Charles Ponzi  -  possibly the greatest swindler in American History

Born in Italy in 1882 he arrived in America in 1903 with $2.50 and high hopes. He worked his way up from dishwasher in a restaurant to waiter but was soon fired for short-changing customers and theft.

Ponzi then left for Montreal where he worked as a clerk for a bank that failed through paying customers interest from new deposits rather than from income earned. Unemployed and penniless following closure of the bank it was not long before he was arrested for cheque forgery for which he spent 3 years in prison.

After his release he returned to the United States and took up a career as an immigrant smuggler. He was arrested for this and spent another 2 years in prison.

When released Ponzi made his way to Boston where he met and married Rose Gnecco in 1918 for whose father he worked as grocery store assistant.  At about this time Ponzi concocted a scheme involving international postal reply coupons that could be bought in one country and redeemed in another for more than the original cost.

Seeing an opportunity Ponzi set his scheme in motion. Undaunted by early red tape problems he approached his friends and offered to double their money in 90 days telling them that there were great profits to be made from his postal scheme.  As usual with schemes of this nature, early investors were paid promptly - but only from the proceeds of money received from new investors. Word soon spread and money poured into Ponzi's "Securities Exchange Company" at exponential rates. Ponzi hired agents to recruit investors and paid them generous commissions and soon frenzied investors were queuing outside his School St office in Boston clamouring for "a piece of the action".

Fancying himself as a banker Ponzi used his money and new-found influence to buy the controlling shareholding in the Hanover Bank of Boston.

By mid 1920 Ponzi had made millions and people were mortgaging their homes and cashing in their life savings to invest in the scheme. Most investors were happy to leave their money in the scheme happy in the delusion that they were receiving compound profits in a scheme that in reality could only survive as long as new investors were found.

Ponzi's rapid rise to fame inevitably attracted suspicion. Investigations showed that the scheme could not possibly work as there could never be enough postal coupons to support it and in August 1920 the scheme was revealed as nothing more than one that robbed Peter to pay Paul.  Ponzi surrendered himself and was subsequently sentenced to 5 years in prison for mail fraud. Upon his release he was again charged with larceny and following lengthy court proceedings was sentenced to a further 7 years in prison but was granted bail pending an appeal.

While out on bail Ponzi went to Florida where he established the "Charpon Land Syndicate" which sold land to unsuspecting investors that was no more than worthless swampland. Ponzi was charged and sentenced for this but was again granted bail pending an appeal. He used the opportunity to travel to Tampa where he tried to flee to Italy disguised as a crewman. The ship however made one last port call - New Orleans! He was caught and served 7 more years in prison.

After his release Ponzi was deported to Italy where he managed to secure a job in the financial section of government. Unsurprisingly, he fled Italy for Brazil after mismanagement and an undisclosed sum of money disappeared from the treasury. His last years in Brazil were spent in sickness and poverty and he died in 1949.

The moral of this sad tale...

The moral of this sad tale, is that one needs to exercise patience with one's investment portfolio.  Although modern day regulatory authorities, have been created to counter scams like Masterbond, PSC Guaranteed Growth Fund,  Fidentia and more recently Barry Tannenbaum's, there are still many dubious investment schemes around.   Many of those who have lost money in Tannenbaum's scheme are wishing they had taken advice from a Certified Financial Planner before investing.  Remember that if the investment returns promised are too good to be true, they probably are just that:  "Too good to be true".     Think twice, it's not always another day in paradise.

Bruce Lyle | Membership Services Manager