Charles Ponzi and His Scheme

Rapid Growth

Charles Ponzi's scheme saw rapid growth in July 1920, with his company bringing in a million dollars a day by the end of the month. People from all walks of life, including the Boston police force and wealthy Bostonians, invested heavily, often reinvesting their returns for even greater profits. Ponzi's lavish lifestyle included purchasing a mansion and a luxury car, and bringing his mother to the U.S. in first class 1.

He used the money to buy a wine company and a company that made macaroni in an attempt to have some profits that he could pay off his investors.

--- Gary Arndt

Despite appearances, the international reply coupon scheme failed to generate real profits, leading Ponzi to pay off old investors with new investments 1.

   

Scheme Exposure

The Boston Post initially praised Ponzi's business, but soon exposed its flaws, revealing that the scheme required 160 million international reply coupons, while only 27,000 were in circulation. This revelation led to a run by investors to withdraw their money, and the government intervened, discovering Ponzi was millions in debt instead of having $7 million in assets 2.

The post office went on record as saying that nobody was actually buying large numbers of international reply coupons, domestically or internationally.

--- Gary Arndt

Ponzi's prior prison sentences were also exposed, leading to his arrest and multiple trials for mail fraud and larceny 2.

   

Downfall

After serving time in federal prison, Ponzi continued his fraudulent activities in Florida, promising 200% returns on investments in swampland. He was eventually caught and sentenced to prison again, and upon release, was deported to Italy where he lived in poverty until his death in 1949 2.

He ended up dying in 1949 at a hospital for the poor in Rio de Janeiro at the age of 66.

--- Gary Arndt

Ponzi's scheme became a reference point for future financial frauds, with Bernie Madoff's con being the most infamous, taking investors for 53 times more than Ponzi did 2.