Nobody is going to go to the comments in defense of this week’s degenerate scumbag.
But feel free.
Apparently YouTube likes that sort of thing.
You probably know what it’s like to have someone take advantage of your weakness in
a system leveraged against you by the rich and powerful.
You, or someone you know, has been grifted.
Nobody knows for sure when the first grifter appeared.
Did they exist in hunter gatherer societies?
How did they function in early communities where most people performed difficult manual
labor?
We just don’t know.
What we do know is that once currency was created, some devious people figured out how
to use fraud to their advantage.
Sometimes it might be as simple as shaving metal from coins before putting them back
into circulation.
Those who were ambitious might resort to cheating in games, or bribery if it was available.
In the modern world, though, it takes more skill for a grifter to earn a living.
Charles Ponzi was so successful that his name became synonymous with fraud.
And the collapse of his short-lived financial empire ruined entire communities.
Early Life
Charles Ponzi was born in Lugo, Italy in 1882.
His ancestors had been quite wealthy.
But by the time Ponzi was born, the family fortune was long gone.
He started working at a young age as a postal worker and was soon accepted to the University
of Rome.
Charles went off to college but developed a problem.
All his wealthier classmates considered their time at the University to be a four-year
vacation.
Charles was inclined to follow them around as they went cafes, operas, bars, and anywhere
else they could spend money.
But since he didn’t have any money, it didn’t work out well.
Charles Ponzi left college after four years completely broke and with no degree.
At that time, a lot of poor Italian boys were migrating to the United States, then
returning to Italy after becoming wealthy.
Charles’ family encouraged him to do the same.
They hoped he might restore the family fortune.
On November 15, 1903 Charles arrived in Boston.
He only had $2.50 in his pocket, because he lost the rest gambling during the journey.
Charles quickly learned English.
He spent the next few years doing odd jobs, but eventually took a more permanent job as
a dishwasher.
He slept on the floor of the restaurant at night and worked hard every day.
He was eventually promoted to waiter.
Soon after being promoted, Charles Ponzi was fired for shortchanging customers.
Grifter Training Program
After failing to become wealthy in the United States, Charles moved to Canada in 1907.
He settled in Montreal and became an assistant teller at the recently opened Banco Zarossi.
It was a bank started by Luigi Zarossi that serviced the large number of Italian immigrants
arriving in the city.
It was here that Charles first observed the scheme that would bear his namesake.
At this time, however, the strategy was known as “robbing Peter to pay Paul”.
Zarossi was paying 6 percent interest on bank deposits, which was twice the going rate.
After being promoted to bank manager, Charles Ponzi realized that the bank was in deep financial
trouble because it held a lot of bad real estate loans.
Zarossi was paying interest by using money from new deposits.
The bank failed and Luigi Zarossi fled to Mexico with most of the money.
Charles stayed in Montreal, although he planned to eventually return to the US and start over.
This was difficult as Charles Ponzi was most definitely broke.
One day he walked into the offices of a former Zarossi customer and found that nobody was
there.
He found a checkbook and wrote himself a check for $423.58.
Charles also forged the signature of the company’s director when signing the check.
The police questioned Charles not long after he cashed the check as they noticed he was
spending a lot of money suddenly.
Charles Ponzi announced, “I’m guilty”.
He was arrested and convicted, then sent to prison for three years.
After finally being released in 1911, Charles decided to return to the US.
Unfortunately, while returning he was also caught participating in a scheme to smuggle
illegal Italian immigrants into the country.
He was sent to prison in Atlanta, Georgia for two years.
While in prison, Charles Ponzi met Charles W. Morse.
Morse was a wealthy Wall Street businessman and speculator and became a role model of
sorts.
Charles learned everything he could from this experienced swindler.
Thanks to his experience at the bank in Montreal, and now armed with knowledge from a professional
criminal, Charles Ponzi had everything he needed to separate people from their hard-earned
cash.
Failure, Then Success
Upon leaving prison for the second time, Charles returned to Boston.
He began his new life there by working at a mining camp as a nurse.
A fellow nurse was in an accident and had severe burns over a large part of her body.
