Charles Ponzi (1882-1949) was a notorious con artist who went on to become one of the first financial criminals of modern times. Ponzi committed what became known as the ‘fraud of the century’ in 1920 in the United States when he secured some $15 million in a matter of months by persuading local Bostonians to invest in a fake investment scheme.
The fraud was based on paying existing investors with funds collected from new investors, with the scheme inevitably collapsing once the number of new investors declined and there were insufficient funds available to pay all those who had invested. The aftermath of the Ponzi scheme was devastating for thousands with many losing their life savings. It caused a national scandal.
The scheme became known as a ‘Ponzi scheme’, a confidence scam that fraudsters continue to commit to the present day. Most recently – and perhaps most notable of all – was a Ponzi scheme run by Bernard Madoff who was convicted and sentenced to 150 years in prison. It was the largest Ponzi scheme in history in which Madoff defrauded investors out of tens of billions of dollars over the course of at least 17 years.
Here are 10 facts about Charles Ponzi, the man whose name became synonymous with fraud.
1. He became involved with crime from an early age
Charles Ponzi, born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi in 1882 in Italy, immigrated to the United States in 1903. He had been a student at the University of Rome La Sapienza, but after splurging all his family money on a lavish lifestyle, he found himself in debt and failed his degree. Ponzi decided to move to the United States to improve his financial situation.
Upon arrival he worked at various odd jobs in the East Coast of the United States, including cleaning dishes, being a street vendor and selling pasta. Struggling to make ends meet, he quickly became involved in a number of criminal activities and scams from the beginning of his new life including theft and forgery.
2. He was fashionable and charismatic
After continual failure to make ends meet, Ponzi moved to Montreal in 1907 and found a job as an assistant teller in a local branch of the Italian bank Banco Zarossi. Thanks to his ability to speak many languages, a dapper fashion style and his charismatic personality Ponzi was quickly promoted to bank manager.
3. His first stint in prison was three years
But the bank itself was in serious financial trouble and it was here that Ponzi first came across the concept of taking money deposited in newly opened accounts to fund fake investments. After the bank collapsed Ponzi went on a spree of forging cheques from previous Banco Zarossi customers, but was finally caught and sentenced to 3 years at St. Vincent-de-Paul Federal Penitentiary.
4. His wife’s family business failed under Ponzi’s leadership
After his release, a penniless Ponzi returned to Boston, desperately seeking work. There, in 1918, he married Rose Maria Gnecco, a stenographer, who came from a family of Italian-American immigrants who ran a fruit stall in the city. After a number of further failed business attempts at launching an import-export company, Ponzi took over his wife’s family business but it failed shortly thereafter.
5. Proceeds from his crimes afforded him a lavish lifestyle
In 1919 Ponzi finally managed to find some small business success through buying and selling postal reply coupons. Ponzi seized upon his success as an opportunity to make more money and in January 1920 launched his own company called the “Securities Exchange Company”.
He promised investors returns of up to 50% in just 45 days and it attracted thousands of local investors. Word spread and the rapid growth of Ponzi’s scheme was staggering. At its height, he was bringing in $250,000 a day, and his personal wealth was estimated at over $15 million.
Ponzi’s initial investors consisted of working-class immigrants like himself but gradually attracted many of Boston’s richest bankers, politicians, and socialites. He used his newfound wealth to fund a lavish lifestyle, buying expensive cars, houses, first class travel tickets for family in Italy and large amounts of jewellery.
6. A financial journalist investigated the legitimacy of the company
Even though Ponzi’s company was making a huge daily profit, the operation was really running at a large loss. As long as new money kept coming in, existing investors could be paid back, but he made no effort to generate legitimate profits. In 1920 a number of investors and local media began asking how Ponzi went so rapidly from being penniless to being a millionaire in such a short span of time.
The Boston Post assigned Clarence Barron, a top financial journalist, to examine Ponzi’s scheme who became suspicious after discovering that Ponzi himself was not investing with his own company. Further investigations by the newspaper finally revealed the fraud and Ponzi’s scheme quickly collapsed, causing crowds of panicked local investors to camp outside his offices demanding their money back.
On 11 August, Charles Ponzi amid reports that he was about to be arrested any day, surrendered to federal authorities that morning. He was originally released on bail but promptly re-arrested on state charges of larceny. The Attorney General declared that if Ponzi were ever to regain his freedom, the state would seek additional charges and set a bail high enough that would guarantee Ponzi remaining in custody.
7. Many people lost their life savings as a result of the scheme
Half-a-dozen banks crashed in the aftermath of Ponzi’s fall.Thousands of investors were left with significant losses, many of whom were ordinary working-class immigrants like Ponzi himself, including his own brother-in-law and chauffeur. It is estimated that his scheme defrauded investors of around $20 million, worth some $200 million today. Many lost their life savings. The Boston Post won a Pulitzer Prize for its tireless reporting that had first revealed the scale of the financial fraud.
On 1 November 1920, Ponzi was charged with 86 counts of mail fraud and sentenced to five years in prison, but was released after serving just three and a half years. Almost immediately after his release he was accused of a further 22 charges of larceny by the state of Massachusetts. After a series of notorious trials he was finally found guilty and sentenced to 9 years in prison on the grounds of being “a common and notorious thief”.
8. He was eventually deported to Italy
In September 1925, Ponzi was released on bail as he appealed the state conviction where he hurried to Florida in an attempt to sell swampland under a false name. He was yet again arrested for fraud and after a brief attempt to escape authorities he was captured and sent to prison in New Orleans.
He was released in 1934 and on 7 October was deported to Italy. His wife Rose never joined him. She, alongside some 8 members of her family, had lost heavily in Ponzi’s fake investment scheme. She remarried and moved to Florida, desperately trying to avoid the notoriety of her ex-husband’s fame.
9. He died after suffering a stroke
Accounts of Ponzi’s life after his return to Italy vary, with some reports claiming he fled to Brazil and others that claim he became successful in the Italian airline business. What is known is that after suffering a stroke in 1948, he became partially paralysed and died soon after in 1949, at the age of 66, in a charity hospital in Rio de Janeiro, Brazil.
10. His scheme led to increased regulation of the financial industry
His scheme was one of the first high-profile financial frauds of modern times, and it helped to raise awareness of the dangers of financial fraud, and led to increased regulation of the financial industry. The term “Ponzi scheme” is now used to describe any investment scheme that promises high returns and uses new investors’ funds to pay off earlier investors, much like Charles Ponzi’s original scheme.
His legacy continues to serve as a cautionary tale for financial investors. As the saying goes, “if it sounds too good to be true, it probably is.”