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Double Your Money in
90 Days. Have
I got a deal for you! I can double your money in just
ninety days, guaranteed. Nonsense,
you say! What?
You don’t trust me? I promise you that it can be done.
A man named Charles Ponzi delivered on such on such a promise back
in 1920. Now, I know
what you are thinking. This has to be some type of scam.
Well, I would be lying if I said that it wasn’t. (Put your money
back in the bank. You’re not getting rich this week.) How it
all started. Carlo “Charles”
Ponzi was born in Parma, Italy 1882 and then emigrated to the United
States in November of 1903. Over the next fourteen years, Ponzi
wandered from city to city and from job to job. He worked as
a dishwasher, waiter, store clerk, and even as an Italian interpreter.
In 1917, he settled back into Boston where he took a job typing and
answering foreign mail. It was here in Boston on that fateful
day in August of 1919 that Ponzi discovered the mechanism to make
both him and his investors very wealthy. At the time,
Ponzi was considering issuing an export magazine. He had written
a letter about the proposed publication to a gentleman in Spain, and
when Ponzi received his reply, the man had included an international
postal reply coupon. The idea behind this enclosure was quite
simple. Ponzi was to take the coupon to his local post office
and exchange it for American postage stamps. He would then use
those American stamps to send the magazine to Spain. Ponzi noticed
that the postal coupon had been purchased in Spain for about one cent
in American
Ponzi’s
mind quickly went into overdrive and devised a clever scheme to capitalize
on his idea. He was determined to be a rich man. His first
step was to convert his American money into Italian lire (or any other
currency where the exchange rate was favorable). Ponzi’s foreign
agents would then use these funds to purchase international postal
coupons in countries with weak economies. The stamp coupons
were then exchanged back into a favorable foreign currency and finally
back into American funds. He claimed that his net profit on
all these transactions was in excess of 400%. Was he really
able to do this? The answer is a definite no. The red
tape of dealing with the various postal organizations, coupled with
the long delays in transferring currency, ate away at all Ponzi’s
imagined profits. Things
got just a bit out of hand… A failed
scheme couldn’t keep Ponzi from bragging about his great idea.
Friends and family members easily understood what he was saying and
they wanted in on the investment. And, lets face it, if you
flash money in someone’s face, they are bound to take it. On December
26, 1919, Ponzi filed an application with the city clerk establishing
his business as The Security Exchange Company. He promised 50%
interest in ninety days and the world wanted in on it.
Yet, he claimed to be able to deliver on his promise in just forty-five
days. This, of course, translates into being able to double
your money in just ninety days. Word spread
very quickly about Ponzi’s great idea and within a few short months
the lines outside the door of his School Street office began to grow.
Thousands of people purchased Ponzi promissory notes at values ranging
from $10 to $50,000. The average investment was estimated to
be about $300. (That was a big chunk of pocket change in those
days.) You are
probably sitting their puzzled. Why would so many people invest
in a scheme that didn’t work? The real reason was that the early
investors did see the great returns on their money. Ponzi used
the money from later investors to pay off his earlier obligations.
It was a new twist on the age-old pyramid scheme. With an
estimated income of $1,000,000 per week at the height of his scheme,
his newly hired staff couldn’t take the money in fast enough.
They were literally filling all of the desk drawers, wastepaper baskets,
and closets in the office with investor’s cash. Branch offices
opened and copycat schemes popped up across New England. By the summer
of 1920, Ponzi had taken in millions and started living the life of
a very rich man. Ponzi dressed in the finest of suits, had dozens
of gold-handled canes, showered his wife in fine jewels, and purchased
a twenty-room Lexington mansion. The Crash Any get
rich scheme is certain to attract the attention of the law, and Ponzi
was no exception. From the start, federal, state, and local
authorities investigated him. Yet, no one could pin Ponzi with
a single charge of wrongdoing. Ponzi had managed to pay off
all of his notes in the promised forty-five days and, since everyone
was happy to get their earnings, not a single complaint had ever been
filed. On July
26, 1920, Ponzi’s house of cards began to collapse. The Boston
Post headlined a story on the front page questioning the legitimacy
of Ponzi’s scheme. Later that day, the District somehow convinced
to suspend taking in new investments until an auditor examined his
books. (Why anyone who was doing something so highly illegal
would let auditors examine his books is beyond me.) Within hours,
crowds of people lined up outside Ponzi’s door demanding that they
get their investment back. Ponzi obliged and assured the public
that his organization was financially stable and that he could meet
all obligations. He returned the money to those that requested
it. By the end of the first day, he had settled nearly 1000
claims with the panicked crowd. By continuing
to meet all of his obligations, the angry masses began to dwindle
and public support swelled. Crowds followed Ponzi’s every move.
