If an investment deal seems too good to be true, it probably is. But when someone as charismatic as Charles Ponzi offers you the deal, it’s kind of hard to remember that. A bashful, colorful Italian, Ponzi arrived in the US in the early 20th century, a time when money became the driving force in America, and “get-rich” schemes were everywhere.
Ponzi seized the opportunity and gave people what they wanted – fast money. He used the old “rob Peter to pay Paul” trick and took it way too far. But Ponzi wasn’t your obvious, greedy thief. He didn’t run off with the money because he genuinely felt like he was helping his clients. Looks like the clever conman managed to fool even himself.
Everyone Wanted to Get Rich Fast
The years leading up to Ponzi’s arrival in the U.S. were a true time of change. WWI had just ended, and people felt it was time to get rich and enjoy life to the fullest. As a consequence, the concept of money changed dramatically. It was no longer for the well-born. It was for everyone to reach out and grab. It was to be made fast, easy, and in large quantities.
The newspapers at the time were filled with stories of brave entrepreneurs, young women marrying rich men, and poor people becoming rich overnight after inheriting their family’s fortune. Such a climate allowed promoters of “get rich” schemes to work their magic and fool the public by selling them outrageous dreams that anyone could become a millionaire.
What Exactly Is a Ponzi Scheme?
To clarify things, a Ponzi scheme isn’t the same as a pyramid. A pyramid scheme is when members make money off different members, with each person added recruiting more people. And in order to join the pyramid, you have to pay an initiation fee. But a Ponzi scheme is different. What makes it fascinating is that it all revolves around one person (as opposed to many members).
This one person is usually incredibly charismatic and can work their charms to convince you they can double the money you invested. Before Ponzi blew up, this scheme was called “robbing Peter to pay Paul.” Basically, you pay old investors back with new investors’ money.
Ponzi Wanted to Make His Mom Proud
Charles Ponzi was born in Italy in 1882 to a poor family that was rich in name. His mom was tied to the Duchy of Parma (a noble title founded in the 16th century), but by the time Charles was born, the money was all gone. His dad was a postman who desperately tried to make ends meet, and his mom was a bitter woman who clung to her royal heritage.
Growing up, Charles’s mom would tell him all about his family’s long-lost riches. She planted a seed in her little boy’s head that he would be the one to restore the family name and lift them back up to their rightful place in society. This idea stuck with Ponzi until the end of his life.
He Blew All His Money on His Rich Friends
Charles’s parents used what little money they had to enroll him at the University of Rome. At the time, less than %5 of the population could afford an education, so this was a huge opportunity for the young Italian. It was his golden ticket to the upper class.
But Ponzi wasn’t interested in school. He found it more important to fit in and show his wealthy friends he was one of them. So instead of reading books, he went to cafes and opera shows. And instead of spending wisely, he blew it all on expensive clothes. He ran through all of his family’s savings just to prove he was rich. The foolish spender never finished his degree.
He Dreamed of Making It Big in the US
Broke and without a degree, there wasn’t much left for him in Italy. So he decided to immigrate to the land of opportunity – the United States of America. He arrived in the US in 1903. Ponzi later told The New York Times: “I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me.”
The newcomer quickly learned English and worked as a dishwasher at a restaurant, where he slept on the floor because he couldn’t afford to pay the rent. But Ponzi wasn’t worried. He knew he would make it big. It was only a matter of time…
He Learned From His Boss How to Trick People
Ponzi felt things were a bit stale in the US, so he moved to Canada and found a job at a bank that was run by an Italian man named Luigi Zarossi. His encounter with Zarossi marked the beginning of Ponzi’s deceitful ideas. He saw that his boss wasn’t as honest as he claimed to be.
Zarossi offered his clients a better deal than other banks in the area. He offered them outrageously high-interest rates, but he wasn’t able to pay them back. So he took money from old investors to pay new ones, and as long as the money kept coming in, his customers didn’t notice. But less than a year after Ponzi had come to work for him, Zarossi packed his bags and fled to Mexico with his clients’ cash.
