July 5, 2025 • 27 mins
HISTORY : The Ponzi Scheme
There have many people who have committed the financial fraud called a Ponzi scheme over the years, but where did the name come from? This video explains the history of the scam and exactly who Charles Ponzi is.
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There have many people who have committed the financial fraud called a Ponzi scheme over the years, but where did the name come from? This video explains the history of the scam and exactly who Charles Ponzi is.
Our Regular Merch Hosted by FourthWall! : https://thisismonsters.com/
GTFOH Doormats : https://this-is-monsters.printify.me/
Socials:
LinkTree : https://linktr.ee/thisismonsters
Instagram : https://www.instagram.com/thisis_monsters/
Threads : https://www.threads.net/@thisis_monsters
My other shows:
This is Monsters YouTube : https://www.youtube.com/@thisisMONSTERS
Vlog : https://www.youtube.com/@jileswithaj
Somewhere Sinister Podcast :
Somewhere Sinister YouTube : https://www.youtube.com/@SomewhereSinister
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Identifying something is too good to be true generally means
it is It's uncommon for there to be a perfect
scenario that always makes you money with zero risk. It's
the nature of every get rich quick scheme out there.
Opportunities to make money by doing little physical work exist,
but they usually come with a higher degree of risk.
(00:23):
That's what separates a legitimate financial investment from a Ponzi scheme.
The fact that the investment is described as no risk
is the first red flag that anyone looking to invest
their money should notice. Charles Ponzi was not the first
person to have swindled investors by simply paying off existing
(00:44):
clients with the money brought in from new clients. In
the book The Notorious Missus Clem Murdering Money in the
Gilded Age by Wendy Gamber, the author claims that Nancy
Clem carried out the first Ponzi scheme in eighteen sixty eight.
Another example is recorded in Munich, Germany in eighteen sixty nine,
(01:04):
and it happened a few more times throughout the rest
of the nineteenth century. But it was Charles Ponzi in
nineteen twenty who carried out the fraud on such a
large and noticeable scale that his name would go down
in history as being synonymous with financial fraud. Carlo Pietro
(01:47):
Giovanni Gulielmo Tibaldo Ponzi was born on March third, eighteen
eighty two in Lugo, Italy. Most of the information about
his early life comes directly from him, so its accuracy
should be taken with a grain of salt. Fraudsters and
con men have a tendency to embellish or even flat
out lie about their pasts to make their victims trust
(02:10):
them more. According to him, he came from a wealthy
family who had fallen on hard times prior to his birth.
When he was old enough, he worked odd jobs, but
was eventually accepted to the Sapienza University of Rome. He
spent more time hanging out with friends and drinking than studying,
and after a few years he was broke and had
(02:31):
to leave. He had heard stories of other Italians traveling
to the United States, where opportunities for success and wealth
were plentiful, so he decided to follow sued and head
west across the Atlantic. The ambitious Italian immigrant, who went
by Charles in the US, arrived in Boston aboard the
SS Vancouver on November fifteenth, nineteen oh three. He carried
(02:55):
just two dollars and fifty cents in his pocket. His
words to an New York Times reporter later captured his
spirit perfectly, with him saying quote, I landed in this
country with two dollars and fifty cents in cash and
one million dollars in hopes, and those hopes never left me.
Life as an immigrant in America hit Charles hard with reality.
(03:19):
The promised land of opportunity looked nowhere near what most
immigrants had pictured. All the same, his natural charm and
knowledge of Italian, English and French helped him direct his
way through those original challenges. A closer look at his
work history shows he didn't seem to be able to
hold down a job and sometimes crossed ethical lines. His
(03:41):
early years in America saw him bounce between positions along
the East Coast dishwasher, grocery clerk, factory hand, sign painter,
insurance salesman, librarian, and he worked as a waiter until
he was fired for theft and short chaining customers. He
(04:02):
jumped from job to job while his mind stayed fixed
on quick money making schemes. His notebook filled up with
potential business ideas. His strong dislike for manual labor, exactly
what he'd hoped to leave behind in Italy, pushed him
to look for easy ways to get rich. Charles moved
to Montreal, Canada in nineteen oh seven, after failing to
(04:24):
establish himself in the United States. He landed a job
at Banco Zarasi, a bank created specifically for the growing
Italian immigrant community. His language skills and charm helped him
climb quickly from assistant teller to bank manager. His time
at Banko Zarasi showed him the banking practice that would
(04:45):
later shape his notorious scheme. The bank charged Italian immigrants'
high interest rates while promising returns that seemed too good
to be true. The bank's bad real estate investments led
the bank to start paying old deposit with new deposits
instead of actual profits, basically robbing Peter to pay Paul.
