Charles Ponzi And His Infamous “Ponzi Scheme”

Charles Ponzi has been the talk of the East Coast in 1920. Most investors consider him an accomplished swindler, while some a financial genius. He is famous for persuading people into investing millions with a promise of big returns. Who is Charles Ponzi and what is this fraudulent scheme derived from his own name?

Early Life

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, or famously known as Charles Ponzi, was born on March 3, 1882, at Lugo, Italy. Just like a normal person, he started out working unusual jobs, including a waiter in a hotel and restaurant dishwasher. Ponzi became a teller at Bank Zarossi as soon as he moved to Montreal by 1907.

He was caught forging checks when the company goes bankrupt, and later sentenced to three years in prison at Quebec. After his release, Ponzi got involved in the smuggling of Italian immigrants into the U.S. He already then became a master con artist by the time he returned to Boston. Small earnings were one of his inspirations on doing bigger things.

Ponzi’s charismatic and charming traits had helped him convince several people, mostly immigrants, to jump aboard his embezzling operation. This was followed by the birth of the “Ponzi Scheme”.

The Ponzi Scheme

It all started when Charles Ponzi had a vision of a money making scheme that can convert dollar funds into Spanish pesetas in order to buy International Postal Reply Coupons. This will then be sent to the United States and sold for dollars. Ponzi being a master manipulator of the press that time, he was able to open a postal reply business front which is based on coupons in December 1919.

Securities Exchange Company

He founded a company that can exploit International Postal Reply Coupons’ profits, the Security and Exchange Commission (SEC). Ponzi is not misleading investors by naming its company similar to a Federal agency as it was not established until the 1930’s. However, he promised a 50 percent return within 90 days to potential investors. These were based on postal reply coupon exchanges on promissory notes worth $10 to $50,000.

Why Some Investors Still Dove into It

According to Wall Street Journal owner Clarence Barron, Ponzi has been moving as much as 160 million coupons to save the cash he needs for the company. He figured an effective way to earn small amounts of cash on the postal reply coupon scheme.

Part of his media manipulation is telling newspapers that he is using his own cash in, stocks, bonds, and real estate investing. Even if the papers tell his embezzlement, a number of people still choose not to believe in it. Others have been claiming that Ponzi tripled their life savings.

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As legitimate earnings start to depreciate, several investors cashing out, the inconsistent flow of cash, and difficulties finding new investors, Charles Ponzi’s operation finally came to an end. After a series of indictments, he was arrested on September 11, 1920, and charged with grand larceny. He was sent to prison but was released after 3 years.

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