In 1903, a penniless Italian immigrant with a gambling problem arrived in Boston with dreams of making it big in America. His name was Charles Ponzi.
Standing 5’2 and weighing 130 pounds, the diminutive man may not have been imposing, but he made up for it with his ambition. Ponzi would ultimately invent the most elaborate investment scheme ever perpetrated at the time, earning him the equivalent of $220 million in just a few years.
How did this happen, and what was the fate of the man immortalized forever for perpetrating the ultimate money con?
On this week’s episode of Dirty Money, Entrepreneur editors Dan Bova and Jon Small tell the mostly forgotten story of the man behind the original Ponzi scheme. Charles Ponzi’s classically American tale is about ambition, greed, ingenuity, and hubris. There’s a reason they named a con after this guy.
Rags to riches
Like so many newcomers to the U.S., Ponzi honestly believed that the city streets were paved with gold. All you had to do was stoop down and shovel it into bags.
But that didn’t work out for him. Ponzi traveled America taking odd jobs as a grocery clerk, factory hand, dishwasher, sewing machine repairman, nurse, insurance salesman, and sign painter. He was always scribbling ideas for businesses in his notebook. He was broke, in and out of jail, and most people thought he was a joke.
The laugh was on them. In 1919, Ponzi pawned his wife’s jewelry to open up the Securities Exchange Company, promising investors a 50% return on their investment within 45 days or a 100% return within 90 days. He told them he could do this by exploiting the difference in international postal reply coupons’ value.
Ponzi became very rich and famous — very quickly.
But just as fast as Ponzi built his empire, everything came crashing down.
What is a Ponzi scheme?
A Ponzi scheme is an investment scheme where the returns are paid to earlier investors using the money contributed by newer investors. The scheme often relies on attracting a large number of investors and promising them high returns with little or no risk. The returns are usually paid from the investments made by newer investors rather than from legitimate profits earned by the scheme.
Charles Ponzi didn’t invent this scheme, but he perfected it, laying the groundwork for even bigger scammers in the future — such as Bernie Madoff, who stole $50 billion.
Ponzi always dreamed he’d be the talk of the town. But he never imagined his name would forever be associated with a scam.