(05:07):
The collapse of bencos Arassi left Charles broke and in
legal trouble, and he ended up in a Quebec prison
for three years on check forgery charges. He kept that
from his mother in Italy, telling her instead that he
worked at the prison. Once released, he moved back into
the United States, but was caught smuggling Italian immigrants across
(05:27):
the border. He served another two years in federal prison
in Atlanta before being released back into the world. Charles
returned to Boston in December of nineteen nineteen. By then
he was married and was ready to start the venture
that would make him both rich and notorious. Though the
(05:47):
scheme is named after him, Charles Ponzi was not the
first to carry out this type of scam. Obviously, he
learned about it from the bank he worked at in
Montreal at the beginning of the twentieth century, but other
people had been committing Ponzi schemes before Charles Ponzie was
even born. Of course, there was already the mention of
(06:08):
Nancy Clem having committed the swindle in eighteen sixty eight,
but the evidence of that is in rock solid. The
next record of a Ponzi scheme was Adel Spitzeider. In
eighteen sixty nine, she founded Spitzeedersh privat Bank in Munich, Germany,
where she promised customers a ten percent interest rate per month,
(06:29):
paying existing companies with the funds from new customers. She
was arrested in eighteen seventy two, and her thirty two
thousand customers lost a total of thirty eight million golden
which would be over four hundred million euros today. Early on,
it seems as though the Ponzi method of financial fraud
was popular with women, because the next example was also
(06:52):
carried out by the fair Sex. Sarah Howe opened a
bank for women in Boston in eighteen seventy nine called
the Ladies Deposit Company. She initially offered a two percent
interest rate per week, which changed to eight percent per month,
and in less than a year her bank was revealed
to be a fraud and she was arrested. Her customers
(07:12):
lost a total of five hundred thousand dollars more than
sixteen million dollars today. In eighteen eighty former US President
Ulysses S. Grant and his son Buck formed a brokerage
firm with a man named Ferdinand Ward, who was in
charge of the financial operations. After losing all of their
initial capital and bad investments, he turned the firm into
(07:34):
a Ponzi scheme in order to maintain the image of success.
When the swindle was discovered in eighteen eighty four, millions
of dollars had been stolen and a bankrupted the Grand
Family along with the Marine National Bank, and heightened the
worry of people during the ongoing depression era. From eighteen
eighty two to eighteen eighty five, the Universal Postal Union
(07:56):
or UPU created the International Reply Coupon or IRC system
on May twenty sixth, nineteen oh six. IRCs made global
mail correspondents easier. People in one country could pay ahead
for someone's reply from another country. Basically, a sender bought
an IRC in their home country at local postage rates
(08:19):
and included it with the mail they were sending to
someone in another country. The recipient got stamps for return
postage by exchanging the coupon at their local post office.
That alone wouldn't have been of any benefit to Charles,
But then post war European economies crashed and their currencies
lost value across the continent. The official rates for postal
(08:42):
coupon stayed the same, even though currency values changed drastically.
The UPUS set those postage exchange rates to match currency
exchange rates between countries. The quick post war inflation created
a big gap between real currency values and the old
IRC exchange rates. He was in the summer of nineteen
(09:04):
nineteen that Charles got a letter from someone in Spain
with an IRC coupon inside. Somehow Charles learned of the
discrepancy and values and realized he could exploit it for profit.
Charles realized that the coupon could be purchased in Spain
for the equivalent of about one American cent, but it
was worth six cents in the United States. The idea
(09:27):
of multiplying his money six times caught his attention right away.
He saw a legal way to profit buy something cheap
in one place and sell it for more somewhere else.
He was a simple and effective business strategy that had
worked for generations. He would use American dollars to buy
lots of IRCs in countries with weak currencies like Italy
(09:49):
and Spain. He would ship them to the United States,
change them for American stamps, and sell those stamps for cash.
His calculation showed he could make over four four one
hundred percent profit after covering all costs. So Charles intended
to make money with a legal venture, but he vastly
underestimated what it would take to actually make any real
(10:11):
money in the process. In order to create profits for
his initial eighteen investors. He would have to bring fifty
three thousand postal coupons to the United States from Europe.
Then he would have to change them to US postage,
and then find a way to turn them into cash,
something he was never able to do, even on a
small scale. In order to make profits for the more
(10:34):
than twenty thousand investors he eventually had, he would need
to be constantly bringing shiploads of coupons across the Atlantic.
He would need to be exchanging millions of coupons constantly,
and the infrastructure and staff it would have necessitated would
have been massive. Despite that, he used the money making
model to attract eighteen investors who each invested one hundred
(10:57):
dollars apiece. Charles launch his business, The Securities Exchange Company,
in Boston in January of nineteen twenty. His investment pitch
was irresistible. A fifty percent profit in forty five days
or an amazing one hundred percent profit within ninety days.
That was a big deal as regular bank return set
(11:19):
at five percent annually for savings accounts. Understandably, business grew quickly,
and Charles moved his office to the Niles Building on
School Street in Boston in February and March of nineteen twenty,
his investments jumped from five thousand to twenty five thousand.
In May they were at four hundred and twenty thousand,
(11:39):
and in June they had reached two and a half
million dollars. By July of nineteen twenty, Charles was bringing
in nearly one million dollars daily. He started by focusing
on the local immigrant community, but the scheme's reputation climbed
social ladders and ended up catching the attention of Boston's
wealthy social life elite. His investment opportunity became so popular
(12:03):
that all but one of Boston's police officers invested their
money in his promises. Money poured in so fast that
six clerks worked non stop to process it. Charles managed
to keep his successful image by buying control over Hanover
Trust Bank after a three million dollar depose it. Of course,
(12:23):
the money was coming in, but he wasn't actually investing
in anything. He had abandoned his plan to buy and
sell postal coupons almost immediately. Like with Banco, Zarasi and Montreal,
Charles just used new investor money to pay earlier investors.
