Charles Ponzi - Famous Swindler

A con man is a very particular kind of criminal. He, or she, rarely uses violence to achieve goals. Violence would be a sign of failure. The con artist depends on psychological tricks to fool or defraud victims. This might mean dressing well to give the impression of success; or faking a newspaper photo to show oneself next to important public figures; or arriving everywhere in an expensive car driven by a chauffeur. What the con artist tries to build in others is confidence (hence 'con' artist) or trust so that, sooner or later, they will hand their money over.

Over the years, con men using very elaborate schemes have sold the Brooklyn Bridge and the Empire State Building many times. The Eiffel Tower in Paris has been sold fraudulently seventeen times – that the police know about. Another con man even sold the Taj Mahal in India. And, one very brave or very foolish American con man sold Al Capone, the murderous Chicago gangster, a machine that printed dollar bills. More truthfully, it was a box with a few mint condition dollar bills hidden inside. One fed the machine with dollar-sized pieces of paper and 'perfect' dollar bills came out of the other end.

However, perhaps the purest form of con artist is the one who relies on 'chat'; in other words, a smooth talker with the ability to persuade rich and even intelligent men and women to let him look after some of their money. One such person was Charles Ponzi, who, though he ultimately failed, had the questionable honour of having a whole kind of fraud named after him: the Ponzi scheme.

Carlo Pietro Giovanni Tebaldo Ponzi walked the deck of the trans-Atlantic liner and surveyed Boston as he approached it from a grey sea. This was the land of opportunity. Here, a man could reinvent himself and be what he wished. And Carlo needed to reinvent himself. Neither hard-working nor especially honest, back in his native Italy he had got off on the wrong foot. He had gone to La Sapienza University in Rome but had fallen in with a fast crowd who saw their degree as a 'four-year holiday'. He drank champagne, went to over-priced restaurants and attended the opera. In short, he learned to live beyond his means and take money where he could find it. As he had a lot of charm, it came easily to him.

Now, on 15th November, 1903, his life in America would begin. He had only $2.51 in his pocket. Typically, he had gambled his life's savings and lost them on the ship from Italy. He learned English quickly and, within a few years, he was working as a waiter – until he was fired for stealing and for short-changing customers.

Despite this, he managed in 1907 to get a job in Canada with a bank especially for Italian immigrants. This bank, the Zarossi, somehow paid double the current interest rate and, as a direct result, was growing very quickly. Because of this rapid expansion, Charles Ponzi was soon a manager and senior enough to know that the bank's owner, Louis Zarossi, could only make his generous interest payments by illegally taking money from newly opened accounts. And there were always lots of newly opened accounts. After all, Zarossi bank paid 6% not 3% and there were plenty of customers who had seen their interest paid in full and on time. No-one, outside the bank, was quite sure how Zarossi was managing to keep this boom going but, at double interest in cash, no-one was asking any questions.

The growth and the interest rates were unsustainable and the bank failed. Zarossi, cunning as a fox, escaped to Mexico with most of the bank's money. Ponzi found himself suddenly penniless and without a job. He went to the offices of a bank client and, finding no-one there, he stole and wrote out a cheque for $423.58. The police soon caught him because he went on a spending spree and so gave himself away. The Canadian judge gave him three years to think about his mistakes and learn by them. This is what Ponzi tried to do with his prison time.

However, his reflections were not a success. He had meant to return to the U.S.A. after his release from Canadian prison but, when he did get out, he became side-tracked by a scheme to smuggle Italian illegal immigrants into the States. He got caught very quickly and was sent back to prison for another two years of quiet reflection.

This time, he returned to Boston after his release and quickly married Rose Maria Gnecco. Ponzi's own mother actually wrote to the young woman warning her against her son and revealing his past and his time in prison. But Charles Ponzi's personality won the day and she married him anyway. Ponzi began to try his hand at a couple of legal but unorthodox businesses. They failed but, by chance, he noticed a loophole that he thought could make him big money.

In those days, companies sending catalogues through the post to sell their products would include 'international reply coupons'. These allowed customers to get stamps to post their orders from one country to another for free. What Ponzi noticed was that, because of war-time inflation (this was during the First World War of 1914 - 1918), stamps cost less in Italy than than they did in the U.S.A. All Charles Ponzi needed to do was to get friends and family back in Italy to buy large amounts of postal reply coupons and send them to him in the post. He would exchange them for stamps from the U.S. Post Office and sell them for more than the coupons had cost in Italy. Multiplied by hundreds of thousands, the profits would be fat.

How could it go wrong? Anyway, it wasn't even illegal. Ponzi had checked that with a lawyer so he could set up a public company to handle the business. And, so long as he had a registered company, people could invest in it if they wanted to. Ponzi asked people and many of them did want to invest. He began to collect very large amounts of money from people.

In the meantime, the postal reply coupons scheme had come unstuck: the authorities would not exchange the coupons posted to him from Italy until he had satisfied a very complicated process of paperwork. Ponzi was starting to learn that the U.S. Postal Service was not as stupid as he would wish. But it really didn't matter now. He just paid his investors with the money from later investors, just like his former boss Zarossi used to do.

And the investors would almost never take their capital or profits back, instead begging Ponzi to keep it and reinvest it for them. People began to mortgage their houses and businesses just to have more cash to give to Charles Ponzi. He set up more companies, he bought entire banks. The rate of growth was too good to be true and one or two of the more serious financial journalists began to point this out but their warnings fell upon deaf ears. This was the 1920s in America, a time of infinite financial possibilities.

In fact, a bright schoolboy with a pencil and paper could have shown how Ponzi's profits and growth were a mathematical impossibility but when one journalist wrote to this effect, Ponzi sued him and won $500,000. Now, no-one dared to challenge his success or ask too many questions.

Nonetheless, by the mid-1920s things looked very precarious. A financial expert who analysed Ponzi's business pointed out that Ponzi himself did not invest in it. Rumours spread like wild fire. The U.S. Post Office said that no-one was buying postal reply coupons in large numbers. Then, in August, came the bombshell. The 'Boston Post' newspaper led with the full story of Charles Ponzi's time in Canada thirteen years before, including his time in prison and his frauds.

The next day, Ponzi surrendered to U.S. authorities and was charged with the somewhat technical offence of postal fraud. The news caused five banks to collapse and left hundreds of thousands of people in desperate financial problems, with no savings for their old age. The judge sentenced Ponzi to five years in prison.

When he got out of prison, Ponzi ran away to Florida to avoid being deported by the U.S. government. He was still an Italian citizen. From Florida, he started another con: selling useless land in swamps for people to build on. This time Ponzi served seven years in prison and was then deported back to Italy.

In Italy, he jumped from one thing to another and then travelled to Brazil to represent an Italian airline there. Just a few years later, the Second World War began. Brazil and Italy were on opposing sides and the Italian airline had to close. Ponzi wrote his autobiography while his health was failing. And he got poorer until, on 18th January 1949, he died in a charity hospital in Rio de Janeiro. He was sixty-six years old.