Charles Ponzi: A Brief History

With the price of living continually getting more expensive, nearly everyone is searching for a way to make easy money and quick. Anyone with a television, radio, or computer has most likely heard a commercial or seen an advertisement from a business proclaiming they have a way for people to get rich quick. If everyone needs money, where is the money that the company pays out coming from? The answer lies within the life story of a mastermind in the art of swindling.

Though people have found ways to con others out of money for centuries, Charles Ponzi was the first to take his idea and make it known worldwide, creating what we refer today as the "Ponzi scheme." Before the demise of his plan, Ponzi's greed brought him abundant wealth.

Charles Ponzi, an immigrant from Italy, came to the United States in 1903 with $2.50 to his name. For the next few years, Ponzi worked several odd jobs; learning the English language and trying to save money. In 1907, he moved to Montreal, Canada and took a job as an assistant bank-teller at a bank started by Luigi Zarossi. The bank was started to service the abundance of Italian immigrants arriving in the city. While working there, Ponzi came to the realization that the bank was in severe financial troubles due to bad real estate loans. It also seemed that Zarossi was funding interest payments, which he paid 6 percent on- double the interest rate at the time, by raiding the savings of newly opened accounts. However, Zarossi's plot failed and he fled to Mexico with most of the bank's money, leaving Ponzi behind with nothing.

At this time, Ponzi had to find a new way to make money. Zarossi's plan inspired him to find his own way to become rich. After spending time in prison for forging a check and smuggling immigrants, Ponzi came up with a plan that he was sure he would prosper from while going through his mail. Charles Ponzi received a postal reply coupon and realized that the exchange rate had decreased; meaning it would be possible to buy these coupons at the original rate and then exchange it for stamps at the current exchange rate. This was when "Ponzi's scheme" originated. Ponzi sold people on the thought that he was purchasing foreign postal reply coupons, at a discount, in depressed economies and making a profit by exchanging them here.

The idea spread rapidly, and everyone wanted in on the deal. Ponzi began to canvass his friends and acquaintances to form a foundation for his plan. He offered them a 50% return on their money in 45 days, or to double their money in 90 days. He even went as far as starting his own company, the Securities Exchange Company, to promote the plan.

Once Ponzi had enough investors, he was profiting tremendously. By July of 1920, he was up to over a million dollars. However, questions began to rise over how a man who once had nothing was now a millionaire. He was then under investigation by the state of Massachusetts. On August 10, 1920, federal agents searched the Securities Exchange Company and shut it down. Three days later, Ponzi was arrested, with a Federal indictment citing 86 counts of fraud.

Ponzi pleaded guilty to mail fraud on November 1, 1920 and was sentenced to five years in federal prison. However, he was released after only three and a half years to face state charges. The state courts also found him guilty and sentenced him to another nine years in the state prison.

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