Swindler, born in Italy. He went to the USA in 1899, and ran a financial scheme in Boston (191920) that brought him a fortune from unsuspecting, small investors and gained him the name Get Rich Quick Ponzi. Convicted of mail fraud and theft, he served prison sentences before being deported to Italy (1934). He moved to Brazil and died with an estate of $75.
Charles Ponzi (1882–January 18, 1949) was an Italian immigrant to the United States who became one of the greatest swindlers in American history. Although many people have never heard of Ponzi, the term "Ponzi scheme" is a well known description of fraud that continues to this day through its modern version, the "make money fast" schemes that percolate through the Internet.
Early life
Parts of Charles Ponzi's life are somewhat difficult to determine, due to his propensity to fabricate and embellish facts. He was born Carlo Ponzi in Lugo, Italy in 1882-- not Parma as some accounts hold, although he resided there as a teenager.
Arrival in the United States
By his own account, Ponzi arrived in the US in 1903 with two dollars and fifty cents in his pocket, having lost the rest of his life savings through gambling during the voyage.
Ponzi was unfazed. Among Ponzi's talents was a certain gift for numbers, and he found out that the bank was in serious financial troubles because of bad real estate loans. The scheme eventually failed and Zarossi fled to Mexico with a large portion of the bank's money.
Ponzi stayed in Montreal, and, for some time, lived at Zarossi's house helping the man's abandoned family while planning to return to the United States and start over.
When he was released in 1911, he decided to return to the United States, but got involved in a scheme to smuggle Italian immigrants across the border. Ponzi ended up befriending Lupo, but it was another prisoner who became a true role model to Ponzi; Ponzi convinced himself at that time that the rich could do what they wanted, and decided to become rich and live the easy life.
The Ponzi Scheme
Main article: Ponzi schemeWhen Ponzi was released he eventually made his way back to Boston. There he met an Italian girl, Rose Gnecco, who was swept off her feet by Ponzi's charm. Though Ponzi did not tell Gnecco about his years in jail, his mother sent Gnecco a letter telling her of Ponzi's past. Gnecco's love for Ponzi remained unswayed.
A few weeks later Ponzi received a letter in the mail from a company in Spain asking about the catalog. Inside the envelope was a postal reply coupon, which he had never seen before. He asked about it, and the Ponzi scheme was born. The basic idea behind the postal reply coupon was to allow the sender to buy stamps in the foreign country for reply mail, instead of requiring the recipient to pay for them. For instance, a lawyer could send a document to England for reading, including a coupon that would pay for English stamps to allow the recipient to send it back.
The rates for the coupons had originally been fixed during an international postal union in 1907, setting the local price of each coupon to buy an equal amount of stamps in any country. For instance, one might pay 4 shillings in England for a coupon, or $1 in the US, the two amounts being equal at the time. However, because the exchange rate on the coupons was not changed, one could buy such a coupon for the original rate and exchange it for stamps at the current exchange rate.
Ponzi noticed the postal coupon purchased in Europe for about one cent in American funds could be cashed in for about six American one-cent stamps. The first step was to convert his American money into a currency where the exchange rate was favorable. Ponzi's foreign agents would then use these funds to purchase 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.
Ponzi began to canvas his friends and associates to get backing for his scheme. The great returns available from postal reply coupons, he explained to them, made such incredible profits easy.
Ponzi's sales pitch was smooth and low-key. By February 1920, Ponzi's total take was $5,000 USD, a tidy sum for the time.
By March, he was up to $30,000. A frenzy was building, and Ponzi began to hire agents to take in money from all over New England and New Jersey.
By May 1920, he was up to $420,000.
By July 1920, he was up to millions. Widows were mortgaging their homes, people were taking their life savings to invest with the clever Ponzi.
Ponzi was bringing in cash at a fantastic rate, but the simplest financial analysis showed that he wasn't making money, he was losing it rapidly. As long as money kept flowing in, Ponzi would stay ahead of the eventual collapse.
