Jun 24 2009
Ponzi Schemes: The Original Charles Ponzi Scheme
In 1921, Charles Ponzi came up with a scheme that sounded too good to be true, and it was.
Charles Ponzi promised investors that they would receive a 50% return on their money within 90 days, an opportunity that many of the poor and uneducated people he approached found too good to pass up.
Charles Ponzi during the height of his scheme.
Ponzi, already a convicted criminal came up with the idea that if he purchased International Postage Reply Coupons in another country, he could turn them into US postage stamps and sell them for much more than he paid for them.
Values of Inthadernational Postage Reply Coupons were set in local currency and did not take into consideration exchange rates, so Ponzi could buy more coupons for the same money in a poorer country.
Ponzi’s plan didn’t account for the fact that he would have to purchases tons and tons of stamps (literally) to pay back his investors at the rate he promised. This would require plenty of help and there was never any evidence that Ponzi ever bought any of these coupons with his investors money.
Charles Ponzi first raised more than a million dollars in three hours back in 1921 as he peddled his scheme to the unwary. Overall Charles Ponzi admitted to taking ten million dollars from investors but skeptics believe it could have been fifteen million or more. Ponzi returned eight million dollars before his trial.
For his scheming, Ponzi was convicted
of mail fraud and sentenced to five years in prison. This seems like a small price to pay for netting what many believe is millions of dollars.
Eventually Charles Ponzi was deported to Italy and in 1945 died alone, reportedly broke and alone.
Dubbed as “robbing Peter to pay Paul” Ponzi Schemes are still run today. Bernie Madoff is one of the more modern Ponzi Schemers who promised investors high returns and was eventually caught when new investor money ran dry.
Ponzi schemes are enticing to both the schemer and investors because many people want something for nothing and a promise of high returns for your investment, Ponzi’s mug shot especially in times of recession, is very appealing.
When people are desperate, like in the case of the poor and uneducated Ponzi preyed on, they will give up what little they have in the hopes of having a better future.
Always think twice before investing in something that sounds too good to be true. If you have to do very little in order to make high profits, it is probably not going to work out in the long run.
Charles Ponzi, Early and Later in Life
