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Who Was Ponzi Anyway?

This Biography of the Notorious Charles Ponzi is Sure to Enamor You

After the saga of Bernie Madoff hit the country and bought in popular memories of individuals who could outsmart people and run with their money, many of us are unsure where the term "Ponzi Scheme" came from. Let's get to know the infamous, Charles Ponzi.
Buzzle Staff
Last Updated: Jun 3, 2018
When Charles Ponzi moved to the United States from Italy in 1903, he arrived with a mere $2.50 in his pocket, having gambled away all the rest of his money on the voyage across the sea. He learned English quickly and worked in odd jobs, usually ending when he was caught cheating or stealing from customers. His dream was to become a millionaire, but he likely had no idea that one day his name would be synonymous with the word "fraud."
A few years after his arrival in the US, Ponzi made his way into Canada, where he got a job as an assistant teller at a bank that primarily served Italian immigrants. When the bank failed due to bad real estate loans, the bank director fled to Mexico with most of the bank's money and Ponzi was arrested for trying to en-cash a forged check. He spent three years in a prison near Montreal, and then returned to the United States and began looking for a way to make some quick cash.
Ponzi's first major swindle was based on a rarely used practice by the postal system. At that time, letters sent overseas were sent with an international reply coupon, which the recipient could exchange for postage needed to send a reply to the country the letter was sent from. As postal rates and market exchanges fluctuated, a profit could be made with careful timing. Ponzi could buy reply coupons inexpensively in a foreign country, send the coupons back to the United States to exchange them for more costly American stamps, and then sell the stamps for cash. The scheme was clever and sly, but it was legal. Because of the inflation rate after World War I, buying postage in Italy was much less expensive than it would be buying Italian postage in the US, so there was clearly a profit to be made. Using colleagues recruited in Italy, Ponzi was making a pretty good living for himself.
Unfortunately, Ponzi was too greedy to appreciate this legal way of making money. He began to seek out people to invest in his system, promising them returns of 50% on their money within 45 days, or if they waited 90 days, a full 100% return. Investors, intrigued by the idea of quick cash, would pay Ponzi up front, and then Ponzi would give them the return he had promised. Everyone involved was happy, and word began to spread about the financial genius from Italy. Within just a year or two, Ponzi had a staff of employees all across the country finding new investors for his system. Soon he was making millions of dollars, enjoying a luxurious lifestyle outside Boston.
The collapse of Ponzi's scheme was inevitable, because he continued to pay out returns on investors' money without making any effort to generate actual profits from anything. As long as new investor money was coming in, that money was used to pay returns to previous investors - but then more new investors had to be brought in to pay off those investors, and so on and so on.
When people started wondering how a poor many could have become a millionaire in such a short time, investors became suspicious and started pulling their money out. The Commonwealth of Massachusetts started an investigation into Ponzi's business practices, but he quieted them down by offering to stop taking investors' money during the investigation. However, he was secretly looking for a way to get out of the pyramid scheme he had built.
A series of incriminating articles in The Boston Post caused investors to panic and demand their money back. Over a three-day period, Ponzi paid people $2 million, while cheerfully saying that they had nothing to worry about. Many people, lulled into complacency by his affable nature, decided to leave their money with him. However, the Attorney for Massachusetts had taken note of the events, and opened his own investigation.
After months of investigation, audits, and inquiries, Ponzi learned that he was going to be arrested, so he surrendered of his own accord to federal agents, charged with 86 counts of mail fraud. He pleaded guilty to a single count of mail fraud, and served three and a half years in federal prison. Almost immediately after he was released, he was arrested and charged by the state of Masachusetts with 22 charges of larceny. Having no money, he served as his own attorney. His years of smooth talking with investors had prepared him well for the jury, and he was found innocent. He was charged with additional counts, that the jury deadlocked. At a third trial, he was found guilty and sentenced to an additional nine years in prison.
Upon his final release from prison, Ponzi was deported back to Italy, where he bounced from one crooked scheme to another crooked scheme, but none went well. He spent his final years in poverty, occasionally working as a translator, and died in a charity hospital in Rio de Janeiro. In a final interview with an American reporter, Ponzi told him that he thought he had given Americans a great show that was easily worth fifteen million bucks, for them to watch him pull the wool over so many people's eyes. After maintaining his innocence for most of his life, Ponzi finally admitted that he was a swindler.