He was born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi in Lugo, Italy in 1882.
The term "Ponzi scheme" is a widely known description of any scam that pays early investors returns from the investments of later investors. Ponzi duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period in 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.
On November 15, 1903, he arrived in Boston aboard the S.S. Vancouver. By his own account, Ponzi had $2.50 in his pocket, 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 the New York Times.
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. He managed to work his way up to the position of waiter, but was fired for shortchanging the customers and theft. In 1907, Ponzi moved to Montreal and became an assistant teller in the newly opened Banco Zarossi, a bank started by Luigi "Louis" Zarossi to service the influx of Italianimmigrants arriving in the city. He was later jailed for forging a $423.58 check. After his release in 1911 he decided to return to the United States, but got involved in a scheme to smuggle Italian illegal immigrants across the border. He was caught and spent two years in Atlanta Prison.
When Ponzi was released he eventually made his way back to Boston. There he met and married a stenographer named Rose Maria Gnecco.
The Birth of Ponzi's Scheme
A few weeks later, Ponzi received a letter in the mail from a company in Spain asking about the catalog. Inside the envelope was an International reply coupon (IRC), something which he had never seen before. He asked about it and found a weakness in the system which would, in theory, allow him to make money.
The purpose of the postal reply coupon was to allow someone in one country to send it to a correspondent in another country, who could use it to pay the postage of a reply. IRCs were priced at the cost of po stage 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.
Seeing an opportunity, Ponzi quit his translator's job to set his scheme in motion. He borrowed money and sent it back to relatives in Italy with instructions to buy postal coupons and send them to him. However, when he tried to redeem them, he ran into an avalanche of red tape.
Undaunted, Ponzi went to several of his friends in Boston and promised that he would double their investment in 90 days. The great returns available from postal reply coupons, he explained to them, made such incredible profits easy. Some people invested and were paid off as promised, receiving $750 interest on initial investments of $1,250.
Soon afterward, Ponzi started his own company, the "Securities Exchange Company," to promote the scheme.
He began depositing the money in the Hanover Trust Bank of Boston (a small bank on Hanover Street in the mostly Italian North End), in the hope that once his account was large enough he could impose his will on the bank or even be made its president; he did, in fact, buy a controlling interest in the bank (through himself and several friends) after depositing $3 million. By July 1920, he had made millions. People were mortgaging their homes and investing their life savings. Most did not take their profits, but reinvested.
Ponzi was bringing in cash at a fantastic rate, but the simplest financial analysis would have shown that the operation was running at a large loss. As long as money kept flowing in, existing investors could be paid with the new money. In fact, new money was the only way Ponzi had to pay off those investors, as he made no effort to generate legitimate profits.
Ponzi lived luxuriously: he bought a mansion in Lexington, Massachusetts with air conditioning and a heated swimming pool, and he maintained accounts in several banks across New England besides Hanover Trust. He also brought his mother from Italy in a first-class stateroom on an ocean liner. She died soon afterward.
Ponzi's rapid rise naturally drew suspicion. On July 26, the Post started a series of articles that asked hard questions about the operation of Ponzi's money machine. The stories caused a panic run on the Securities Exchange Company.
On August 11, it all came crashing down for Ponzi. First, the Post came out with a front-page story about his activities in Montreal 13 years earlier--including his forgery conviction and his role at Zarossi's scandal-ridden bank. That afternoon, Bank Commissioner Allen seized Hanover Trust after finding numerous irregularities in its books. Although the commissioner did not know it, this move foiled Ponzi's last-ditch plan to "borrow" funds from the bank vaults after all other efforts to obtain funds failed.
With reports that he was due to be arrested any day, Ponzi surrendered to federal authorities on August 12 and was charged with mail fraud for sending letters to his marks telling them their notes had matured. He was originally released on $25,000 bail, but after the Post released the results of the audit, the bail bondsman withdrew the bail due to concerns he might be a flight risk.
The news brought down five other banks in addition to Hanover Trust. His investors were practically wiped out, receiving less than 30 cents on the dollar. The Post won a Pulitzer Prize in 1921 for its exposure of Ponzi's fraud.
In two federal indictments, Ponzi was charged with 86 counts of mail fraud. He was sentenced to five years in federal prison.
He was released after three and a half years and was almost immediately indicted on 22 Massachusetts state charges of larceny. Ponzi was found guilty at a third trial, and was sentenced to an additional seven to nine years in prison as "a common and notorious thief."
After word got out that Ponzi had never obtained American citizenship (despite having lived in the United States for most of the time since 1903), federal officials initiated efforts to have him deported as an undesirable alien in 1922.
Ponzi was released on bail as he appealed the state conviction. He went to the Springfield section of Jacksonville, Florida and launched the Charpon(an amalgam of his name) Land Syndicate, offering investors in September 1925 tiny tracts of land, some under water, and promising 200 percent returns in 60 days. In reality, it was a scam that sold swampland in Columbia County. Ponzi was indicted by a Duval County grand jury in February 1926 and charged with violating Florida trust and securities laws. A jury found him guilty on the securities charges, and the judge sentenced him to a year in the Florida State Prison. Ponzi appealed his conviction and was freed after posting a $1,500 bond.
Ponzi was released in 1934. With the release came an immediate order to have him deported to Italy. He asked for a full pardon from Governor Joseph B. Ely. However, on July 13, Ely turned the appeal down. His charismatic confidence had faded, and when he left the prison gates, he was met by an angry crowd. He told reporters before he left, "I went looking for trouble, and I found it."
Rose eventually divorced him in 1937.
In Italy, Ponzi jumped from scheme to scheme, but little came of them. Benito Mussolini gave him a job in the financial section of his government. However, he mismanaged things so badly that he was forced to flee to South America--but not before taking an undisclosed amount from the Italian treasury.
He eventually got a job in Brazil as an agent for Ala Littoria, the Italian state airline. During World War II, however, Brazil sided with the Allies, and the airline's operation in the country was shut down.
Ponzi spent the last years of his life in poverty, working occasionally as a translator. His health suffered. A heart attack in 1941 left him considerably weakened. His eyesight began failing, and by 1948, he was almost completely blind. A brain hemorrhage paralyzed his right leg and arm. He died in a charity hospital in Rio de Janeiro on January 18, 1949.