Ponzi: The Financial Idiot Who Scammed the World

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 that ruined the lives of thousands of innocent people. Ponzi's deception was so shocking and infamous that even now, 100 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 [Music] [Music] 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 so 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 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. 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. [Music] In 1903, Ponzi arrived in Boston aboard the SS Vancouver. He felt a deep shame in his heart that he'd 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. 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. At first, things were looking up for him. He found work as a clerk at a bank that mainly served Italian immigrants called Bano Zosi. 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. Zosi 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 Zosi to offer 6% interest rates on all bank deposits, which was double the average rate.

However, his clients started getting suspicious when their relatives back home kept complaining they weren't receiving the money the bank was supposed to send. In mid-1908, the authorities began investigating the bank for embezzlement, at which point Zosi filled a suitcase with all the cash he could carry and fled to Mexico, leaving his employees and the family to deal with the fallout from the 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 Zeri's scam. But before that, he did something very stupid so that he wouldn't have to start from scratch again: he thought 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, full, 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 3 years in prison at St. Vincent de Paul Penitentiary. But of course, this was just the start of Ponzi's [Music] crimes. Ponzi was released on parole after 2 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'd 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 pleaded guilty, the judge would go easy on him and maybe just let him off with a small fine. But once the judge banged his gavel and passed the sentence, Ponzi's heart sank. He was given another 2 years in federal prison in Atlanta. After being released from jail for a second time, Ponzi was unsure of his next move. He'd come up with all these different plans to get rich whilst 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 Jr. Pool Company in Boston.

So after a decade and a half in North America, he'd 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 Jano 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, 6 months after the wedding, Ponzi quit his steady job at Jr. Paul 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 could 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-export business instead, 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 of 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 had seen 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 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 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 on 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 he'd rather close Ponzi's account than lend 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 to 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 the Trader's Guide would become the next big thing in advertising, Ponzi was not content with simply doing business in America. He'd envisioned that his guide would be translated into French, German, Italian, Spanish, and Portuguese, and that he would expand his business into Europe. He'd contacted many foreign companies about the possibility of doing business together, and it seemed 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.

IRC's were prepaid coupons that could be bought in exchange 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 cost of a return letter when they weren't expecting the other person to pay the postage. But for Ponzi, they were a bolt of inspiration and were about to change his life [Music] 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 IRC's, they were always exchanged for the same postage value regardless of the country, but they were purchased at slightly different prices depending on the fluctuations in 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 IRC's, he was looking at some serious money.

This was Ponzi's new business plan, and on paper, it seemed like not only 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 IRC's were so small that they would be completely wiped out by the cost of shipping the IRC's from one country to another. There literally were not enough IRC's 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 he'd 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 IRC's 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 of robbing Peter to pay Paul, which Ponzi saw firsthand back when he was involved working for bankgoar Rossi. 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 while 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 early investors are getting paid using some of the money from new investors. It's a very simple but effective system that preys on people's greed and financial naivety, and 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 of 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 back in 1899, and outside of America, a German actress named Adal Spitzer may have operated the first known Ponzi scheme in history in the early 1870s. However, Ponzi took the idea to a whole new level.

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Using his system, Ponzi offered investors a staggering 50% return in 45 days or a 100% return in 90 days. He claimed to have a vast network of agents all over the world who were buying IRC's 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 exactly how it worked, as then it could potentially help his competitors. 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 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 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 sure 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 even more perceived credibility and the more investors.

Soon, Ponzi was able to live the life he'd 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 life that Ponzi always felt he deserved, but he did not get to enjoy it long. By the start of the summer, less than 6 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 had 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 Jones and manager of the Wall Street Journal, who spotted the obvious scheme. By his calculations, Ponzi would have needed to purchase 160 million IRC's, 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 turned slowly, and Ponzi was able to ease the concerns of the government officials initially by cooperating fully and even saying he'd stop taking 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 total 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 all of Ponzi's records, McMasters collected the evidence he needed and went to the Boston Post, where he wrote a Pulitzer Prize-winning expose 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 con man managed to strike a deal and pleaded guilty to only a single charge of mail fraud, receiving just 5 years in federal prison, a relatively small amount given the huge amount of money stolen and the vast amount of lives ruined. [Music] Ponzi was released after 3 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 felony charges, so he fled to Florida, where he planned to essentially repeat the Ponzi scam again. He started a new company, the Sharon Lane Syndicate, and sought people to invest in property around Jacksonville. He offered even higher gains than before, saying he could get people a 200% return in just 60 days. The only problem was that the property he was selling was worthless swamp land. 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, 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 7 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 poor grave. Thus, bringing an end to 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 is actually not one of the biggest financial fraudsters. If you want to 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 Jordan Belfort. Just click the thumbnail here now, as it's an awesome story and I think you'll love it. So, we'll hopefully see you there.