.

Pandis’s predecessor in crime, Charles Ponzi, ended his days far from the limelight he had enjoyed in Boston. The accounts of the years after his deportation vary, but the most authoritative has him working as a translator for a small export company in Rome and writing an autobiography, which he called “The Fall of Mr. Ponzi.” The manuscript was never published. Mussolini reportedly offered him a job working for Alitalia, Italy’s new airline, and from 1939 to 1942 he served as branch manager of the airline’s office in Rio de Janeiro. As Italy’s fortunes in the war began to slide, however, the Brazilian office was closed down. Ponzi tried to run a boarding house, failed, and eventually eked out a living by giving English lessons and drawing on the Brazilian unemployment fund. He died in 1949, in a hospital charity ward, with $75 to his name.