More affable scoundrel than kingpin of crime, Charles Ponzi sits astride criminal history as the man who gave his name to Ponzi schemes. A Ponzi scheme is a swindle based on a financial pyramid unsecured by any actual assets. The incremental maths is remorseless: by the 20th round of investment, a Ponzi scheme that starts with 1,000 participants will need more new investors than the entire population of the USA. Such pyramid schemes have always existed, but it wasn’t until 1920 that they became a genre with a name.
Charles Ponzi’s humdrum career as a petty criminal changed gear in 1919 when he realized that, thanks to the discrepancy in currency exchange rates, an International Reply Coupon (IRC) from Spain, worth five cents, could be exchanged for its US equivalent, worth ten cents. Multiply by hundreds of thousands, and serious money could be made. Ponzi invited ‘friends and neighbors’ to invest in IRCs via his new Securities Exchange Company (several years before the US government used a similar name!) with a guarantee of 50 per cent profit in 45 days. It was too easy. Money poured in after the first investors were paid in full. Ponzi stopped bothering with IRCs, because he made so much money just holding the money in the bank.
By July 1920, after just seven months, he was making $250,000 per day. Sudden wealth turned his head and attracted notice: the US Postal Service realized that for Ponzi’s company to be solvent, 160 million IRCs should be circulating against the 27,000 registered. Arrested in August and tried for fraud in October, Ponzi almost sweet-talked his way out of trouble – and even his victims (perhaps ashamed to admit their own gullibility) defended him, convinced that if he were left alone, his Midas touch would somehow restore their bilked millions. Ponzi was a very plausible crook.
Charles Ponzi’s Securities Exchange Company fraud happened at: July 1920
Where was Charles Ponzi’s Securities Exchange Company located: Boston, USA
What was Charles Ponzi’s Securities Exchange Company toll: 17,000 investors got taken for a ride.
You should know: One of the most brazen Ponzi schemes operated in China between 1999 and 2007. its perpetrator, Wang Fengyou, persuaded thousands of dirt-poor farmers to invest 10,000 yuan ($1,500) in boxes of ‘special ants’, which had to be kept and fed for 74 days according to very strict rules (the most important being never, ever, to open the box!) and were then collected to be ground and sold as aphrodisiacs in pharmacies across China. Wang’s company achieved a turnover of 15 billion yuan ($2 billion) before it was exposed as a pyramid racket.