Ponzi Had Been to Prison Twice Before the Scheme
Ponzi’s first time behind bars came after he forged a check for $423.58. When his boss took off, he was broke and had to take drastic measures. But the police caught up to him pretty quickly, and Ponzi was sentenced to three years in prison on the outskirts of Montreal.
After 17 days out of prison, Ponzi found himself yet again behind bars. Why? Because he helped Italians who didn’t know English cross the border from Canada into the US. He was trying to do good, but his plans backfired. He spent another two years in prison, this time, in the US.
The Love of His Life Was a Humble Woman Who Didn’t Care About Money
Once he got out of prison, Ponzi headed back to Boston, where he met a beautiful young woman by the name of Rose Maria Gnecco. She was the daughter of a fruit merchant and wanted nothing more than a small home, children, and a humble lifestyle.
But Ponzi wanted to buy her jewelry, fancy cars, and a mansion. He told her all about his money-making plans and promised he would grant her the most lavish lifestyle in the world. Rose listened politely but insisted that none of it really mattered to her.
He Published His Own Magazine
Ponzi’s first big idea was to help international companies trade across borders. He rented a small office to get his business rolling but had barely any money to furnish it. With his half-empty office and a few rented chairs, Ponzi did his best to make things work.
He looked into advertising his business in foreign exchange magazines, but the ads were so expensive he decided to open a magazine of his own – The Trader’s Guide. It completely flunked because he didn’t have enough content to fill the paper and he wasn’t able to sell enough ads.
His Dreams of Becoming Rich Were Finally Coming Together
One day, Ponzi received a letter from Spain requesting a copy of his failed magazine, and in that letter lay a little coupon that was about to change his life forever. A postal reply coupon that Ponzi realized could make him rich beyond belief. So what exactly was this little piece of paper?
With this coupon, people could buy stamps that allowed them to send envelopes across countries. At the time, this was the only form of international currency. Ponzi realized he could buy a dollar’s worth of these coupons in Europe, and then and go to the US to buy five dollars’ worth of stamps, and then sell these stamps and make a profit. This marked the beginning of his criminal plans.
He Asked the Public for Money
Ponzi had to raise money to get his plan going, so he headed to banks, pitched them his idea, and then asked for a loan. One bank president laughed in his face and told him his small account was more trouble than it was worth. He kicked him out of the office and told him never to come back again.
Ponzi decided that if banks wouldn’t lend him money, he would sell his idea directly to the public. He knew he could raise money that way, as long as he offered people a very high return. So he set up a company called “Securities Exchange Company” or SEC.
He Knew He Was Going to Run into Trouble
Ponzi knew he wasn’t 100 % kosher here because he did an unusual thing when he incorporated the company. He wrote three names on the registration – John Dondero ( his wife’s uncle who had no clue about the whole thing), Gugliemo Bertoli (his former landlord who had passed away), and his own, Charles Ponzi.
He enlisted himself as company manager so that if anything were to go wrong, he would play it out innocently and claim he was just the little man in the venture. Even though Ponzi had faith in his idea, he knew he might run into trouble at some point.
Everyone Wanted to Give Ponzi Their Money
Ponzi told his investors he would take in any amount of money and pay them back with a whopping 50 % interest in 90 days. He later changed it to just 40 days! The audience was taken, and everyone wanted to give Ponzi their money.
In his first month of business, he brought in around $1,700. After a few months, he was bringing in around $30K a week, and after six months, he brought in two and a half million dollars (in today’s money, that’s around $32 million).
Fraud Attracts Fraud
The absurd thing is that some people knew exactly what Ponzi was doing. But instead of spreading the word, they decided to embrace his con ways and do exactly the same. They took advantage of the huge lines in front of Ponzi’s office and opened their own offices right next door.
Obviously, Ponzi wanted them gone, but he couldn’t do anything about it. Because what was he supposed to do? Call up the police and explain how fraudulent his neighbors were? They were doing the same thing he was! Ponzi had nothing to do but let his imitators do their thing.
He Took Over the Banks
As more money rolled in, Ponzi decided it was time to take over the big boys in the financial field – the banks. He invested in several banks in Boston in order to slowly gain control over them. Which, amazingly, he did.
