Charles "Carlo" Ponzi (1882 - 1949)
Ponzi grew up in Italy and attended university in Rome. After a
few brushes with the law, because of theft and forgery, and gambling debt, his family sent him to America.
According to his self-published autobiography, The Rise of Mr. Ponzi, he arrived in Boston with $2.50 after he
squandered the greater part of $200 while gambling on the ship.
Even in America he managed to end in jail twice for forgery and
illegally aiding Italian immigrants to cross into the USA. In 1919 he hatched a plan whilst working in an
import-export firm. At the end of the First World War a coalition of postal services sold postal reply-coupons to
ensure the smooth operation of the mail delivery service in countries most affected by the instability of their
currency.
Each of these reply-coupons had the value of one postal stamp in
either affiliated country. Ponzi’s plan as he explained was to convert a US dollar to the weaker Italian Lira. A
colleague then purchased the postal-reply coupons in Italy and sent them to Ponzi in America. In this manner, for
arguments sake, one dollar could purchase three times as many coupons in Italy as was possible in America and could
be converted to postage stamps in America.
This in effect meant that using this method Ponzi could
hypothetically; purchase three postage stamps for the price of one. He then, as he described, sold discounted
postage stamps in bulk to wholesale stores.
It was later revealed that Ponzi didn’t consistently follow this
method. What happened was that he recruited investors by introducing his plan to them. In return they were promised
great and unrealistic returns on their initial investment. Instead of applying the principles explained above he
convinced investors to re-invest their outlay and thereby postpone his financial obligation. As new speculators
were introduced to the system their capital was used to pay the initial backers, which created the impression that
the swindle was legitimate and successful.
The con was discovered by the authorities in 1920 and even though
he proclaimed his innocence, auditors revealed that his company was bankrupt and owing four million dollars or more
to investors.
Mr Ponzi was arrested, but jumped bail and fled to Florida. In
1924, he and his wife were arrested for fraud after selling swamp land as investment property. The charges against
his wife were dropped, but Ponzi again jumped bail, when the judge did not realise the extent of his prior
offences. He boarded a ship headed for Genoa, Italy, but was rearrested whilst the ship was docked in
Houston.
Ponzi was sentenced to 5 years in prison of which he spent 3 years
in prison after, which he was turned over to the Massachusetts judicial system, where he was sentenced to a further
7 years.
In 1947, Ponzi was deported back to Italy, where he was received
warmly. He landed a job in a Rio de Janeiro airline in a managerial position. He lost his job when it was found
that the airline was involved in amongst others diamond smuggling. He proclaimed his innocence to these charges and
said that he was never recruited into the effort.
In 1949 Ponzi died dead broke in a charity home outside of Rio de
Janeiro.
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