{UAH} Borrowing from Peter to pay Paul is a scheme made famous by Charles Ponzi
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Borrowing from Peter to pay Paul is a scheme made famous by Charles Ponzi. Who was this crook whose name graces this scam? We will discover that on today's UAH History Files.
Charles Ponzi was best known for the financial crimes he committed when he conned investors into giving him millions of dollars, and paid them returns with other investors' money.
The details of the infamous swindler Charles Ponzi's early life are difficult to verify. It is believed, however, that he was born in Parma, Italy, and attended the University of Rome La Sapienza. Ponzi arrived in the United States in November 1903 and according to him, he landed in the country with $2.50 in cash and $1 million in hopes. The young immigrant's charisma and confidence would help him pull off one of the greatest financial schemes in history.
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 a Bank Zarossi. When Bank Zarossi went bankrupt because of bad loans, Ponzi was left penniless. He was sentenced to three years in jail after he was caught forging a bad cheque. 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.
It was during this time that Ponzi got the idea for the great scheme that would earn his name a place in history. He received a letter in the mail from a company in Spain that contained in it an international reply coupon (a coupon that can be exchanged for a number of priority airmail postage stamps from another country). Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. Ponzi realized that he could turn a profit by buying International Reply Coupons (IRCs) in one country, and exchanging them for more expensive stamps in another country. Ponzi's racket worked like this: He would send money to agents working for him in other countries, who would buy IRCs and send them back to the United States. Ponzi would then exchange the IRC for stamps worth more than he paid for them, and sell the stamps. He was making a good living doing it.
Not satisfied with running the profitable scheme on his own, Ponzi got greedy and began to seek investors to make even higher profits. He promised investors outrageous returns of 50 percent in 45 days, or 100 percent in 90 days. Ponzi paid these investors using money from other investors, rather than with actual profit, as in the criminal scheme of Bernie Madoff. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy. Ponzi's manipulation made him very rich. At his peak, Ponzi was earning $250,000 per day. He became a celebrity investor, almost like the Warren Buffett of his day.
However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.
Ponzi's scheme began to unravel in August 1920, when smarter financial heads 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 and he pleaded guilty to one of these charges (mail fraud) in exchange for a light sentence of five year.
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-- Charles Ponzi was best known for the financial crimes he committed when he conned investors into giving him millions of dollars, and paid them returns with other investors' money.
The details of the infamous swindler Charles Ponzi's early life are difficult to verify. It is believed, however, that he was born in Parma, Italy, and attended the University of Rome La Sapienza. Ponzi arrived in the United States in November 1903 and according to him, he landed in the country with $2.50 in cash and $1 million in hopes. The young immigrant's charisma and confidence would help him pull off one of the greatest financial schemes in history.
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 a Bank Zarossi. When Bank Zarossi went bankrupt because of bad loans, Ponzi was left penniless. He was sentenced to three years in jail after he was caught forging a bad cheque. 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.
It was during this time that Ponzi got the idea for the great scheme that would earn his name a place in history. He received a letter in the mail from a company in Spain that contained in it an international reply coupon (a coupon that can be exchanged for a number of priority airmail postage stamps from another country). Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. Ponzi realized that he could turn a profit by buying International Reply Coupons (IRCs) in one country, and exchanging them for more expensive stamps in another country. Ponzi's racket worked like this: He would send money to agents working for him in other countries, who would buy IRCs and send them back to the United States. Ponzi would then exchange the IRC for stamps worth more than he paid for them, and sell the stamps. He was making a good living doing it.
Not satisfied with running the profitable scheme on his own, Ponzi got greedy and began to seek investors to make even higher profits. He promised investors outrageous returns of 50 percent in 45 days, or 100 percent in 90 days. Ponzi paid these investors using money from other investors, rather than with actual profit, as in the criminal scheme of Bernie Madoff. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy. Ponzi's manipulation made him very rich. At his peak, Ponzi was earning $250,000 per day. He became a celebrity investor, almost like the Warren Buffett of his day.
However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.
Ponzi's scheme began to unravel in August 1920, when smarter financial heads 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 and he pleaded guilty to one of these charges (mail fraud) in exchange for a light sentence of five year.
He served around three and a half years, then got his release to face state charges, for which he received a sentence of nine more years. But before he could go back to jail, he jumped bail and tried to start new scams in Florida and Texas. Upon his release, Ponzi was deported to Italy and spent the rest of his life in poverty before dying penniless in 1949 in Rio de Janeiro, Brazil, where he's buried in a pauper's grave.
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