He ended up owning the same bank that had kicked him out a few months earlier when he asked for a loan. He had deposited so much money into them that he knew if he were to withdraw it all at once, that would be the end of them. They relied on him, and he became the majority shareholder.
He Could Have Run Off With the Money, but He Didn’t
At this point, Ponzi was swimming in cash. He didn’t need to go along with this anymore, and he could have just run off with all his accumulated wealth. He could have gone back to Italy and put the whole US saga behind him. But he didn’t.
He enjoyed his life in Boston way too much. He was the talk of the town and the most respected person around. He drove his Locomobile (fancy car) everywhere and impressed his clients with how filthy rich he was. But the fact that he didn’t run away with the money doesn’t mean that what he did was okay. At the core of all this lay a big, fat lie.
People Started to Catch On to Ponzi’s Scheme
This is when things started to get messy. The editor of the Boston Post, Richard Grossier, felt that something was terribly fishy about Ponzi and he decided to go after him. He used his power as a publisher to spread the word about this tricky man.
The first time Ponzi appeared in The Boston Post was innocent. Grossier simply described what Ponzi was doing. He hoped that once his actions were printed in black and white for people to read, they would understand how impossible the whole thing was. But his post just caused more people to arrive at Ponzi’s office, cash in hand.
Ponzi’s Returns Made No Mathematical Sense
Grossier wasn’t the only one who was suspicious. Financial journalist Clarence Barron joined in and explained that Ponzi’s returns, once calculated, were mathematically impossible. He published a paper explaining how improbable it was that Ponzi was speaking the truth.
Ponzi threatened to sue both Grossier and Barron, claiming he would rob them of everything they owned. Well, that didn’t happen, and the conman was slowly sinking into the muddy mess he created. Finally, Ponzi wasn’t feeling so confident anymore.
He Had to Stop Accepting Money
Ponzi knew he had to stop accepting money, at least for a little bit, until the newspapers calmed down and law enforcement stopped snooping around his business. The moment he announced he would not be accepting more clients, people lost it. There were outbreaks of violence outside his office, and people forced themselves into the building through the windows.
Finally, on Friday, July 30th, The Boston Post wrote something that shut everyone up: “New York Postmaster says there aren’t enough international reply coupons in the world to make the fortune that Ponzi claims.” That headline made it clear to everyone – Ponzi had tricked them.
The Skeletons in His Closet Resurfaced
Things heated up even more when the public found out about his criminal past in Canada. His time in prison was revealed to the masses, and his story was published in the news with his mug shot underneath the title.
Ponzi was especially humiliated because he hadn’t told Rose about his past troubles. But Rose took his time in prison as evidence of his good nature. She loved him more than anything else and appreciated how he had taken the fall for the Italians he helped smuggle into the US.
He Couldn’t Bear the Humiliation, so He Turned Himself In
Ponzi didn’t wait for the police to arrest him. He went down to the station and turned himself in before anyone could humiliate him in front of his wife. He was initially charged with mail fraud, which was funny because he barely used the mail and never fulfilled his postal coupon idea.
Unable to post bail, the conman was sentenced to five years in prison. His wife, Rose, still stood by his side. She told the press: “I love my husband more than ever. My faith in my husband is as unshaken as it was before.”
Unable to Afford a Lawyer, Ponzi Defended Himself
Even behind bars, Ponzi kept getting more and more charges thrown at him. He found himself yet again in court, but this time, with no lawyer to defend him. So he decided to represent himself. He arrived to court impeccably dressed as always and amazed everyone with his sharp wit and quick responses.
He knew exactly what to ask and what to say in order to convince the jury of his innocence. So he wriggled his way out of those additional charges, and after four years behind bars, Ponzi was let out early for good behavior.
He Flew the Country, but His Big Mouth Got Him in Trouble Again
After three short months, the conman found himself back in the courtroom for additional charges. And this time, he wasn’t able to sweet talk his way out of it. He was sentenced to nine years but was allowed to go free on bail while his appeal was pending. Ponzi saw this as the perfect time to run off.
