There was a time when the financial world marveled at the genius of Charles Ponzi,
the man who was in charge of one of the most successful business investments in
America. He had millions of dollars at his disposal and crowds of people lining
up literally begging him to take their money. Little did everyone know that Ponzi’s business
was built on nothing but lies. The whole thing was an outrageous scam,
one which turned Ponzi into a very rich man, but ruined the lives of thousands of innocent people.
Ponzi’s deception was so shocking and infamous that even now, a hundred years later,
the scam still shares his name - the Ponzi scheme. This video is the untold truth of the man behind
the scam, and how to make millions of dollars with nothing but lies.
Charles Ponzi
was born in Italy on March 3rd, 1882. His father was a hardworking postman,
and overall his family was financially comfortable - but it used to be much more than that.
Ponzi’s grandparents and great-grandparents had all been successful businessmen,
merchants, and public officials. The demotion to the working class really affected
Ponzi from a young age, and made him bitter and resentful. He wondered why he had to suffer for
his family’s failing fortunes? Why couldn’t he have been born rich and enjoy a life of leisure
without having to worry about a job or money? As a teenager, Ponzi inherited a modest sum of
money following his father’s death. He used it to enroll in college,
as his mother had her heart set on him going to a prestigious college to get an education.
But Ponzi had other plans. Instead of studying and going to class,
he decided to burn through his savings by dressing in the latest fashions and eating at the fanciest
restaurants in town. Then, at night, maybe the theater or the opera, or some gambling
at the casino with his wealthy friends. Nothing was too extravagant or too expensive for him.
Ponzi liked to pretend that he was just like his rich friends and that he had endless money,
but it was an illusion - and one day, it all came crashing down around him. His
inheritance money finally ran out. And since his studies had been completely neglected,
he had no chance of graduating. His uncle offered him work as a clerk,
but the idea of finding a 9-to-5 job repulsed Ponzi, who considered himself too good for menial
labor. He felt he had only one choice left - travel to America and strike it rich there.
In 1903, Ponzi arrived in Boston aboard the SS Vancouver. He felt a deep shame in his heart
that he let his mother down and believed that the only way to redeem himself was
to return to Italy as a rich man. The only problem was he had no idea how to do that.
America proved to be a much-needed reality check for young Ponzi. There was no more
inheritance money and no more relatives to bail him out of trouble. As distasteful as he found
physical labor, he had no choice - if he wanted to eat, he needed to work. Ponzi spent the next
few years up and down the east coast, from New York to Florida. He worked as a sign painter,
a waiter, a grocery clerk, a dishwasher, a factory hand, an insurance salesman,
and a sewing machine repairman. None of the gigs lasted long though. Ponzi either quit
because he hated the work or he was fired because he tried to cheat the customers.
This often meant he resorted to stealing or begging for scraps of food and sleeping in
parks. It was a far cry from his carefree days as a high-roller back in Rome,
and even when Ponzi did manage to scrape together a bit of cash, he would inevitably spend it all
on a big night out or a weekend vacation to remind himself of the good old days.
In 1907, Ponzi traveled to Montreal, hoping that Canada would prove to be more welcoming
and lucrative. And at first, things were looking up for him. He found work as a clerk at a bank
that mainly served Italian immigrants called Banco Zarossi. It was the same type of job that
Ponzi had turned down back in Rome because he considered himself too good for it, but it was
surprising how a few years on the streets working for minimum wage could change his perspective.
Unfortunately for Ponzi, his new job did not last long because his boss was a con man. Zarossi was
using an age-old fraud known as “robbing Peter to pay Paul.” In other words, he was using the
money from his newest clients in order to pay off his older ones. This allowed Zarossi to offer 6%
interest rates on all deposits, which was double the average rate, however his clients started
getting suspicious when their relatives back home kept complaining that they were not receiving the
money the bank was supposed to send. In mid-1908, the authorities began investigating the bank for
embezzlement, at which point Zarossi filled a suitcase with all the cash he could carry and
fled to Mexico, leaving his employees and his family to deal with the fallout from his scam.
Not wanting to be the one who takes the fall, Ponzi intended to travel back to the United
States so he didn’t have to be involved in the investigation and fallout from Zarossi’s scam. But
before that, he did something very stupid. So that he would not have to start from scratch again,
he thought that he would give himself a little “going away present” by forging a check from one
of his bank's clients, a shipping firm called the Canadian Warehousing Company. Ponzi stole a blank
check from the manager’s checkbook and filled it out for $423.58. A believable and unsuspicious
amount, thought Ponzi, but as soon as he tried to cash the fraudulent check, the bank teller
easily spotted the fake signature and alerted the police. Ponzi got three years in prison at Saint
Vincent de Paul Penitentiary. But of course, this was just the start of Ponzi’s crimes.