Investors who wanted their money got paid right away through
hanover trust bank checks. Most of the investor's attention was
(12:48):
drawn to their returns, though, so they put their earnings
back in, which helped keep the fraud going. The classic
rob Peter to pay Paul's system worked as long as
new money exceeded withdraws. Charles's fraud scheme worked through several
convincing elements that made it look legitimate. His deceptive operation
(13:09):
used such persuasive tactics that skeptics found themselves drawn into
the scheme. His credibility came from his use of genuine
financial instruments. International Reply coupons were legitimate postal vouchers that
the UPU regulated. His claim of purchasing those coupons abroad
at a discount and selling them at face value in
(13:31):
the United States for huge profits is a legitimate financial
strategy called arbitrage. It's defined as the simultaneous buying and
selling of securities, currencies, or commodities in different markets or
in derivative forms, in order to take advantage of differing
prices for the same asset. The scheme made logical sense
(13:52):
to many people. Currency fluctuations after World War One created
genuine price differences between country. Those real life economic conditions
made his claim seem plausible. The concept of how Charles
Ponzi was going to make money appeared sophisticated yet simple
enough to understand, a combination that commonly attracts investors. On
(14:17):
top of that, he ran a formal company, He had
an office with staff, he provided proper documentation, and his
finances went through a legitimate bank. When you combine that
with Charles's perfect track record of payouts early on, it's
not hard to see why more and more people flocked
to take advantage of his services. Investors who were thrilled
(14:40):
with their return shared their success stories eagerly. That positive
message became Charles's best marketing tool. The original investors became
unwitting accomplices as they recruited friends, relatives, and professional associates.
But Charles also added to the allure of investing with
him by making it seem like he was very selective
(15:02):
about investors, which made people beg to participate. That air
of exclusivity made the scheme more appealing and created a
sense of privilege amongst those allowed to invest. The scheme
took advantage of what economists later called irrational exuberance. People
saw others making big profits and assumed the investments were safe.
(15:26):
That psychological effect often overshadowed an illogical analysis of the situation.
All of those elements combined to create a perfect storm
of perceived legitimacy that hid Charles's operation's fundamental flaws. But
it wouldn't be long before some people started to take notice.
Charles's operation became more noticeable by the summer of nineteen twenty,
(15:50):
watchful journalists started to ask critical questions about the extraordinary
returns he was offering. His unlikely financial empire faced heavy
screen rutiny from media outlets and government authorities. By July,
the Boston Post led the investigative effort. Under editor Richard
Groser's direction. He assigned financial reporter Clarence Baron to look
(16:13):
into Charles Ponzi's claims he was that journalist who brought
several damning facts to light. Charles would need to purchase
one hundred and sixty million postal reply coupons to cover
his outstanding investments, but there were only about twenty seven
thousand postal reply coupons in circulation throughout the entire world,
(16:35):
and of course, moving and redeeming such huge volumes was
physically impossible. The Boston Post ran a front page expose
on July twenty six, the nineteen twenty with the headline
Ponzi may be using money from new investors to pay
old ones. That piece not only directly challenged Charles's credibility,
(16:55):
it exposed his hidden criminal history in Canada. Now. That
article hit the public with a serious reality check, But
Massachusetts Bank Commissioner Joseph Allen had started auditing the operation
even before the Post's revelations. The commissioner found that there
was at least three million dollars in debt. On July
twenty fourth, nineteen twenty, a federal investigation ended up revealing
(17:20):
that Charles had bought only thirty dollars worth of international
reply coupons. Ever, public confidence fell apart almost overnight. Thousands
of worried investors crowded Charles's office on School Street. The
fraudster managed to keep his composure despite the mounting evidence
and claimed complete solvency. He cleverly kept paying investors who
(17:44):
asked for withdrawals, using funds from newer deposits to try
restoring public trust. All the same, his schemes foundations had
crumbled beyond repayer. Federal authorities acted quickly to gather mounting evidence.
US attorney Daniel Gallagher filed mail fraud charges against Charles
on August twelfth, nineteen twenty. Auditors revealed the shocking scale
(18:08):
of his fraud after his arrest. He held approximately one
point five million dollars in assets. He held more than
seven million dollars in debt. His investors lost roughly twenty
million dollars in total, more than three hundred million dollars today.
Charles Ponzi pleaded guilty to one federal count of using
mail to defraud. When faced with overwhelming evidence, the judge
(18:32):
gave him a five year federal prison sentence. Bankruptcy proceedings
went on long after Charles went to prison. His victims
got back less than thirty cents per dollar from bankruptcy trustees.
Most small investors lost everything they had invested. Charles had
served about three and a half years of his federal
(18:53):
sentence when he learned he had twenty two state charges
of larceny waiting in Massachusetts. He tried to fight those
extra charges and claimed double jeopardy since they came from
the same scheme as his federal conviction. That appeal went
all the way to the US Supreme Court, which ruled
against him. The court said federal plea bargains didn't affect
(19:15):
state charges, and that mail fraud and larceny were different offenses,
even if they came from the same criminal scheme. Charles
acted as his own lawyer in three of the trials
that followed. He beat the charges in two but lost
the third. After getting seven to nine more years, he
skipped bail in nineteen twenty five and ran to Florida.
(19:38):
There he started the Charpon Land Syndicate, the name being
a mix of Charles and ponz. His new scam sold
what he called prime Florida property for ten dollars per lot.
