Charles Ponzi
Charles Ponzi (/ˈpɒnzi/, Italian: [ˈpontsi]; born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi; March 3, 1882 – January 18, 1949) was an Italian swindler and con artist who operated in the U.S. and Canada. His aliases included Charles Ponci, Carlo, and Charles P. Bianchi.[1]
"Ponzi" redirects here. For the fraudulent business scheme named after him, see Ponzi scheme. For the 2021 Nigerian comedy film, see Ponzi (film).
Charles Ponzi
January 18, 1949 (aged 66)
- Carlo
- Charles P. Bianchi
- Charles Ponci
Financial gain
Forgery (Canada), mail fraud (U.S. federal), larceny (state)
3 years in Canada 1908–1911; 5 years U.S. federal (served 3+1⁄2 years before facing state charge) 1920–1922; 9 years state 1927–1934; deportation in 1934
Born in Lugo, 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 U.S. as a form of arbitrage.[1]: 1 [2] In reality, Ponzi was paying earlier investors using the investments of later investors. While this type of fraudulent investment scheme was not invented by Ponzi, it became so identified with him that it now is referred to as a "Ponzi scheme". His scheme ran for over a year before it collapsed, costing his "investors" $20 million.
Ponzi may have been inspired by the scheme of William W. Miller (also known as "520% Miller"), a Brooklyn book-keeper who in 1899 used a similar deception to take in $1 million (approximately $35 million in 2022).[3][4]
Early life[edit]
Charles Ponzi was born in Lugo, Emilia-Romagna, on March 3, 1882. He told The New York Times he had come from a family in Parma. Ponzi's ancestors had been well-to-do, and his mother continued to use the title "donna", but the family had subsequently fallen upon difficult times and had little money.[3] Ponzi took a job as a postal worker early on, but soon was accepted into the University of Rome La Sapienza. His richer friends considered the university a "four-year vacation", and he was inclined to follow them around to bars, cafés, and the opera. This resulted in Ponzi spending all his money, and four years later he was broke and without a degree. During this time, a number of Italian boys were migrating to the U.S. and returning to Italy as wealthy individuals. Ponzi's family encouraged him to do the same, with the intention of returning his family to its former socio-economic status.[5]
Arrival in the United States[edit]
On November 15, 1903, Ponzi arrived in Boston aboard the S.S. Vancouver. By his own account, Ponzi had $2.50 in his pocket (equivalent to $85 in 2023), having gambled away the rest of his life savings during the voyage. "I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me," he later told a reporter for the New York Times.[3] He quickly learned English and spent the next few years doing odd jobs along the East Coast, eventually taking a job as a dishwasher in a restaurant, where he slept on the floor. Ponzi managed to work his way up to the position of waiter, but was fired for theft and shortchanging customers.[6]
Work in a mining camp and in Boston[edit]
After Ponzi's release from prison, he made his way back to Boston. While working at a mining camp as a nurse, he came up with the idea of going to another mining camp, starting a utility there that would supply water and power, and selling its stock. During this time, a fellow nurse called Pearl Gosid had suffered severe burns in an accident. Despite not knowing her, Ponzi volunteered for two major operations to donate 122 square inches (790 cm2) of skin from his back and legs to Pearl. This resulted in pleurisy and similar complications, and Ponzi's losing his job.[7]
Thereafter Ponzi continued to travel around looking for work, and in Boston, he met Rose Maria Gnecco, a stenographer, to whom he proposed marriage. Gnecco came from a family of Italian-American immigrants who had a small fruit stall in downtown Boston. Though Ponzi did not tell Gnecco about his years in jail, his mother sent Gnecco a letter telling her of Ponzi's past. Nonetheless, she married him in 1918. For the next few months, Ponzi worked at a number of businesses, including his father-in-law's grocery, and the import-export company JR Poole before hitting upon an idea to sell advertising in a large business listing to be sent to various businesses. He was unable to sell this idea to businesses, and his company failed soon after. Ponzi took over his wife's family's fledgling fruit company for a short time, but to no avail, and it, too, failed shortly thereafter.
Origin of the term "Ponzi scheme" and IRC scheme[edit]
An idea to trade IRCs[edit]
Ponzi set up a small office at 27 School Street, Boston, in the summer of 1919 attempting to sell business ideas to contacts in Europe. He received a letter from a company in Spain asking about the advertising catalog which included an international reply coupon (IRC), leading Ponzi to find a weakness in the system which, at least in principle, gave him an opportunity to make money.
Postal reply coupons allowed a person in one country to pay for the postage of a reply to a correspondent in another country. IRCs were priced at the cost of postage in the country of purchase, but could be exchanged for stamps to cover the cost of postage in the country where redeemed; if these values were different, there was a potential profit. Inflation after World War I had greatly decreased the cost of postage in Italy expressed in U.S. dollars, so that an IRC could be bought cheaply in Italy and exchanged for U.S. stamps of higher value, which could then be sold. Ponzi claimed that the net profit on these transactions, after expenses and exchange rates, was in excess of 400%. This was a form of arbitrage, or profiting by buying an asset at a lower price in one market and immediately selling it in a market where the price is higher, which is legal.[7]
Seeing an opportunity, Ponzi quit his job as a translator to execute his IRC scheme, but needed a large capital expense to buy IRCs at lower performing European currencies. He first tried to borrow money from several banks, including the Hanover Trust Company, but they were not convinced, and its manager, Chmielinski, refused to lend him money.[7][9]
Subsequently, Ponzi set up a stock company to raise money from the public. He also went to several of his friends in Boston and promised that he would double their investment in 90 days, in an environment when banks were paying only 5% annual interest. The great returns from postal reply coupons, he explained to them, made such incredible profits easy to accomplish. Some people invested and were paid as promised, receiving $750 in interest on initial investments of $1,250.[7]
Death[edit]
Ponzi spent the last years of his life in poverty, working occasionally as a translator. His health deteriorated and in 1941 a heart attack left him considerably weakened. His eyesight began failing, and by 1948 he was almost completely blind. A brain hemorrhage paralyzed his left leg and arm. Ponzi died in a charity hospital in Rio de Janeiro, the Hospital São Francisco de Assis of Federal University of Rio de Janeiro, on January 18, 1949.[2]
Supported by his last and only friend, Francisco Nonato Nunes, a barber who spoke English and had notions of Italian, Ponzi granted one last interview to an American reporter, telling him, "Even if they never got anything for it, it was cheap at that price. Without malice aforethought, I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over."[3][25][26]