Ponzi was released on parole after two years, and he immediately made plans to travel to the
States again, but he didn’t go alone. Instead, he took with him five Italian immigrants, all fresh
off the boat without any proper papers, as he had been paid to smuggle these men into America. Ponzi
figured this would set him up with a nice quick payday now that he was a free man again. However,
he got caught, and was arrested once again. Still, Ponzi hoped that if he pled guilty,
the judge would go easy on him and let him off with a small fine. But
once the judge banged his gavel and passed sentence, Ponzi’s heart sank - he was given
another two years in a federal prison in Atlanta. After being released from jail for a second time,
Ponzi was unsure of his next move. He had come up with all these different plans to
get rich while in prison, but they all required money, and Ponzi was penniless.
Therefore, with little choice, he wandered from state to state again,
working whatever odd jobs came his way. Ultimately, he found a decent position
as a clerk with an import-export business called the J. R. Poole Company in Boston,
so after a decade-and-a-half in North America, he ended up in the same place where he began.
Life in Boston was decidedly better for Ponzi the second time around though. He was good at his job,
for a change, and was promoted for it. Not just that, but Ponzi met 21-year-old Rose Gnecco and
instantly fell head over heels for her. The first time they spoke, Ponzi was so nervous
that he could barely string two words together. Fortunately for him, the feeling was mutual,
and the two got married in early 1918. His new married life made Ponzi feel happy,
but he also felt inadequate. Even though Rose was content with a simple life, Ponzi had much grander
ambitions. He wanted to be able to shower her with diamond rings, fancy clothes, and expensive
holidays. Obviously, this was never going to happen on a clerk’s salary so, six months after
the wedding, Ponzi quit his steady job at J. R. Poole and began looking for something new to do.
He started off by joining his father-in-law’s wholesale fruit selling business. The company
was struggling and since Ponzi always bragged to his wife about being a financial genius, this was
the time for him to show everyone what he can do. However, Ponzi was unable to save the failing
business, and instead it went bankrupt by the end of the year.
Undeterred by his recent failure, Ponzi rented a small office to start his own import and export
business. But the world at large took no notice of him. Ponzi lacked the experience and the
contacts to attract any serious business. However Ponzi refused to believe he was the
problem - and thought that maybe he just needed to advertise his services more;
unfortunately a few quick calculations made him realize that the costs were well outside
his reach. Just like that, Ponzi’s import and export business became another failed venture.
The only silver lining for Ponzi was this failure had already given him his next idea.
When Ponzi saw how much money it would cost him to publicize his services,
he thought that maybe he should publish his own trade magazine, so that other companies would pay
him the same kind of giant advertising fees. Ponzi had zero experience when it came to
publishing, but in his mind, this was already a million-dollar business idea. He would call his
magazine the Trader’s Guide and he would send it for free to 100,000 companies, doubling the
circulation number with each new issue. According to Ponzi’s calculations, his initial mailing would
cost him around $35,000, but he would make $80,000 in advertising income since he was certain that
companies would be lining up around the block to publicize their services in his magazine.
Certain of success, Ponzi rented a much larger office and hired three staff members.
And then he began writing and writing and writing to investors and business owners
about the possibility of getting involved with the first-ever issue of the Trader’s Guide.
Then reality came crashing down on Ponzi like a ton of bricks. Nobody was interested. Nobody
cared about his obscure little trade magazine and they certainly were not willing to pay
his exorbitant rates to get featured in it. Then, when Ponzi went to his local bank to
get a loan because he was almost out of money, he got another harsh dose of reality when the
bank president refused his application on the spot, telling him that he would rather close
Ponzi’s account than loan him a single dollar. These were bitter pills to swallow for Ponzi
and left with little choice, he had to fire his staff and sublet his office space to earn some
money. But his dreams and ambitions remained as powerful as ever, and Ponzi hoped that his next
idea would be the one that would make him rich. One day in August 1919, Ponzi was going through
his mail when he spotted a letter from Spain. Back when he still thought that the Trader’s Guide
would become the next big thing in advertising, Ponzi was not content with simply doing business
in America. He envisioned that his guide would be translated into French, German, Italian,
Spanish, and Portuguese and that he would expand his business into Europe. And thus,
he’d contacted many foreign companies about the possibility of doing business together, and it
seems that at least one of them was interested. The Spanish author of the letter requested a copy
of the Trader’s Guide and, to pay for postage, he included something that Ponzi had never seen
before - an international reply coupon, or IRC. IRCs were prepaid coupons that could be bought
and exchanged for postage stamps in any country that was a member of the Universal Postal Union.
They were commonly used by people who sent letters internationally to cover the costs of
a return letter when they were not expecting the other person to pay the postage. But for Ponzi,
they were a bolt of inspiration, and were about to change his life forever.
