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| Charles Ponzi, courtesy of WikiCommons. |
Charles Ponzi was an Italian immigrant who arrived in New York in 1903. He worked odd jobs there before heading up to Montreal, Canada to work at an Italian bank. He lost this job and was convicted of forging a check and spent time in a Canadian jail. Less than three weeks after his release, he was arrested again for smuggling illegal immigrants into the United States and spent time in a federal penitentiary.
By 1917, Ponzi had made his way up to Boston and was working as a clerk and stenographer. While he and his wife, Rose Maria Gnecco, were able to afford a modest lifestyle on his salary, Ponzi had expensive tastes and was dissatisfied with his lot in life. He began exploring different money-making schemes to make up for his spendthrift ways.
Perhaps because he had worked in a post office in Italy before coming to North America, Ponzi focused on International Reply Coupons (IRC), which were coupons that could be exchanged for one or more postage stamps, allowing a person to send someone in another country a letter without acquiring foreign postage or using foreign currency. Due to economic changes brought on by World War I, Ponzi figured that he could buy IRCs in bulk from countries with depressed currencies, use them to purchase U.S. stamps at a discount, and then redeem the stamps for American dollars at a profit. This scheme appeared to be legal, and he began the Securities Exchange Company in December 1919.
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| The Niles Building at 27 School Street in Boston, where Charles Ponzi had an office. |
His easy get-rich-quick scheme, in addition to his personal charm, attracted not just wealthy investors, but other struggling immigrants just like Ponzi. Some of these people entrusted their life savings to Ponzi, who had promised them a 50% rate of return. Often his customers would reinvest their profits rather than take the payment. Ponzi soon realized that the demand he had created was far more than the total number of IRCs in the world, and he began investing in high-risk ventures in order to pay the promised 50% returns to his clients. Still, he was making millions, buying expensive cars and homes, and his company began setting up branches from Maine to New Jersey.
The popularity of his business soon attracted attention from the media, and the Boston Post ran a series of articles in July 1920 about Ponzi’s investments. While initially the articles were positive, the Post’s publisher and editor became more and more suspicious and assigned investigative journalists to look into the feasibility of Ponzi’s business. The Boston Post also contacted the financial journalist Clarence Barron, who identified many discrepancies between Ponzi’s promises and the reality of IRCs. Barron stated that even if it was as good as it seemed, Ponzi’s business was ultimately profiting at the expense of the U.S. government. The state government of Massachusetts audited the Securities Exchange Company, and discovered that Ponzi owed millions more than he had in assets. People from all walks of life had invested huge sums, and these revelations caused a frenzied panic that Ponzi struggled to control. With new evidence about the infeasiblity of his business popping up throughout the summer, Ponzi surrendered to federal authorities on August 12, 1920.
Ponzi was subsequently arrested on charges of mail fraud and spent two years in federal prison. His investors had lost about $20 million, which amounts to over $256 million dollars today. Following this time in federal prison, he also faced state charges and was convicted of larceny in Massachusetts. When he was released in 1934, he was deported to Italy. He eventually moved to Brazil, where he died in 1949.
While his name is now synonymous for fraudulent business dealings, it appears that Ponzi never intended to swindle any of his customers. His questionable business dealings were not malicious, and he he had a generous reputation previous to starting the Securities Exchange Company. Back in Montreal, he had lived with and helped to support the family of his boss, the bank manager Luigi Zarossi, who had fled to Mexico when it became clear that Zarossi’s bank had failed. Later, while working at a mining camp, he volunteered to two major operations to donate his skin to a nurse who was burned in an accident. At the end of his life, he granted one last interview with an American reporter, saying “Even if they never got anything for it, it was cheap at that price. Without malice aforethought, I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.”
Further reading:
Ponzi! The Boston Swindler by Donald H. Dunn (1975)
“In Ponzi We Trust” by Mary Darby, Smithsonian Magazine (December 1998)
The Rise of Mr. Ponzi by Charles Ponzi (1936 autobiography)
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| House Bill 1175 of 1921: Report of The Special Commission To Investigate The Sale Of Corporate Securities And Related Matters, January, 1921. |
Ponzi was subsequently arrested on charges of mail fraud and spent two years in federal prison. His investors had lost about $20 million, which amounts to over $256 million dollars today. Following this time in federal prison, he also faced state charges and was convicted of larceny in Massachusetts. When he was released in 1934, he was deported to Italy. He eventually moved to Brazil, where he died in 1949.
While his name is now synonymous for fraudulent business dealings, it appears that Ponzi never intended to swindle any of his customers. His questionable business dealings were not malicious, and he he had a generous reputation previous to starting the Securities Exchange Company. Back in Montreal, he had lived with and helped to support the family of his boss, the bank manager Luigi Zarossi, who had fled to Mexico when it became clear that Zarossi’s bank had failed. Later, while working at a mining camp, he volunteered to two major operations to donate his skin to a nurse who was burned in an accident. At the end of his life, he granted one last interview with an American reporter, saying “Even if they never got anything for it, it was cheap at that price. Without malice aforethought, I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.”
Further reading:
Ponzi! The Boston Swindler by Donald H. Dunn (1975)
“In Ponzi We Trust” by Mary Darby, Smithsonian Magazine (December 1998)
The Rise of Mr. Ponzi by Charles Ponzi (1936 autobiography)
Alexandra Bernson
Reference Staff
