This Italian immigrant used a long running get rich quick scam to make millions of dollars.
If you're a frequent internet user, then you'd know to delete any messages in your mailbox which say you can make huge profits by enrolling new circles of investors which reward older ones, but without offering any tangible product or service. Also known as a pyramid scheme, it's a non-sustainable business which is illegal in many countries including the United States and most Commonwealth nations. Clearly the only person who wins is the one who starts the scam in the first place, because the money travels in just one direction. Everyone else loses. Luckily we have the benefit of experience but unfortunately this wasn't the case back in 1920, when many people couldn't separate genuine opportunities from empty promises.
There was one man in the U.S. who succeeded tremendously by pitching this fraudulent business model to average citizens looking for a fast buck early in the last century. He came from Italy and was named Charles Ponzi. He shafted thousands of people, and achieved celebrity status while doing it. Oddly enough the ones who lost all of their savings regarded him as a hero, especially those in the Italian-American community.
A Penniless Immigrant
Ponzi was born in 1882 but very little is known about his youth. After arriving in the United States in 1903 he jumped from job to job and was unable to make a go at any stable venture. After spending a substantial amount of time in prison in Canada for bank fraud, he returned to the U.S. where he got his hands on an international postal reply coupon.
The Scam
The purpose of the coupons was to keep the flow of mail running between countries. In those days, different nations didn't recognize each other's stamps, so self-addressed stamped envelopes were not used. The IRC was redeemed for the cost of a reply. However, the Universal Postal Union, the entity which had invented the coupons made the mistake of fixing their values before the First World War caused European currencies to nosedive.
Ponzi saw a gold mine and acted quickly. He converted his American money into Italian lira or any other currency which had a favourable exchange rate, then his agents would use that money to buy the IRCs in countries with less than stable economies. The coupons were converted back into lira and again into U.S. dollars. He told his friends the net profit he was making after these transactions was over 400%.
He set up a company called the Security Exchange Commission in December, 1919. He promised any and all investors he could double their money in ninety days. Word got around and by the spring of 1920 he was handing out promissory notes worth as little as $10 and as much as $50,000.
An Uncomfortable Spotlight
It wasn't long before so much cash was coming in Ponzi and his staff had to stuff the money in desk drawers and closets. He was paying increased returns on investments, which encouraged more and more people to invest their money. The scam was convincing thousands. However, some were beginning to wonder how Ponzi's money machine really worked, so they moved in for a closer look.
The Boston Post contacted a financial analyst named Clarence Barron, who found out that in fact, Ponzi was not investing anything in his own company. Not only that, but there should have been in excess of one hundred million of the international postal reply coupons for his business to operate. There was definitely not that many in circulation in the early 20s, actually the number was a miniscule fraction by comparison and the United States Postal Service confirmed this fact.
Collapse
Ponzi refused to accept the fact when you rob Peter to pay Paul the business will inevitably fall apart. He was arrested on August 13, 1920 and indicted for fraud. The normal response of a criminal would be to fold their tent and get as far away as they can when the police close in, but Ponzi stayed put. By that time he realized he wouldn't have managed to get very far. He collected about $15 million U.S. dollars, quite a fortune in those days. Today that sum would be worth well over $100 million.
He was deported to Italy in 1934 and even after all of his trickery, fans gathered to give him a fond farewell. Just as he had started his life in America with next to nothing, it ended in 1949 with just $75 dollars to his name.