The truth was those lots were just swamp land he
had purchased for sixteen dollars per acre. Once a con man,
always a con man, I guess. The authorities caught up
(20:01):
to his Florida scam, and he tried to escape on
an Italian bound ship by shaving his head and growing
a mustache. That plan failed when he told another crew
member who he really was. I mean, that might be
rule number one when it comes to hiding. Don't announce
your identity. He was quickly caught, and in nineteen thirty
(20:21):
four was deported to Italy. Before he left the US,
he told a reporter quote, I went looking for trouble
and I found it. Back in Italy, Charles jumped from
one failed scheme to another until he ended up in
Brazil working for Ala Latoria, Italy's state airline. There are
multiple stories as to how that happened. One is that
(20:44):
he went on the run after more failed scams. Another
was that his cousin was in the military and got
him the job in Brazil. Yet another claims he managed
to get on the good side of Mussolini's regime and
they made him the airline's business manager. Either way, during
World War II, the airline's operations were shut down when
(21:05):
Brazil sided with the Allies. It was around that time
that Charles wrote his autobiography, which he titled The Rise
of Mister Ponzi, The Autobiography of a Financial Genius. I
had quite a bit of trouble reading the book, as
every time I saw the title, I would be too
busy laughing my fucking balls off. It's in the public domain,
(21:27):
so you can read it online for free. If you
really want to. After he lost his job at the airline,
he stayed in Brazil, living in poverty and working as
a translator. His health took a bad turn after a
heart attack hit him in nineteen forty one. He started
losing his eyesight, and by nineteen forty eight he could
barely see. A brain hemorrhage left his left side paralyzed.
(21:51):
He died on January eighteenth, nineteen forty nine. He showed
no guilt in his last interview, saying quote, even if
they never got anything for it, it was cheap at
that price, without malice aforethought, I had given them the
best show that was ever staged in their territory since
the landing of the Pilgrims. It was easily worth fifteen
(22:11):
million bucks to watch me put the thing over. Charles
Ponzi's financial scam left such a mark that his name
became a permanent part of financial terminology. His scheme now
serves as a measure for similar frauds that have surfaced
in the years that follow ponzi scheme became the go
to term for investment frauds, where money from new investors
(22:33):
pays off existing investors instead of actual profits. Financial regulators
worldwide now label similar frauds that way. The SEC which
started in nineteen thirty four in part due to scandals
like that, has a clear definition for those schemes they
simply can't generate real returns. Financial textbooks used Charles Ponzi's
(22:57):
story as their main example to teach fraud detection. His
name has grown beyond just history to become a universal
warning sign. Few scammers have left such a lasting mark
on financial language as Charles Ponzi. Even Bernie made Off,
the person who conducted one of the largest Ponzi schemes
in history, doesn't get his name on the scam, which
(23:19):
I think works better a made off scheme, you know,
because he made off with everyone's money. Anyway. Ponzi style
scams continue popping up in new forms throughout financial history. Obviously,
Bernie Madeoff used Ponzi's basic tricks, but worked on a
much bigger scale. The crypto market has become a breeding
(23:41):
ground for those schemes lately. Bitconnect, worth two point six
billion dollars at its peak, fell apart in two thousand
and eight when regulators spotted its Ponzi structure. One coin
claimed to compete with bitcoin, but turned out to be
just another Ponzi scheme that stole four billion dollars before
investing money in anything. Check for the basic tricks that
(24:04):
make up a Ponzi scheme, the impossible returns, early payouts
to gain trust, and math that doesn't add up. Those
elements show up again and again in financial frauds, proving
as shady methods work across different eras. Pyramid schemes are
similar to Ponzi schemes that have persisted in society for decades.
(24:25):
Unlike a Ponzi scheme, a pyramid scheme openly admits to
relying on the money from new investors to pay current investors,
but they still promise a high rate of return based
on an unrealistic method of bringing in profits. They generally
see the people at the top receiving the majority of
the income, with the investors out their investment capital. When
(24:47):
the scheme inevitably crumbles at the end of the day,
just remember if it seems too good to be true,
it is. There is no easy money that comes with
zero risk. Despite Charles Ponzi's scheme having collapsed more than
one hundred years ago, the core mechanics of his fraud
keep showing up with shocking frequency. His simple formula, using
(25:11):
new investor money to pay earlier investors while promising impossible
returns remains the template for countless financial scams worldwide. The
same psychological weaknesses Ponsi took advantage of still exists today.
People fall for suspicious investments because of greed, fear of
missing out, peer pressure, and poor financial knowledge. The SEC
(25:35):
and other financial watchdogs look carefully for warning signs Ponzi
first showed us, yet his methods keep evolving with modern
technology and markets. The biggest lesson from Charles Ponzi's fraud
still rings true. When an investment promises amazing returns with
no risk, look very carefully. That simple rule remains our
(25:56):
best defense against financial predators who still find victims by
promising what legitimate investments can't deliver. If you're the victim
of domestic abuse, please reach out to someone for help.
Please talk to your local shelter, call the National Domestic
Abuse Hotline at one eight hundred seven nine nine safe
that's one eight hundred seven nine nine seven two three three,
(26:20):
or you can go to the hotline dot org to
chat with someone online. If you're having feelings of harming
yourself or someone else, or even just need someone to
talk to. Please contact your local mental health facility call
nine one one, or call the National Suicide Prevention Hotline
by simply dialing nine eight eight in the United States.
They're available twenty four hours a day, seven days a week,
(26:41):
and we'll talk to you about any mental health issue
you might be facing. If you're a member of the
LGBTQ plus community and suffering from discrimination, depression, or are
in need of any support, please contact the LGBT National
Hotline at one eight eight eight eight four three four
five six four, or go to LGBT Hotline dot org.
(27:01):
Thanks so much for letting me tell you this story.
