Charles Ponzi, born Carlo Ponzi (March 3, 1882 – January 18, 1949), was an Italian swindler and con artist in the U.S. and Canada. His aliases include Charles Ponci, Carlo, and Charles P. Bianchi.Born and raised in Italy, he became known in the early 1920s as a swindler in North America for his money-making scheme. He promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. In reality, Ponzi was paying early investors using the investments of later investors. While this swindle predated Ponzi by several years, it became so identified with him that it now bears his name. His scheme ran for over a year before it collapsed, costing his “investors” $20 million($220million in todays money).
Ponzi may have been inspired by the scheme of William F. Miller, a Brooklyn bookkeeper who in 1899 used the same scheme to take in $1 million.In addition, “The Man Who Broke the Bank at Monte Carlo”, Charles Deville Wells, had operated a very similar scheme in France in 1910-11, when—under the alias ″Lucien Rivier″—he had set up a phony bank, to the detriment of his 6,000 victims.
Coming to America
The details of the infamous swindler Charles Ponzi’s early life are difficult to verify. It is believed, however, that he was born Carlo Ponzi in Parma, Italy, and attended the University of Rome La Sapienza.
Ponzi arrived in Boston in November 1903 aboard the S.S. Vancouver. He later told the New York Times that he gambled away most of his money on the voyage to America. “I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me.” The young immigrant’s charisma and confidence would help him pull off one of the greatest financial schemes in history.
Early Scams
Ponzi started out working odd jobs, including as a dishwasher in a restaurant. In 1907, he moved to Montreal, where he found a job as a teller at Bank Zarossi. The bank was formed to cater to the new Italian immigrant population, charging high interest rates.
When Bank Zarossi went bankrupt because of bad loans, Ponzi was left penniless. He was sentenced to three years in a Quebec prison after he was caught forging a bad check. Rather than tell his mother in Italy that he was in prison, he wrote to her in a letter that he was working at a Canadian prison.
When he was released from jail, Ponzi got involved in yet another criminal venture, smuggling Italian immigrants across the border into the United States. This too landed him in jail—he spent two years behind bars in Atlanta.
Ponzi lived luxuriously: he bought a mansion in Lexington, Massachusetts,and he maintained accounts in several banks across New England besides Hanover Trust. He bought a locomobile, the finest car of that time.He had initially bought two first class tickets to Italy for a delayed honeymoon with Rose, but instead decided to change them to bring his mother from Italy to America in a first-class stateroom on an ocean liner. She lived with Ponzi and Rose for some time in Lexington, but died soon after. On July 31, 1920, Ponzi told Father Pasquale Di Milla the director of the Italian Children’s Home in Jamaica Plain that he would donate $100,000 in honor of his mother.Ponzi also bought a macaroni company and part of a wine company in an attempt to gain profits that could be used to repay the investors of his IRC scheme.
Downfall
Ponzi’s scheme began to unravel in August 1920, when The Boston Post began to investigate his returns. The investigation set off a run on Ponzi’s company, with investors trying to pull their money out of it.
Charles Ponzi was arrested on August 12, 1920, and charged with 86 counts of mail fraud. Owing an estimated $7 million, he pleaded guilty to mail fraud, and subsequently spent 14 years in prison. Rose divorced him in 1937, and Ponzi died penniless in Rio de Janeiro, Brazil, on January 18, 1949.
Magnitude of losses
The news brought down five other banks in addition to Hanover Trust. His investors were practically wiped out, receiving less than 30 cents to the dollar. His investors lost about $20 million in 1920 dollars ($225 million in 2011 dollars): Charles Ponzi completely annihilated their finances.As a comparison, Bernard Madoff’s similar scheme that collapsed in 2008 cost his investors about $18 billion, 53 times the losses of Ponzi’s scheme without taking into account conversion from 1920 dollars to 2008 dollars.
Source: Wikepedia
