If you were a wealthy man in Chicago in 1920, a man who fancied himself financially savvy and uniquely clever, there was one venture you wanted in on: the Bayano River Syndicate. It was the talk of choice society, an investment opportunity built around a parcel of land in Panama that was filled with endless money-making prospects—timber, fruit, rubber, and veritable lakes of the liquid gold that was oil.
It was also exclusive. For most, even the wealthiest among the Chicago set, it would take begging, pleading, and promises of a significant financial commitment to wheedle some shares out of Bayano’s architect, Leo Koretz. But the supplication would be worth it. Bayano was an investment that paid out returns well above the average.
It was also one of the earliest Ponzi schemes in American history.
For over 13 years, Leo Koretz bilked his friends, family, and members of both the Chicago elite and the middle class out of $2 million, or the equivalent of over $26 million today. When he realized he was on the verge of being caught, he abandoned his family and fled to Nova Scotia, where he lived large under an assumed name for a year before being captured and jailed. By that point, there was very little left with which to repay his victims.
The Ponzi scheme was named for a Boston con artist who proceeded Koretz in the criminal spotlight by only four years, but Koretz’s venture more closely resembled what we think of today—a type of pyramid scheme in which early investors are paid off by the money of the newest and on and on and on.
Koretz was highly successful as a con man and surprisingly unremorseful when it came time to face what he had done. It was a fascinating reaction given the root of his bad behavior: Koretz got the idea to con others after he fell prey to a con himself.
The exact details of Leo Koretz’s early life are a little foggy. It is believed that he was born in Bohemia (now part of the Czech Republic) and emigrated with his family to Chicago when he was 6, though he gave his age as “45 or 46” when he was finally jailed. (His occupation: “an investor in securities.”) He lived a fairly unremarkable life through most of his early adulthood, working his way from his working class roots through law school to open a legal practice of his own.
By all accounts, his performance as a lawyer was thoroughly unremarkable. And maybe this is where the germ of mischief was planted, as it could be nothing but a disappointment given Koretz’s much bigger vision for his life. A 1924 Baltimore Sun article reports that during these lackluster days, “he told relatives and friends that he would some day make a fortune in business.” The only thing left to figure out was how.
His break came by way of Arkansas rice. Koretz took a trip to the Land of Opportunity and realized the money that could be made by converting marshland to productive rice fields. He convinced a group of men to invest in the project, and it was a success. While nothing shady was immediately discovered about this venture, it would later come out that he had forged fake mortgages in order to pull off the scheme.
While the Arkansas deal may have introduced Koretz to Chicago as a businessman, it would be what happened next that would lay the groundwork for “the greatest confidence game in the history of the world,” as the Illinois attorney general’s office called it.
Following the success of his work Arkansas, Koretz was approached with an investment opportunity. There was a highly lucrative piece of property in Panama, he was told. For only $1,000, he could join the investment group who was sure to reap outsized benefits from the modest sum. He paid up and eventually booked a trip down to Panama to take a look at the land that would help cement his fortune. What he discovered was not only an unproductive piece of property, but one that was not even owned by the venture in question.
“It was my fool mistake; just my fool mistake,” he later told a judge.
He was able to wrangle his initial investment out, and, in a way, it did come with a return: he now had an idea for how he would become the business success he had always dreamed of. He would launch a Panamanian scheme of his own.
Koretz may have felt embarrassed for being duped out of $1,000, but he later showed no remorse for doing the same but on a much larger scale to his fellow Chicagoans. He thought of them all as “suckers” and their behavior—investing in the company he started—offended him.
“Yes, I knew the bubble would burst, but I was indifferent to just where or how the thing would stand,” he told the court. “I was so disgusted with those seeming friends who wanted to get something for nothing.”
And there were a lot of them. He first convinced the group who had invested in his Arkansas rice deal to join the new company, then many of his own family members. He initially framed the project as an investment in land and timber. But after the first crop of investors had been reaped, he announced that oil had been discovered on the land.
“Where investors were eager before, now they were almost frantic in their desire to give him funds. He, on the other hand, evinced no particular desire to allow further investment,” said the Baltimore Sun. “Of course, if the importunate was a friend of long standing—well, he might let go of a little, teeny share; or, perhaps he might hear of a share or two that could be picked up at a bargain!”
He knew how to play the game, and he played it well. In addition to being a masterful con man, he was a natural in his new role as man around town. He had several luxurious offices in Chicago, a gorgeous house for his family in one of the tony suburbs, a box at the opera, and several shiny new cars. He entertained with abandon.
As the Baltimore Sun describes, “In his home he had an extensive library, of which he was very proud, and an enormous stock of liquor. It was always ‘open house’ to his friends, and, incidentally, all of his ‘friends’ were investors… In any gathering his was the scintillant wit, he was the best male dancer and he was the best dressed of all.”
His con lasted for years, but it all came crashing down at the end of 1923 when a crew of savvy potential investors decided that maybe someone other than Koretz should lay eyes on this lucrative parcel of land. They brought their travel plans to him and, when he could no longer delay them, he told them he thought it was a great idea. In fact, he would even fund their trip himself.
As the investors prepared for their journey south, Koretz prepared for a flight in the opposite direction. He claimed he pulled out all the money that was left and gave $335,000 to family members. He didn’t leave anything to his wife who, by all accounts, was clueless of the fraud. “I knew her principles and I am positive that she would not accept a penny of that kind of money. But I knew if the family were well provided for, they would take care of her,” he said.
He packed up another $175,000 in a brown briefcase, along with $60,000 in jewelry. The night before he was to leave, on a day he would refer to as “the day of destruction,” he trashed the black book that contained all information regarding the Bayano River Syndicate, its victims, and the amounts of money involved. Then, he traveled with his investors as far as New York. When they left on a ship south, he fled to Canada without a word to anyone.
A short time later, the cable came from Panama: “Unable to locate property.” Soon after, the authorities realized that they were also unable to locate Koretz.
For almost a year, the front pages of newspapers around the country blazed with each new development in the story of one of the biggest financial frauds to happen in the U.S., while an international manhunt was being conducted to find the man responsible.
While his disappearance was causing a frenzy back home, Koretz was having a grand old time living in Nova Scotia as Lou Keyte, a retired man of leisure. He was doing the opposite of laying low. He bought an estate called Pinehurst and immediately began making $30,000 worth of renovations to it. He wined and dined his Canadian neighbors and indulged in the finest his new society had to offer, while the wheels of a new con revolving around his Canadian estate began to turn.
But he wasn’t able to put his newest Ponzi scheme into play. In late November of 1924, his time was up. He was caught and extradited to Chicago.
The Chicago Tribune called the trial that followed “one of the strangest bankruptcy proceedings ever held.”
“He might have been a wise old professor of economics, explaining a short cut to a difficult problem, as he sat there in the grand jury room of the Criminal court building and told how he paid dividends with capital and made capital of dividends,” the Tribune reported on December 3, 1924.
He expressed no remorse for his actions and even tried to blame his victims by stressing how he had tried to convince so many of them not to give him all their money. But they were all greedy, his attitude went, and they got what they deserved.
A lot of people may have lost their life savings, but in the end, Koretz lost something more valuable: his life.
He was sentenced to a relatively modest one-to-ten years, but he would serve only a month. Koretz had diabetes, a disease that in those days was essentially a death sentence. Only 34 days after beginning his jail sentence, he died in an Illinois prison hospital. The only thing he wanted during the trial was a chance to see his wife. But in the end, the woman he duped and then abandoned wanted nothing to do with him.