Charles didn’t know her but volunteered to have two operations that removed skin from
his back and legs.
The donated skin was used to help the burn victim recover.
Charles suffered respiratory complications after the surgeries and eventually lost his
job.
After recovering, he continued moving around looking for work.
He eventually met Rose Maria Gnecco, a stenographer from a family of Italian immigrants.
She married him in 1918.
For some time, Charles worked at the grocery store his family’s wife owned.
One day Charles decided he could create a publication and sell advertising.
He started a company and tried to sell businesses on his idea.
Nobody was willing to give Charles Ponzi money and his new company failed.
He then started running the family grocery store, and it too failed shortly thereafter.
In the summer of 1919, Charles set up a small office in Boston and started trying to come
up with profitable ideas.
Unexpectedly, he received a letter from a company in Spain asking about the advertising
publication that was never launched.
Within the letter was an international reply coupon, or IRC for short.
The purpose of an IRC was to allow somebody to send mail to a correspondent in one country
and provide a way that person could reply free of charge.
The IRC was purchased in the sender’s country and could be redeemed for postage
in the recipient’s country.
Charles quickly realized that he could buy an IRC where postage was cheap, such as Italy.
Then he could exchange it for postage that was more expensive, such as stamps in the
United States.
Then he could sell the stamps at a profit.
Amazingly, this was also legal.
He set up a stock company and started raising money from the public.
Charles promised he could double their investments in 90 days, so people happily invested.
He did pay them on time as promised.
Over the next year investments began arriving at an ever-increasing rate.
Charles Ponzi had to move to a bigger office and hired agents to help him keep up with
all the new investors.
By May 1920 he had made $420,000, which is equivalent to 5.4 million today.
By June people had invested 2.5 million in the scheme, or about 32 million in modern
dollars.
By the end of July Charles was making over a million dollars per day.
Charles Ponzi was also not picky about whose money he accepted.
Nearly 75% of Boston’s police force was invested in the scheme.
Working class immigrants, family, chauffeurs, and working children….
Charles Ponzi took money from them all.
And the only way he could pay the existing investors was using money from new investors.
Charles also lived a luxurious life during this time.
He owned several houses, purchased many businesses, and had bank accounts all over New England.
But was it sustainable?
Falling Apart
Charles Ponzi could only maintain his scheme if nobody looked too closely at what he was
doing.
Although he started the venture with a legal and profitable plan, the promises he
offered to investors were a mathematical impossibility.
For example, his initial eighteen investors provided $1800.
To pay the profits he promised them, it would have taken 53,000 international reply
coupons.
Eventually Charles had 15,000 investors in his company.
He would have needed several Titanic sized ships to carry coupons from Europe to the
US, assuming he was selling them.
So, this meant Charles Ponzi didn’t have a way to convert the coupons to cash.
The only reason it didn’t fall apart sooner is because most investors kept reinvesting
their profits.
A few people tried to warn the public.
A Boston financial writer suggested that Charles Ponzi could not possibly deliver such
high returns.
Charles sued him for libel and won a $500,000 judgement.
Libel laws at the time put the proof on the publisher.
So, Charles was safe from the press, if only briefly.
Joseph Daniels was a Boston furniture dealer who had previously given Charles furniture.
At the time Charles Ponzi couldn’t afford to pay for it.
So, Joseph sued, trying to get paid after the fact.
The lawsuit failed, but it did result in people wanting to know how Charles became
so rich so quickly.
People made a run on Charles Ponzi’s company wanting to cash out their investments after
the lawsuit.
He was able to pay them what they were owed and delayed the end of his scheme for
a little longer.
At the end of July, the Boston Post published a favorable article claiming Charles could
give a 50% return on investments after only 45 days.
Thousands of new investors were happy to give Charles Ponzi their hard-earned cash.
It more than made up for those he lost earlier.
Despite the favorable article, the Boston Post’s editor had already assigned reporters
to investigate Charles Ponzi and his schemes.
One financial journalist examined the details and noted that for Charles to cover his investments
there would have to be 160 million postal reply coupons in circulation.