If you're a fan of true crime, you can subscribe
to this show so you don't miss an episode. My
other show, Somewhere Sinister is no longer getting new episodes,
but you can check it out if you like interesting
stories from history that aren't necessarily true crime, but true
crime adjacent. It's available anywhere that you listen to podcasts.
(27:22):
You can also check out my personal vlog, Giles with
a Jay, which is sporadically updated with stuff about my
personal life, travel and music. It's available on YouTube. If
you'd like to support the show, check out our merchandise
at thisismonsters dot com. A link is in the description.
Thanks again, and be safe.
Identifying something is too good to be true generally means
it is It's uncommon for there to be a perfect
scenario that always makes you money with zero risk. It's
the nature of every get rich quick scheme out there.
Opportunities to make money by doing little physical work exist,
but they usually come with a higher degree of risk.
(00:23):
That's what separates a legitimate financial investment from a Ponzi scheme.
The fact that the investment is described as no risk
is the first red flag that anyone looking to invest
their money should notice. Charles Ponzi was not the first
person to have swindled investors by simply paying off existing
(00:44):
clients with the money brought in from new clients. In
the book The Notorious Missus Clem Murdering Money in the
Gilded Age by Wendy Gamber, the author claims that Nancy
Clem carried out the first Ponzi scheme in eighteen sixty eight.
Another example is recorded in Munich, Germany in eighteen sixty nine,
(01:04):
and it happened a few more times throughout the rest
of the nineteenth century. But it was Charles Ponzi in
nineteen twenty who carried out the fraud on such a
large and noticeable scale that his name would go down
in history as being synonymous with financial fraud. Carlo Pietro
(01:47):
Giovanni Gulielmo Tibaldo Ponzi was born on March third, eighteen
eighty two in Lugo, Italy. Most of the information about
his early life comes directly from him, so its accuracy
should be taken with a grain of salt. Fraudsters and
con men have a tendency to embellish or even flat
out lie about their pasts to make their victims trust
(02:10):
them more. According to him, he came from a wealthy
family who had fallen on hard times prior to his birth.
When he was old enough, he worked odd jobs, but
was eventually accepted to the Sapienza University of Rome. He
spent more time hanging out with friends and drinking than studying,
and after a few years he was broke and had
(02:31):
to leave. He had heard stories of other Italians traveling
to the United States, where opportunities for success and wealth
were plentiful, so he decided to follow sued and head
west across the Atlantic. The ambitious Italian immigrant, who went
by Charles in the US, arrived in Boston aboard the
SS Vancouver on November fifteenth, nineteen oh three. He carried
(02:55):
just two dollars and fifty cents in his pocket. His
words to an New York Times reporter later captured his
spirit perfectly, with him saying quote, I landed in this
country with two dollars and fifty cents in cash and
one million dollars in hopes, and those hopes never left me.
Life as an immigrant in America hit Charles hard with reality.
(03:19):
The promised land of opportunity looked nowhere near what most
immigrants had pictured. All the same, his natural charm and
knowledge of Italian, English and French helped him direct his
way through those original challenges. A closer look at his
work history shows he didn't seem to be able to
hold down a job and sometimes crossed ethical lines. His
(03:41):
early years in America saw him bounce between positions along
the East Coast dishwasher, grocery clerk, factory hand, sign painter,
insurance salesman, librarian, and he worked as a waiter until
he was fired for theft and short chaining customers. He
(04:02):
jumped from job to job while his mind stayed fixed
on quick money making schemes. His notebook filled up with
potential business ideas. His strong dislike for manual labor, exactly
what he'd hoped to leave behind in Italy, pushed him
to look for easy ways to get rich. Charles moved
to Montreal, Canada in nineteen oh seven, after failing to
(04:24):
establish himself in the United States. He landed a job
at Banco Zarasi, a bank created specifically for the growing
Italian immigrant community. His language skills and charm helped him
climb quickly from assistant teller to bank manager. His time
at Banko Zarasi showed him the banking practice that would
(04:45):
later shape his notorious scheme. The bank charged Italian immigrants'
high interest rates while promising returns that seemed too good
to be true. The bank's bad real estate investments led
the bank to start paying old deposit with new deposits
instead of actual profits, basically robbing Peter to pay Paul.
(05:07):
The collapse of bencos Arassi left Charles broke and in
legal trouble, and he ended up in a Quebec prison
for three years on check forgery charges. He kept that
from his mother in Italy, telling her instead that he
worked at the prison. Once released, he moved back into
the United States, but was caught smuggling Italian immigrants across
(05:27):
the border. He served another two years in federal prison
in Atlanta before being released back into the world. Charles
returned to Boston in December of nineteen nineteen. By then
he was married and was ready to start the venture
that would make him both rich and notorious. Though the
(05:47):
scheme is named after him, Charles Ponzi was not the
first to carry out this type of scam. Obviously, he
learned about it from the bank he worked at in
Montreal at the beginning of the twentieth century, but other
people had been committing Ponzi schemes before Charles Ponzie was
even born. Of course, there was already the mention of
(06:08):
Nancy Clem having committed the swindle in eighteen sixty eight,
but the evidence of that is in rock solid. The
next record of a Ponzi scheme was Adel Spitzeider. In
eighteen sixty nine, she founded Spitzeedersh privat Bank in Munich, Germany,
where she promised customers a ten percent interest rate per month,
(06:29):
paying existing companies with the funds from new customers. She
was arrested in eighteen seventy two, and her thirty two
thousand customers lost a total of thirty eight million golden
which would be over four hundred million euros today. Early on,
it seems as though the Ponzi method of financial fraud
was popular with women, because the next example was also
(06:52):
carried out by the fair Sex. Sarah Howe opened a
bank for women in Boston in eighteen seventy nine called
the Ladies Deposit Company. She initially offered a two percent
interest rate per week, which changed to eight percent per month,
and in less than a year her bank was revealed
to be a fraud and she was arrested. Her customers
(07:12):
lost a total of five hundred thousand dollars more than
sixteen million dollars today. In eighteen eighty former US President
Ulysses S. Grant and his son Buck formed a brokerage
firm with a man named Ferdinand Ward, who was in
charge of the financial operations. After losing all of their
initial capital and bad investments, he turned the firm into
(07:34):
a Ponzi scheme in order to maintain the image of success.
