So for my last blog I have decided to look into the origin of the infamous “Ponzi scheme”. I had heard of the phrase many times but never really knew its origin. I started reading into this it really blew my mind the money that this guy had been able to get flowing in the 1900’s. I also learned that this may have been his most infamous crime but most was certainly not his first he was arrested several times before he came up with his postage scheme he was arrested for smuggling immigrants in to the U.S. from his native land of Italy and served two years he also was convicted in Canada prior to this for a forgery scandal by a Montreal banking firm (Zrossi & Company). He was sentence to three years but was out in only 20 months.
It was in the early 1900’s when Charles Ponzi a.k.a Charles Bianchi a.k.a Charles Borelli settled in Boston Massachusetts. He then established the “Securities exchange Company” this was a one man operation he opened with a $200 bank loan. The premise of this business was as such, Charles sold coupons reflecting a purported investment in international reply coupons. An international reply coupon (IRC) is a coupon that can be exchanged for one or more postage stamps representing the smallest postage for an unregistered priority airmail letter of up to twenty grams sent to another Universal Postal Union (UPU) member country. At that time IRC’s were sold for fractions of a cent less than the stamps you could redeem them for so there were margins to make money on this but they were incredible small you would literally have to obtain millions of these IRC’s to make a few bucks. Ponzi was able to convince investors that they would see a 50% profit on their initial investment in a 3 month or quarterly period. Charles Ponzi was able to sell these coupons at such a rate that he paid back the first few rounds of investors in 45 days half of the time he had promised. When this happened, word of the quick payoff spread so rapidly throughout the business world that people couldn’t invest fast enough. This led to a rapid growth. Within a few short months Charles Ponzi was able to establish to offices in Boston with dozens of staff processing his sales for him, remember he did all this with a $200 dollar loan. It was at this time he bought an estate that cost $35000 which was an incredibly expensive property for the time.
What caused the collapse of this was that Charles had not actually bought any of the IRCs but merely promised the purchase of them he then used the money from the newest investors to pay off the initial investors. When Ponzi was finally busted it is estimated that he was producing and income of 1 million dollars per week!! That is an insane amount of money today never mind this took place over 90 years ago! Ponzi however did get his just deserts he was convicted of 86 counts of Federal mail fraud. He was then prosecuted again on state charges. Good old Ponzi had one more trick up his sleeve and took his charges all the way to the U.S. Supreme Court pleading a violation against his protection of double jeopardy. Thankfully the court ruled that both state and federal government had jurisdiction allowing Ponzi’s re-prosecution. All together he was sentenced to 14 years. Upon his release from prison he fled to Florida starting another pyramid scheme selling real estate that was actually under water. He then tried to return to Italy. When his ship reached port in New Orleans Ponzi was arrested by a Texas deputy that was outside his jurisdiction. He ended up back in jail till 1934, then was deported back to Italy he where wrote and published an autobiography. He once again resettled in Brazil and became an English teacher. He died June 18th 1949 with barely enough money to pay for his funeral.
Info found mainly from http://www.nndb.com
Written by, Josh Anshen