Years earlier, Ponzi had learned about the concept of arbitrage,
the strategy of buying and selling an asset in different markets in order to take advantage of
the price difference and make a profit. In the case of IRCs, they were always exchanged for the
same postage value regardless of the country, but they were purchased at slightly different prices,
depending on fluctuations in the local currency. So in theory, Ponzi could buy an IRC in Italy,
where the lira had taken a serious hit after the war, and then redeem it in the United States for
American postage stamps where he knew the dollar value would be slightly higher. He would then
sell those stamps and make a tiny profit. Then, by scaling the operation to thousands, even millions
of IRCs, he was looking at some serious money. This was Ponzi’s new business plan and, on paper,
it seemed not only like a good idea, but also perfectly legal. Arbitrage was a sound
investment tactic that had been in use for centuries. So in January 1920 Ponzi started
a new company to handle what seemed to be his most promising business venture yet - and
he called it the Securities Exchange Company. Unfortunately for Ponzi, like many times before,
reality came in to crush his hopes and dreams. The truth was that the profits from the arbitrage of
IRCs were so small that they would be completely wiped out by the costs of shipping the IRCs from
one country to another. There literally were not enough IRCs in the entire world to sustain
the kind of operation that Ponzi was imagining. And yet, he refused to let go of this idea. Ponzi
was convinced that this was his golden goose, his one-way ticket to the life of wealth and
luxury that he always felt he deserved. So when the legitimate business proved unsustainable,
he turned his idea into the infamous Ponzi scheme that shares his name.
After all, his plan to arbitrage IRCs sounded really good. So even though it actually wasn’t
good at all, maybe he could convince other people it would work, and take their money.
Now, at its core, the Ponzi scheme is similar to the classic fraud “robbing Peter to pay Paul”
which Ponzi saw firsthand back when he was working for Banco Zarossi. It involves getting people to
invest in a business opportunity by promising them huge returns, in a short amount of time,
with little to no risk. However, their money never really gets invested. Instead,
the fraudster keeps most of it for themselves, whilst giving some of the
profits to earlier investors. When these early investors see such large returns,
most of them agree to reinvest their profits back into the business to make even more money,
thinking it all seems to be working as advertised. Many of them even tell other people about the
opportunity as they believe the earnings are perfectly legitimate. But in reality, all that’s
happening is those earlier investors are getting paid using some of the money from new investors.
It is a very simple but effective system that preys on people’s greed and financial naivety,
but it requires a constant flow of new funds in order to keep the scam going.
As soon as the fraudster can’t find enough new investors to pay off the returns to his
older investors, the con usually falls apart. Even though the scheme was named after Ponzi,
he was not the first one to do it. A New York bookkeeper named William Miller used the same
technique to con investors out of $1 million dollars back in 1899. And outside of America,
a German actress named Adele Spitzeder may have operated the first-known Ponzi scheme
in history in the early 1870s. However, Ponzi took the idea to a whole new level.
With the holidays approaching, we all know most people put off shopping until the last
minute. And if you have an online store, or you sell anything online, you know the feeling of
getting hit with a ton of orders all at once. When you’re buried in orders and emails from stressed
customers, you’ll wish you had ShipStation. ShipStation works with all your favorite
places to sell online, including Amazon, Etsy, eBay, Shopify, and more. You can manage every
order from one simple dashboard, automate routine shipping tasks, print shipping labels, and easily
compare rates and delivery times to make sure you’re getting the best deal on every shipment.
Basically, you’ll save time, money, and stress during the holiday rush.
Plus it’s so easy to get started with Shipstation - you can get setup within
minutes. And since Shipstation is sponsoring this video, they’ve agreed
that if you use my link below, you’ll get two months to try it completely for free.
So, this holiday season, give yourself the gift of stress-free holiday shipping. Go to
ShipStation.com/magnates today and sign up for a FREE 60-day trial, and start saving time and
money on every shipment. That’s ship station dot com slash magnates to get started now for free.
Using his system, Ponzi offered investors a staggering 50 percent return in 45 days,
or a 100 percent return in 90 days. He claimed to have a vast network of agents all over the world
who were buying IRCs in bulk and shipping them to America. If pressed for any details on his
operation, Ponzi would refuse to divulge any information, simply claiming that he couldn’t
share all the details of how exactly it worked, as then it could potentially help his competition.
Most banks, companies, and serious investors stayed away from Ponzi. They knew when something
was too good to be true and, in fact, almost anyone who knew a thing or two about finances
could tell that it was impossible for Ponzi to deliver on his promises. But they were not the
ones that Ponzi targeted. He wanted the people who used to be just like him, with more dreams
than common sense, who were always looking for the best way to get rich quick. This meant he preyed
on the people with very little financial literacy - often people in desperate need of money fast.