When the swindle was discovered in eighteen eighty four, millions
of dollars had been stolen and a bankrupted the Grand
Family along with the Marine National Bank, and heightened the
worry of people during the ongoing depression era. From eighteen
eighty two to eighteen eighty five, the Universal Postal Union
(07:56):
or UPU created the International Reply Coupon or IRC system
on May twenty sixth, nineteen oh six. IRCs made global
mail correspondents easier. People in one country could pay ahead
for someone's reply from another country. Basically, a sender bought
an IRC in their home country at local postage rates
(08:19):
and included it with the mail they were sending to
someone in another country. The recipient got stamps for return
postage by exchanging the coupon at their local post office.
That alone wouldn't have been of any benefit to Charles,
But then post war European economies crashed and their currencies
lost value across the continent. The official rates for postal
(08:42):
coupon stayed the same, even though currency values changed drastically.
The UPUS set those postage exchange rates to match currency
exchange rates between countries. The quick post war inflation created
a big gap between real currency values and the old
IRC exchange rates. He was in the summer of nineteen
(09:04):
nineteen that Charles got a letter from someone in Spain
with an IRC coupon inside. Somehow Charles learned of the
discrepancy and values and realized he could exploit it for profit.
Charles realized that the coupon could be purchased in Spain
for the equivalent of about one American cent, but it
was worth six cents in the United States. The idea
(09:27):
of multiplying his money six times caught his attention right away.
He saw a legal way to profit buy something cheap
in one place and sell it for more somewhere else.
He was a simple and effective business strategy that had
worked for generations. He would use American dollars to buy
lots of IRCs in countries with weak currencies like Italy
(09:49):
and Spain. He would ship them to the United States,
change them for American stamps, and sell those stamps for cash.
His calculation showed he could make over four four one
hundred percent profit after covering all costs. So Charles intended
to make money with a legal venture, but he vastly
underestimated what it would take to actually make any real
(10:11):
money in the process. In order to create profits for
his initial eighteen investors. He would have to bring fifty
three thousand postal coupons to the United States from Europe.
Then he would have to change them to US postage,
and then find a way to turn them into cash,
something he was never able to do, even on a
small scale. In order to make profits for the more
(10:34):
than twenty thousand investors he eventually had, he would need
to be constantly bringing shiploads of coupons across the Atlantic.
He would need to be exchanging millions of coupons constantly,
and the infrastructure and staff it would have necessitated would
have been massive. Despite that, he used the money making
model to attract eighteen investors who each invested one hundred
(10:57):
dollars apiece. Charles launch his business, The Securities Exchange Company,
in Boston in January of nineteen twenty. His investment pitch
was irresistible. A fifty percent profit in forty five days
or an amazing one hundred percent profit within ninety days.
That was a big deal as regular bank return set
(11:19):
at five percent annually for savings accounts. Understandably, business grew quickly,
and Charles moved his office to the Niles Building on
School Street in Boston in February and March of nineteen twenty,
his investments jumped from five thousand to twenty five thousand.
In May they were at four hundred and twenty thousand,
(11:39):
and in June they had reached two and a half
million dollars. By July of nineteen twenty, Charles was bringing
in nearly one million dollars daily. He started by focusing
on the local immigrant community, but the scheme's reputation climbed
social ladders and ended up catching the attention of Boston's
wealthy social life elite. His investment opportunity became so popular
(12:03):
that all but one of Boston's police officers invested their
money in his promises. Money poured in so fast that
six clerks worked non stop to process it. Charles managed
to keep his successful image by buying control over Hanover
Trust Bank after a three million dollar depose it. Of course,
(12:23):
the money was coming in, but he wasn't actually investing
in anything. He had abandoned his plan to buy and
sell postal coupons almost immediately. Like with Banco, Zarasi and Montreal,
Charles just used new investor money to pay earlier investors.
Investors who wanted their money got paid right away through
hanover trust bank checks. Most of the investor's attention was
(12:48):
drawn to their returns, though, so they put their earnings
back in, which helped keep the fraud going. The classic
rob Peter to pay Paul's system worked as long as
new money exceeded withdraws. Charles's fraud scheme worked through several
convincing elements that made it look legitimate. His deceptive operation
(13:09):
used such persuasive tactics that skeptics found themselves drawn into
the scheme. His credibility came from his use of genuine
financial instruments. International Reply coupons were legitimate postal vouchers that
the UPU regulated. His claim of purchasing those coupons abroad
at a discount and selling them at face value in
(13:31):
the United States for huge profits is a legitimate financial
strategy called arbitrage. It's defined as the simultaneous buying and
selling of securities, currencies, or commodities in different markets or
in derivative forms, in order to take advantage of differing
prices for the same asset. The scheme made logical sense
(13:52):
to many people. Currency fluctuations after World War One created
genuine price differences between country. Those real life economic conditions
made his claim seem plausible. The concept of how Charles
Ponzi was going to make money appeared sophisticated yet simple
enough to understand, a combination that commonly attracts investors. On
(14:17):
top of that, he ran a formal company, He had
an office with staff, he provided proper documentation, and his
finances went through a legitimate bank. When you combine that
with Charles's perfect track record of payouts early on, it's
not hard to see why more and more people flocked
to take advantage of his services. Investors who were thrilled
(14:40):
with their return shared their success stories eagerly. That positive
message became Charles's best marketing tool. The original investors became
unwitting accomplices as they recruited friends, relatives, and professional associates.