Ponzi lived luxuriously: he bought a mansion with air conditioning and a heated swimming pool, and brought his mother from Italy in a first-class stateroom on an ocean liner.
Suspicion
There were signs of Ponzi's eventual ruin: a furniture dealer who had given Ponzi furniture when the little Italian was broke tried to sue Ponzi to cash in on the gold rush. It was a nuisance lawsuit and went nowhere, but it did start people asking how Ponzi could have gone from being broke to being a millionaire in so short a time.
Ponzi paid them cheerfully and the run stopped. In fact, on 24 July 1920, the Boston Post printed a positive article on Ponzi and his scheme that sent investors into the offices of the Securities Exchange Company at a faster rate than ever. At that time, Ponzi was pulling in $250,000 a day.
Despite this reprieve, one of the editors of the Post was suspicious and assigned investigative reporters to check out Ponzi. He was also under investigation by the US state of Massachusetts, and on the same day the Post article was printed, Ponzi met with state officials. This was a fortunate choice, as Ponzi wasn't keeping any worthwhile records of his finances. Ponzi's actions, however, temporarily calmed the suspicions of the state officials.
Collapse
By this time, Ponzi was casting about for another deal to get him out of the golden trap he was building for himself, but time was running out. On July 26, the Post started a series of articles that asked hard questions about the operation of Ponzi's money machine. The Post contacted Clarence Barron, the financial analyst who published the Barron's financial paper, to examine Ponzi's scheme. Barron observed that though Ponzi was offering fantastic returns on investments, Ponzi himself wasn't investing with his own company. If this was such a good deal, why didn't Ponzi take advantage of it himself?
Barron then noted that to cover the investments made with the Securities Exchange Company, 160 million postal reply coupons would have to be in circulation. The United States Postal Service stated that postal reply coupons were not being bought in quantity at home or abroad. On paper, there were fantastic profits in trading postal reply coupons, but they were a penny item.
The stories caused a panic run on the Securities Exchange Company. Ponzi paid out $2 million in three days to a wild crowd outside his office.
There was something clueless in Ponzi's cleverness.
Instead, he stayed where he was and continued to pay out. Ponzi wanted to look as honest as possible, and according to his autobiography, he was always hoping he could use the fortune he was accumulating to start a legitimate business that would make enough money to pay back all his investors and make everyone rich. However, like most of Ponzi's business plans this was wild and absolutely impossible;
In the short term, Ponzi had hired a publicity agent, James McMasters. However, McMasters quickly became suspicious of Ponzi's contradictions at board meetings and the ongoing investigation against him. He went to the Post, calling Ponzi a "financial idiot." The paper offered him five thousand dollars for his story, and ran a headline on August 2 declaring Ponzi hopelessly insolvent. No large stock of postal reply coupons was found, and never would be.
The Post continued their articles, with one revealing Ponzi's jail record and publishing his (smiling) Canadian mug shots. By August 13, Ponzi was under arrest, with a Federal indictment citing 86 counts of fraud. Ponzi's fans were outraged at the officers who arrested him. 17 thousand people had invested millions, maybe tens of millions, with Ponzi.
Prison and later life
On 1 November 1920, Ponzi pleaded guilty to mail fraud, and was sentenced to five years in federal prison. Before entering state prison, Ponzi jumped bail and fled to Florida, where he set up a scam to sell "prime Florida property" to gullible investors. Florida authorities quickly wised to Ponzi's scam.
In the meantime, government investigators tried to trace Ponzi's convoluted accounts to figure out how much money he had taken and where it had gone.
Ponzi was released in 1934 and was immediately deported to Italy since he never had become an American citizen. However, they continued to exchange hopeful love letters up until Ponzi's death.
In Italy, Ponzi jumped from scheme to scheme but little came of them.
Ponzi spent the last years of his life in poverty. In the charity hospital, Ponzi granted one last interview to an American reporter, and commented about the wild ride he had given Bostonians: "Even if they never got anything for it, it was cheap at that price.
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