Charles Ponzi History

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Charles Ponzi and his scheme

The sensational rise and fall of Charles Ponzi attracted some attention this side of the Atlantic. The Times christened him the "whirlwind financier", and on July 28, 1920, reported on an amazing "get-rich-quick" scheme :

An amazing "get-rich-quick" scheme, whereby Mr Charles Ponzi, a short time ago a relatively poor man, now estimates his wealth at upwards of £1,700,000, has attracted the attention of the public authorities of Boston.
The extraordinary feature of the case is that the authorities are not at all certain that Mr Ponzi's operations are in any way illegal, and have only called a halt until his accounts, which run into millions of dollars, can be audited.

Unabashed, a couple of weeks later, Ponzi had an irresistible offer for the public:

Mr Charles Ponzi, of Boston, whose manipulation of the foreign exchange market has been a nine days' sensation, will launch his new co-operative world trading scheme on Monday ...

It is estimated that Mr Ponzi has paid out more then $1,000,000 and in every case the holders of matured notes have received 50 per cent of interest

Ponzi had started off his scheme by using variations in foreign exchange rates to trade in international reply coupons, but there was now no end to the variety of investment areas on offer:

Mr Ponzi's new ventures include the importation of diamonds on a large scale, the exportation of a cheap motor-car to be known as the " Wales," the establishment of shipping lines, and of a chain of banks.

According to Mr Ponzi, enormous profits can be made by the purchase of diamonds in Italy at 500 lire per carat, which at the current exchange, and with the import duty added, would mean about $40 per carat here, or one-fifth of the actual market value.

Although Ponzi's activities had come to the attention of the federal authorities, they had failed thus far to find any irregularities. Imitators were quick off the mark:

The Ponzi ghost appears already to have stalked from Boston to Broadway. A hitherto unknown concern, the Montgomery-Macdonald Company, has opened offices and sent out thousands of circulars, principally among theatrical folk, offering 30 per cent return on investments within 60 days. Members of the firm decline to explain the process making quick returns possible, except to say that they "were taking advantage of the retreat of the Polish Army and the general effect of that retreat upon European currency and credit".

Hmmm.

The authorities were still confused. Ponzi claimed that the investigation was being carried out at his own request, to reassure investors that his business was kosher. But then the fall came quickly:

The whirlwind financial career of Mr Charles Ponzi, the "money wizard" of Boston, who for weeks has been astonishing the public and the authorities alike by his 50 per cent returns on six-week loans, is likely to be a prosaic one. Three creditors have brought bankruptcy proceedings against him and Mr Joseph C. Aen, State Bank Commissioner, has ordered the Hanover Trust Company not to pay any more money on the cheques of Ponzi or his agents. Mr Ponzi remains undisturbed, advising investors to keep their heads until the proceedings are finished.


Mr Ponzi surrendered yesterday to the Federal authorities just in time to prevent his arrest by the State officials. It is said that the completed audit of Mr Ponzi's affairs will show a deficit of at least £600,000. It is estimated that during the past six months he received from investors nearly £2,500,000, that in the fortnight since the run on his bank began he paid out about £1,500,000, and that his securities, realty, and other assets amount to perhaps £800,000.


The statement by the Federal auditor that Mr Ponzi's accounts would show a deficit resulted in scenes almost approaching riot. The streets of South Boston were filled with hundreds of Poles, Italians, Greeks, and Lithuanians who had entrusted their savings to his charge.

Ponzi, by this time, had aquired celebrity status:

Throughout the legal proceedings Mr Ponzi maintained his wonted assurance. The streets surrounding the Court House were filled with persons eager to catch a glimpse of the financial "wizard". Sentiment towards him was by no means hostile ; many persons expressed the opinion that he was being persecuted, and would, if given a fair chance, pay off his debts.

And when his arrest finally came it had to have been in front of a crowd:

Mr Ponzi was arrested by Federal officials this afternoon on a charge of using the mails with intent to defraud. The arrest took place before a crowd of persons who bad held his notes. He was released an hour later on £5,000 bail. He declares that he is solvent, but the I authorities insist that his indebtedness now runs into millions of dollars.