History of the Ponzi Scheme

Carlo “Charles” Ponzi was born on March 3, 1882 in Italy.   After attending University in Italy, Ponzi set sail for America, arriving in 1903.   When he arrived in the new country, he had $2.50 in his pockets, but millions of dollars worth of dreams and hopes.

His first years in America were not particularly special.   Ponzi worked odd jobs, including waiter and bank teller.   He eventually moved to Montreal to work at a new bank that was opened to serve Italian immigrants that arrived in the city.   He was also not successful in Montreal, and eventually spent a few years in jail for forging a check.

Ponzi eventually returned to the United States, and after another brief jail stint in Atlanta, he ended up back in Boston where he met a young lady named Rose Maria Gnecco, who he ended up marrying.   It was at this time, that Ponzi came up with an idea to make money speculating on postage stamps.

The way the scheme worked was Ponzi thought he could take advantage of the differences between U.S. and foreign currencies that were used to buy and sell international mail coupons.   Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts.   With a great investment opportunity like that, Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period.   Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons, leaving the majority of the investors out in the cold.

During the height of his scheme, Ponzi made millions of dollars.   However, the media, government and investors became skeptical and began looking into Ponzi’s dealings.   The pressure brought this house of cards down, and Ponzi was arrested on 86 counts of mail fraud.   After facing federal and state criminal charges, Ponzi was in jail until 1925.   Upon his release he began another scheme to sell small tracts of land that was basically swampland.   This brought more jail time until 1934, when he was released from prison and deported back to Italy, where he spent the last 15 years of his life.

The Ponzi Scheme as it has become known is a prime example of a Pyramid Scheme, where the criminal is borrowing money from one person to pay off the profits of another person.   This people at the beginning of the scheme will generally get paid, but the longer it runs, the more people are defrauded.   This scam is still around in various forms, and with the increased use of technology, the schemes can be initiated online and through e-mail.

The Ponzi Scheme has been in existence for many years, and still exists today.   The basis of the scheme is the greed of investors who are looking for quick and easy ways to make money, and the scammers promise a good get rich quick return.   To protect yourself from scammers like Charles Ponzi, in addition to proper spam guards with your website hosting provider, people need to think that if a deal sounds too good to be true, it probably is!