He was urged by many to enter politics and was hailed as a hero.
Loud cheers and applause were coupled with people eager to touch his
hand and assure him of their confidence. And Ponzi
continued to dream. He had planned to establish a new type of
bank where the
The public
continued to support him until August 10, 1920. On this date,
the auditors, banks, and newspapers declared that Ponzi was definitely
bankrupt. Two days later, Ponzi confessed that he had a criminal
record, which just worsened his situation. In 1908, he had served
twenty months in a Canadian prison on forgery charges related to a
similar high-interest scheme that he had participated in there.
This was followed in 1910 by an additional two-year sentence in Atlanta,
Georgia for smuggling five Italians over the Canadian border into
the United States. On August
13th, Ponzi was finally arrested by federal authorities and released
on $25,000 bond. Just moments later he was rearrested
by Massachusetts authorities and re-released on an additional $25,000
bond. In the
end… The whole
thing turned into one gigantic mess. There were federal and
state civil and criminal trials, bankruptcy hearings, suits against
Ponzi, suits filed by Ponzi, and the ultimate closing of five different
banks. An estimated
40,000 people had entrusted an estimated fifteen million dollars (about
$140 million in U.S. funds today) in Ponzi’s scheme. A final
audit of his books concluded that he had taken in enough funds to
buy approximately 180,000,000 postal coupons, of which they could
only actually confirm the purchase of two. Ponzi’s
only legitimate source of income was $45 that he received as a dividend
of five shares of telephone stock. His total assets came to
$1,593,834.12, which didn’t come close to paying off the outstanding
debt. It took about eight years, but note holders were able
to have an estimated thirty-seven percent of their investment returned
in installments. In other words, many people lost big time.
Ultimately,
Ponzi was sentenced to five years in federal prison for using the
mails to defraud. After three and one-half years in prison,
Ponzi was sentenced to additional seven to nine years by Massachusetts’s
authorities. He was released on $14,000 bond pending an appeal
and disappeared about one-month later. Where did
he go? Did he leave the country? Did he just vanish off
of the face of the Earth? No one was really sure. No, he turned
up a short time later in the great state of Florida. Under the
assumed name of Charles Borelli, Ponzi was involved in a pyramid (big
surprise, huh?) land scheme. He was purchasing land at $16 an acre,
subdividing it into twenty-three lots, and selling each lot off at
$10 a piece. He promised all investors that their initial $10
investment would translate into $5,300,000 in just two years.
Forget doubling your money in ninety days – he was now promising to
double your money nearly every second! Too bad much of that
much of the land was underwater and absolutely worthless. Ponzi was
indicted for fraud and sentenced to one year in a Florida prison.
Once again, he jumped bail on June 3, 1926 and ran off to Texas.
He hopped a freighter headed for Italy, but was captured on June 28th
in a New Orleans port. On June 30th he sent a telegram to President
Calvin Coolidge asking to be deported. Ponzi’s request was denied
and he was sent back to Boston to complete his jail term. After
seven years, Ponzi was released on good behavior and deported to Italy
on October 7, 1934. Believe it or not, even after all of his
swindling, he still had many fans that were there to give him a rousing
sendoff. Back in
Rome, Ponzi became an English translator. Mussolini then offered
him a position with Italy’s new airline and he served as the Rio de
Janeiro branch manager from 1939-1942. Ponzi discovered that
several airline officials were using the carrier to smuggle currency
and Ponzi wanted a cut. When they refused to include him, he
tipped off the Brazilian government. The Second World War brought
about the airline’s failure and Ponzi soon found himself unemployed.
Once again,
he wandered from job to job. He tried running a Rio lodge, but
that failed. He then alternated between earning a pittance providing
English lessons and drawing from the Brazilian unemployment fund. |
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