But Charles also added to the allure of investing with
him by making it seem like he was very selective
(15:02):
about investors, which made people beg to participate. That air
of exclusivity made the scheme more appealing and created a
sense of privilege amongst those allowed to invest. The scheme
took advantage of what economists later called irrational exuberance. People
saw others making big profits and assumed the investments were safe.
(15:26):
That psychological effect often overshadowed an illogical analysis of the situation.
All of those elements combined to create a perfect storm
of perceived legitimacy that hid Charles's operation's fundamental flaws. But
it wouldn't be long before some people started to take notice.
Charles's operation became more noticeable by the summer of nineteen twenty,
(15:50):
watchful journalists started to ask critical questions about the extraordinary
returns he was offering. His unlikely financial empire faced heavy
screen rutiny from media outlets and government authorities. By July,
the Boston Post led the investigative effort. Under editor Richard
Groser's direction. He assigned financial reporter Clarence Baron to look
(16:13):
into Charles Ponzi's claims he was that journalist who brought
several damning facts to light. Charles would need to purchase
one hundred and sixty million postal reply coupons to cover
his outstanding investments, but there were only about twenty seven
thousand postal reply coupons in circulation throughout the entire world,
(16:35):
and of course, moving and redeeming such huge volumes was
physically impossible. The Boston Post ran a front page expose
on July twenty six, the nineteen twenty with the headline
Ponzi may be using money from new investors to pay
old ones. That piece not only directly challenged Charles's credibility,
(16:55):
it exposed his hidden criminal history in Canada. Now. That
article hit the public with a serious reality check, But
Massachusetts Bank Commissioner Joseph Allen had started auditing the operation
even before the Post's revelations. The commissioner found that there
was at least three million dollars in debt. On July
twenty fourth, nineteen twenty, a federal investigation ended up revealing
(17:20):
that Charles had bought only thirty dollars worth of international
reply coupons. Ever, public confidence fell apart almost overnight. Thousands
of worried investors crowded Charles's office on School Street. The
fraudster managed to keep his composure despite the mounting evidence
and claimed complete solvency. He cleverly kept paying investors who
(17:44):
asked for withdrawals, using funds from newer deposits to try
restoring public trust. All the same, his schemes foundations had
crumbled beyond repayer. Federal authorities acted quickly to gather mounting evidence.
US attorney Daniel Gallagher filed mail fraud charges against Charles
on August twelfth, nineteen twenty. Auditors revealed the shocking scale
(18:08):
of his fraud after his arrest. He held approximately one
point five million dollars in assets. He held more than
seven million dollars in debt. His investors lost roughly twenty
million dollars in total, more than three hundred million dollars today.
Charles Ponzi pleaded guilty to one federal count of using
mail to defraud. When faced with overwhelming evidence, the judge
(18:32):
gave him a five year federal prison sentence. Bankruptcy proceedings
went on long after Charles went to prison. His victims
got back less than thirty cents per dollar from bankruptcy trustees.
Most small investors lost everything they had invested. Charles had
served about three and a half years of his federal
(18:53):
sentence when he learned he had twenty two state charges
of larceny waiting in Massachusetts. He tried to fight those
extra charges and claimed double jeopardy since they came from
the same scheme as his federal conviction. That appeal went
all the way to the US Supreme Court, which ruled
against him. The court said federal plea bargains didn't affect
(19:15):
state charges, and that mail fraud and larceny were different offenses,
even if they came from the same criminal scheme. Charles
acted as his own lawyer in three of the trials
that followed. He beat the charges in two but lost
the third. After getting seven to nine more years, he
skipped bail in nineteen twenty five and ran to Florida.
(19:38):
There he started the Charpon Land Syndicate, the name being
a mix of Charles and ponz. His new scam sold
what he called prime Florida property for ten dollars per lot.
The truth was those lots were just swamp land he
had purchased for sixteen dollars per acre. Once a con man,
always a con man, I guess. The authorities caught up
(20:01):
to his Florida scam, and he tried to escape on
an Italian bound ship by shaving his head and growing
a mustache. That plan failed when he told another crew
member who he really was. I mean, that might be
rule number one when it comes to hiding. Don't announce
your identity. He was quickly caught, and in nineteen thirty
(20:21):
four was deported to Italy. Before he left the US,
he told a reporter quote, I went looking for trouble
and I found it. Back in Italy, Charles jumped from
one failed scheme to another until he ended up in
Brazil working for Ala Latoria, Italy's state airline. There are
multiple stories as to how that happened. One is that
(20:44):
he went on the run after more failed scams. Another
was that his cousin was in the military and got
him the job in Brazil. Yet another claims he managed
to get on the good side of Mussolini's regime and
they made him the airline's business manager. Either way, during
World War II, the airline's operations were shut down when
(21:05):
Brazil sided with the Allies. It was around that time
that Charles wrote his autobiography, which he titled The Rise
of Mister Ponzi, The Autobiography of a Financial Genius. I
had quite a bit of trouble reading the book, as
every time I saw the title, I would be too
busy laughing my fucking balls off. It's in the public domain,
(21:27):
so you can read it online for free. If you
really want to. After he lost his job at the airline,
he stayed in Brazil, living in poverty and working as
a translator. His health took a bad turn after a
heart attack hit him in nineteen forty one. He started
losing his eyesight, and by nineteen forty eight he could
barely see. A brain hemorrhage left his left side paralyzed.
