CARLO PONZI Biography - Socialites, celebrities and People in the fashion industry

 
 

Biography » socialites celebrities and people in the fashion industry » carlo ponzi

CARLO PONZI

Name: Charles Ponzi                                                                         
Born: 3 March 1882 Lugo, Italy                                                             
Died: 18 January 1949 Rio de Janeiro, Brazil                                               
                                                                                           
Charles Ponzi (March 3, 1882–January 18, 1949) was an Italian immigrant to the           
United States who became one of the greatest swindlers in American history. His             
aliases include Charles Ponei, Charles P. Bianchi, Carl and Carlo. Although many           
people have never heard of Ponzi himself, the term "Ponzi scheme" is a widely               
known description of a system of fraudulent "make money fast" schemes promoted             
through the Internet and elsewhere to this day.                                             
                                                                                           
Parts of Charles Ponzi's life are somewhat difficult to determine, due to his               
propensity to fabricate and embellish facts. He was born Carlo Ponzi in Lugo,               
Italy in 1882 (not Parma as some accounts hold, although he resided there as a             
teenager). He took a job as a postal worker early on, but soon was accepted into           
the University of Rome La Sapienza. His friends considered the university a "four-year     
vacation", and he was inclined to follow them around to bars, cafés, and the               
opera. At some point, short on funds, Ponzi dropped out of university and                   
boarded the S.S. Vancouver bound for Boston, Massachusetts, USA.                           
                                                                                           
By his own account, Ponzi arrived in the United States in 1903 with two dollars             
and fifty cents in his pocket, having gambled away the rest of his life savings             
during the voyage. He quickly learned English and spent the next few years doing           
odd jobs along the East Coast, eventually taking a job as a dishwasher in a                 
restaurant, where he slept on the floor. He managed to work his way up to the               
position of waiter, but was fired for shortchanging the customers and theft.               
                                                                                           
In 1907 Ponzi moved to Montreal, Canada, and became an assistant teller in the             
newly opened Banco Zarossi, a bank started by Luigi "Louis" Zarossi to service             
the influx of Italian immigrants arriving in the city. Zarossi paid 6% interest,           
double the going rate, on bank accounts, and was growing rapidly as a result.               
Ponzi found out that the bank was in serious financial trouble because of bad               
real estate loans, and that Zarossi was funding the interest payments not                   
through profit on investments, but by using money deposited in newly opened                 
accounts. The bank eventually failed and Zarossi fled to Mexico with a large               
portion of the bank's money.                                                               
                                                                                           
Ponzi stayed in Montreal and, for some time, lived at Zarossi's house helping               
the man's abandoned family while planning to return to the United States and               
start over. As Ponzi was penniless, this proved to be very difficult. Eventually           
he walked into the offices of a former Zarossi customer and, finding no one                 
there, wrote himself a check for $423.58 in a checkbook he found, forging the               
signature of a director of the company. Confronted by police who had taken note             
of his large expenditures just after the forged check was cashed, Ponzi held out           
his hands wrist up and said "I'm guilty." He ended up spending three years in a             
Quebec prison as Inmate # 6660. Rather than inform his mother of this                       
development, he posted her a letter stating that he had found a job as a "special           
assistant" to a prison warden.                                                             
                                                                                           
After his release in 1911 he decided to return to the United States, but got               
involved in a scheme to smuggle Italian illegal immigrants across the border. He           
was caught and spent two years in an Atlanta prison. Here he became a translator           
for the warden, who was intercepting letters from a famous mobster, Ignazio "the           
Wolf" Lupo. Ponzi ended up befriending Lupo, but it was another prisoner who               
became a true role model to Ponzi; Charles Morse convinced doctors he was dying             
by eating soap shavings, and was released early.                                           
                                                                                           
When Ponzi was released he eventually made his way back to Boston. There he met             
an Italian girl, Rose Gnecco, who was swept off her feet by Ponzi's charm.                 
Though Ponzi did not tell Gnecco about his years in jail, his mother sent Gnecco           
a letter telling her of Ponzi's past, but she remained with him, marrying in               
1918. For the next few months he worked at a number of businesses, before                   
hitting upon an idea to sell advertising in a large business listing to be sent             
to various businesses, an idea which others would later, independently, invent             
as the Yellow Pages. Ponzi, unfortunately, was unable to sell this idea to                 
businesses, and his company failed soon after.                                             
                                                                                           