In 1920 there were only 27,000.
This triggered a run on Charles Ponzi’s company.
Eventually he was no longer able to pay out to investors, and the banks would no longer
cash his checks.
The inner workings of his plan were clear for all to see.
Charles surrendered to federal authorities on August 12.
The collapse of his investment strategy closed five banks and bankrupted nearly all
the investors.
In total, about 20 million dollars were lost.
That is equivalent to 193 million dollars today.
More Prison
In two federal indictments, Charles Ponzi was charged with 86 counts of mail fraud.
He faced life imprisonment.
At the urging of his wife, Charles pled guilty.
The judge, before sentencing, said:
"Here was a man with all the duties of seeking large money.
He concocted a scheme which, on his counsel's admission, did defraud men and women.
It will not do to have the world understand that such a scheme as that can be carried
out ... without receiving substantial punishment."
Charles Ponzi was sentenced to five years in federal prison.
He was released after three and a half years.
Almost immediately, he was indicted on 22 charges of larceny from the state of Massachusetts.
Charles sued claiming it was double jeopardy to try him again for offences already listed
in his previous federal indictment.
The case went all the way to the US Supreme Court.
On March 27, 1922, the court ruled that federal plea bargains don’t have to be honored
by states.
And since he was being indicted on larceny, and the federal trial was for mail fraud,
it was not double jeopardy.
In October 1922 Charles was tried for the first 10 larceny counts.
He was broke and had to serve as his own lawyer.
Apparently, he did a good job as the jury acquitted him.
He was then tried on the next five larceny counts and the jury deadlocked.
He was tried again, and the third time was the charm.
Charles Ponzi was found guilty.
The sentence was an additional seven to nine years in prison.
Officials also became aware that Charles had never obtained US citizenship.
The federal government began proceedings to have him deported in 1922.
One Last Scam
Charles appealed his state conviction and was released on bail in September 1925.
He fled to Jacksonville, Florida where he started a real estate investment company.
He offered investors tiny tracts of land and promised 200% returns within 60 days.
He was selling worthless swampland.
In February 1926 he was indicted then convicted for violating Florida securities laws.
Charles appealed his conviction and was freed on bond.
Then he tried to make an escape.
He moved to Tampa, then shaved his head and grew a moustache.
Charles then tried to flee the country by working as crew on a merchant ship.
Somebody informed a deputy sheriff about this, who followed the ship to New Orleans.
There he arrested Charles.
Charles Ponzi was returned to Massachusetts to serve the remainder of his prison sentence.
He was released from prison in 1934 and was immediately deported to Italy.
Charles Ponzi’s wife, Rose, didn’t want to leave the US and divorced him.
Charles tried to create more schemes in Italy, but nothing worked out.
He eventually ended up in Brazil working as an airline agent.
The airline shutdown during World War II though.
Charles Ponzi lived his last few years in total poverty.
His health failed in 1941 and he had a heart attack.
By 1948 he was almost completely blind.
He died in a hospital in Rio De Janeiro on January 18, 1949.
Shortly before his death, Charles gave one last interview to an American reporter.
"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."
Most of the time, when we tell the story of a famous criminal, there are no redeeming
qualities.
But Charles Ponzi, aside from being a thief, did have some admirable characteristics.
He risked his life to save a fellow nurse he didn’t even know.
And during the time he was wealthy, he did give generously to charities and the poor.
Of course, he also ruined the lives of thousands of people by taking their money and losing
it.
So, Charles Ponzi won’t be winning any humanitarian awards.
It would also be comforting to think that people learn from the past and the schemes
of Charles Ponzi could not happen again.
But it’s just not true.
In 2008, Bernard Madoff used the exact same strategy to defraud investors.
He was far more successful than Charles Ponzi, taking in 18 billion dollars.
Relatively speaking, that is about 53 times the amount Charles was able to acquire.
Charles Ponzi, like most grifter trash, seems to be a natural by-product of civilizations
based on human frailty and the need to desperately cling to any shred of hope that you can get
out of your wrecked life circumstances.
If you disagree, fight me in the comments.
And thank you for watching Bad Things in History.