(21:51):
He died on January eighteenth, nineteen forty nine. He showed
no guilt in his last interview, saying quote, even if
they never got anything for it, it was cheap at
that price, without malice aforethought, I had given them the
best show that was ever staged in their territory since
the landing of the Pilgrims. It was easily worth fifteen
(22:11):
million bucks to watch me put the thing over. Charles
Ponzi's financial scam left such a mark that his name
became a permanent part of financial terminology. His scheme now
serves as a measure for similar frauds that have surfaced
in the years that follow ponzi scheme became the go
to term for investment frauds, where money from new investors
(22:33):
pays off existing investors instead of actual profits. Financial regulators
worldwide now label similar frauds that way. The SEC which
started in nineteen thirty four in part due to scandals
like that, has a clear definition for those schemes they
simply can't generate real returns. Financial textbooks used Charles Ponzi's
(22:57):
story as their main example to teach fraud detection. His
name has grown beyond just history to become a universal
warning sign. Few scammers have left such a lasting mark
on financial language as Charles Ponzi. Even Bernie made Off,
the person who conducted one of the largest Ponzi schemes
in history, doesn't get his name on the scam, which
(23:19):
I think works better a made off scheme, you know,
because he made off with everyone's money. Anyway. Ponzi style
scams continue popping up in new forms throughout financial history. Obviously,
Bernie Madeoff used Ponzi's basic tricks, but worked on a
much bigger scale. The crypto market has become a breeding
(23:41):
ground for those schemes lately. Bitconnect, worth two point six
billion dollars at its peak, fell apart in two thousand
and eight when regulators spotted its Ponzi structure. One coin
claimed to compete with bitcoin, but turned out to be
just another Ponzi scheme that stole four billion dollars before
investing money in anything. Check for the basic tricks that
(24:04):
make up a Ponzi scheme, the impossible returns, early payouts
to gain trust, and math that doesn't add up. Those
elements show up again and again in financial frauds, proving
as shady methods work across different eras. Pyramid schemes are
similar to Ponzi schemes that have persisted in society for decades.
(24:25):
Unlike a Ponzi scheme, a pyramid scheme openly admits to
relying on the money from new investors to pay current investors,
but they still promise a high rate of return based
on an unrealistic method of bringing in profits. They generally
see the people at the top receiving the majority of
the income, with the investors out their investment capital. When
(24:47):
the scheme inevitably crumbles at the end of the day,
just remember if it seems too good to be true,
it is. There is no easy money that comes with
zero risk. Despite Charles Ponzi's scheme having collapsed more than
one hundred years ago, the core mechanics of his fraud
keep showing up with shocking frequency. His simple formula, using
(25:11):
new investor money to pay earlier investors while promising impossible
returns remains the template for countless financial scams worldwide. The
same psychological weaknesses Ponsi took advantage of still exists today.
People fall for suspicious investments because of greed, fear of
missing out, peer pressure, and poor financial knowledge. The SEC
(25:35):
and other financial watchdogs look carefully for warning signs Ponzi
first showed us, yet his methods keep evolving with modern
technology and markets. The biggest lesson from Charles Ponzi's fraud
still rings true. When an investment promises amazing returns with
no risk, look very carefully. That simple rule remains our
(25:56):
best defense against financial predators who still find victims by
promising what legitimate investments can't deliver. If you're the victim
of domestic abuse, please reach out to someone for help.
Please talk to your local shelter, call the National Domestic
Abuse Hotline at one eight hundred seven nine nine safe
that's one eight hundred seven nine nine seven two three three,
(26:20):
or you can go to the hotline dot org to
chat with someone online. If you're having feelings of harming
yourself or someone else, or even just need someone to
talk to. Please contact your local mental health facility call
nine one one, or call the National Suicide Prevention Hotline
by simply dialing nine eight eight in the United States.
They're available twenty four hours a day, seven days a week,
(26:41):
and we'll talk to you about any mental health issue
you might be facing. If you're a member of the
LGBTQ plus community and suffering from discrimination, depression, or are
in need of any support, please contact the LGBT National
Hotline at one eight eight eight eight four three four
five six four, or go to LGBT Hotline dot org.
(27:01):
Thanks so much for letting me tell you this story.
If you're a fan of true crime, you can subscribe
to this show so you don't miss an episode. My
other show, Somewhere Sinister is no longer getting new episodes,
but you can check it out if you like interesting
stories from history that aren't necessarily true crime, but true
crime adjacent. It's available anywhere that you listen to podcasts.
(27:22):
You can also check out my personal vlog, Giles with
a Jay, which is sporadically updated with stuff about my
personal life, travel and music. It's available on YouTube. If
you'd like to support the show, check out our merchandise
at thisismonsters dot com. A link is in the description.
Thanks again, and be safe.
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