A few weeks later Ponzi received a letter in the mail from a company in Spain               
asking about the catalog. Inside the envelope was an international postal reply             
coupon (IRC), something which he had never seen before. He asked about it and               
found a weakness in the system which would in principle allow him to make money.           
                                                                                           
The purpose of the postal reply coupon was to allow someone in one country to               
send it to a correspondent in another country, who could use it to pay the                 
postage of a reply. For use within the same country, postage stamps would be               
sent; but stamps issued by one country cannot be used in another. IRCs were                 
priced at the cost of postage in the country of purchase, but could be exchanged           
for stamps to cover the cost of postage in the country where redeemed; if these             
values were different, there was a potential profit. Inflation after the First             
World War had much decreased the cost of postage in Italy expressed in U.S.                 
dollars, so that an IRC could be bought cheaply in Italy and exchanged for U.S.             
stamps to a higher value. The process was: send money abroad; have IRCs                     
purchased by agents; send the IRCs to the U.S.A.; redeem the IRCs for stamps to             
a higher value; sell the stamps. Ponzi claimed that the net profit on these                 
transactions, after expenses and exchange rates, was in excess of 400%. This was           
a form of arbitrage, or buying low and selling high, which is not illegal.                 
                                                                                           
Ponzi canvassed friends and associates to back his scheme, offering a 50% return           
on investment in 45 days. The great returns available from postal reply coupons,           
he explained to them, made such incredible profits easy. He started his own                 
company, the Securities Exchange Company, to promote the scheme.                           
                                                                                           
Some people invested, and were paid off as promised. The word spread, and                   
investment came in at an ever-increasing rate. Ponzi hired agents and paid them             
generous commissions for every dollar they brought in. By February 1920, Ponzi's           
total take was $5,000 USD, a large sum for the time.                                       
                                                                                           
By March he had made $30,000. A frenzy was building, and Ponzi began to hire               
agents to take in money from all over New England and New Jersey. At that time             
investors were being paid impressive rates, encouraging yet others to invest.               
                                                                                           
By May 1920 he had made $420,000. He began depositing the money in the Hanover             
Trust Bank, in hopes that once his account was large enough he could impose his             
will on the bank or even be made its president; he did, in fact, get a                     
controlling interest in the bank.                                                           
                                                                                           
By July 1920 he had made millions. People were mortgaging their homes and                   
investing their life savings. Most did not take their profits, but reinvested.             
                                                                                           
Ponzi was bringing in cash at a fantastic rate, but the simplest financial                 
analysis would have shown that the operation was running at a large loss. As               
long as money kept flowing in, existing investors could be paid with the new               
money, but colossal liabilities were accumulating.                                         
                                                                                           
Ponzi lived luxuriously: he bought a mansion with air conditioning and a heated             
swimming pool, and brought his mother from Italy in a first-class stateroom on             
an ocean liner. He was a hero among the Italian community, and was cheered                 
wherever he went.                                                                           
                                                                                           
There were signs of Ponzi's eventual ruin: a furniture dealer who had given                 
Ponzi furniture when he could not afford to pay, sued Ponzi to cash in on the               
gold rush. The lawsuit was unsuccessful, but it did start people asking how                 
Ponzi could have gone from being penniless to being a millionaire in so short a             
time. There was a run on the Securities Exchange Company as some investors                 
decided to pull out.                                                                       
                                                                                           
Ponzi paid them cheerfully and the run stopped. In fact, on July 24, 1920, the             
Boston Post printed a positive article on Ponzi and his scheme that brought in             
investors faster than ever. At that time, Ponzi was making $250,000 a day.                 
                                                                                           
Despite this reprieve, one of the editors of the Post was suspicious and                   
assigned investigative reporters to check Ponzi out. He was also under                     
investigation by the Commonwealth of Massachusetts, and on the day the Post                 
printed its article Ponzi met with state officials. He managed to divert the               
officials from checking his books by offering to stop taking money during the               
investigation; a fortunate choice, as proper records were not being kept. Ponzi's           
offer temporarily calmed the suspicions of the state officials.