Ponzi understood that his true talent was not dealing with finances, but dealing with
people. He knew how to sell his business without appearing too eager or aggressive,
as if it made no difference to him whether he got their money or not. Ponzi started out
with the people in his own neighborhood and got 18 of them to invest in his first month. Once
they were all paid their first round of profits, word started spreading fast and soon thousands
of people began crowding the streets outside Ponzi’s office, desperate to invest their own
money in this seemingly surefire opportunity. Month after month, Ponzi gained more and more
clients, raking in over $250,000 a day at the peak of his operation. The Boston Post hailed him
as a financial genius, which gave him yet more perceived credibility and thus more investors.
Soon, Ponzi was finally able to live the life that he had always dreamed of. He moved into a
giant mansion, bought a fast car, dressed only in expensive clothes, wore gold watches and diamond
pins, and went on lavish first-class trips. It was the lifestyle that Ponzi always felt he deserved,
but he did not get to enjoy it for long. By the start of the summer, less than six months
after Ponzi launched his new venture, there were rumblings of doubt about his business. Initially,
everyone was afraid to say anything, since Ponzi had successfully sued a financial analyst for
libel who’d accused Ponzi of lying. After all, many early investors had been paid already, which
Ponzi said was proof everything was legitimate. But then the Boston Post, the same newspaper
that once proclaimed Ponzi a genius, started to investigate his operation. They brought in
Clarence Barron, President of Dow Jones and manager of the Wall Street Journal,
who spotted the obvious scheme. By his calculations, Ponzi would have needed to
purchase 160 million IRCs, and yet there were only 27,000 in circulation in the whole world.
In July 1920, the Post presented Barron’s conclusions on the front page of the newspaper,
decrying Ponzi as a fraud and prompting an investigation into his company. But the wheels
of justice turn slowly and Ponzi was able to ease the concerns of government officials by
cooperating fully and even saying he’d stop taking in new investments while he was under scrutiny.
But then Ponzi caused his own downfall by hiring William McMasters as his publicist. Unlike Ponzi,
McMasters was an honest man who soon realized that his client was a fraud. He later said “Ponzi
is a financial idiot. He can hardly even add up! He sits with his feet on the desk
smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons."
With access to Ponzi’s records, McMasters collected the evidence
he needed and went to the Boston Post, where he wrote a Pulitzer Prize-winning
exposé detailing all of Ponzi’s secrets. This time, the game was really up and the
Ponzi scheme collapsed. Several banks had to declare bankruptcy, tens of thousands of people
lost their life savings, and Ponzi himself was indicted on 86 counts of mail fraud.
However, the conman managed to strike a deal, and pleaded guilty to only a single charge of
mail fraud, receiving just five years in federal prison. A relatively small amount
given the huge amount of money stolen and the vast amount of lives he ruined.
Ponzi was released after three-and-a-half years in prison, and this time, he was finally a changed
man and ready to do some good in the world. I’m just kidding, he literally tried a new
scam immediately after getting released. Ponzi knew that the government wanted
to either deport him to Italy or imprison him again on larceny charges,
so he fled to Florida where he planned to essentially repeat the Ponzi scam again.
He started a new company - the Charpon Land Syndicate - and sought people to invest in
property around Jacksonville. He offered even higher gains than before - saying he
could get people a 200 percent return in just 60 days. The only problem was that the property
he was selling was worthless swampland. This time though, there were no takers.
Ponzi’s fraud was soon exposed and he risked being sent to Massachusetts
where a lengthy sentence awaited him. Not wanting to go back to prison yet again,
Ponzi changed his look and tried to travel to Italy as a sailor aboard a cargo ship. However,
he was recognized and arrested in New Orleans. Ponzi was now a desperate man.
He wrote to President Calvin Coolidge asking for mercy. He even appealed to Mussolini to
intervene on his behalf, but of course, nobody listened. It was the end of the line for him.
Ponzi served another seven years in prison, and the man who came out was not the same as the one
who went in. Ponzi was a broken mess who had lost all the charm and confidence that once made him so
rich. As he faced deportation to Italy, his wife chose to stay behind in America and divorced him.
Ponzi spent the rest of his years in poverty, with only memories to comfort
him of the times when he had it all. He ended up in Rio de Janeiro, where
he died in 1949 in a charity hospital and was buried in a pauper’s grave,
thus bringing to an end one of the most notorious tales of rags-to-riches-to-rags in history.
However in terms of the amount of money Ponzi conned people out of, he’s actually not one
of the biggest financial fraudsters. If you wanna know about the guy who stole billions of dollars,
and then partied with celebrities like Leonardo DiCaprio, and made the wolf of wall street with
the stolen money - check out the absolutely insane story of Jho Low. Just click the thumbnail here
now, as it’s an awesome story and I think you’ll love it. I’ll see you there. Cheers.