He faked his suicide and boarded an Italian ship under a false name to work as a dishwasher and waiter. But he couldn’t keep his mouth shut for long, and he let his secret slip to one of the passengers. The news spread on board like wildfire, and Ponzi was escorted back to prison for good.
What Happened to Ponzi?
He was released from prison in 1934 and deported back to Italy. Rose stayed in Boston, and despite the great love between them, she divorced him because they couldn’t make a long-distance relationship work. Ponzi tried to make some money off his story, writing memoirs and all that, but no one seemed to care about him anymore.
He moved to Brazil in 1939 and rented a small rooming house. A decade later, at the age of 66, Ponzi died in a hospital in Rio De Janeiro. Before his passing, as he lay sick in the hospital, he came clean to a reporter and said he never intended for things to happen as they had, and he really believed he would be able to pay everyone back.
What Happened to His Investors?
After the scheme collapsed, some lucky investors managed to get in and out of the whole ordeal quickly, with no harm done. Others got back 37% of the money they had invested but ended up with nothing because that money was a loan they had taken to invest in the first place.
Some people were so distraught by the whole scheme that they felt the money was distasteful and refused to take anything back. All the banks Ponzi had done business with were also pretty much doomed and under a lot of scrutiny from banking inspectors.
There Were So Many Contradictions in Ponzi’s Character
Charles Ponzi wasn’t an obvious greedy villain. He was pretty generous with his money. He would buy kids on the street ice cream and candy, and he would give his friends as much money as they needed, never demanding it in return.
The fact that he had this huge contradiction in his character means that we can’t just make him out to be a simple, devious conman. He never ran off with the money, and he genuinely believed he could make it all work out. The New York Times once said that among all the people Ponzi managed to fool, he had fooled himself most of all.
Modern Day Ponzi – Bernie Madoff
The notorious Bernie Madoff was born in 1938, a few years before Ponzi passed away. The two men have one main thing in common – they knew what people wanted and found a way to bank on it. But Bernie surpassed Ponzi and created the biggest Ponzi scheme in history.
While Ponzi rose and crashed in less than a year, Madoff managed to scheme thousands of investors over the course of 17 years! Tens of billions of dollars rolled around this man’s fake business until an accountant named Harry Markopolos blew the whistle on him.
Bernie Is Still Alive, but Both of His Sons Are Gone
Both Madoff’s sons were involved in his business yet had no idea what their dad was up to. They believed everything was legit and that their dad was as straight as an arrow. His arrest was impossible to stomach, and his family’s reputation was tarnished for life. Two years after his arrest, his son did the unthinkable.
Bernie’s eldest son, Mark, couldn’t handle the shame and grief, so he decided to take his own life. He hung himself with his dog’s leash. He had already tried to commite suicide before and even left a note saying: “Now you know you have destroyed the lives of your sons by deceit. F*ck you.” But this time, he left no note. His younger son, Andrew, died of cancer four years later.
Madoff Wants Early Release Because He’s Dying
Madoff was sentenced to 150 years. He is currently held in a federal prison in South Carolina but is seeking compassionate release. He’s terminally ill with kidney disease, and doctors say he has only 18 months to live.
Bernie doesn’t want to spend them behind bars, and his lawyer is pushing for them to let his client out. For now, things aren’t looking so good for the fraudster. His request is being consistently denied, and it looks like he is going to leave this earth behind bars.
Larry King Fell For Madoff’s Tricks
One of the most recognizable hosts out there, Larry King, also fell prey to Madoff’s vicious scheme. The two met through King’s childhood friend, Fred Wilpon. At the time, King and his wife were looking for an investment firm, and Madoff seemed to be the perfect fit.
He entrusted the man with $700K and, luckily, got it all back. King admitted: “If I could interview one person on the planet, it’d be Bernie Madoff, and the obvious [question] would be ‘Why? Why did you do this to people?’” I bet a lot of people would like to hear his answer.
Ellie Wiesel Says “Psycopath” Is Too Nice of a Word to Describe Madoff
Noble Peace Prize winner and Holocaust survivor Ellie Weisel was one of Madoff’s famous clients. His charity lost $15.2 million, and all his life savings evaporated due to this deceitful conman. He mentioned, “This was a personal tragedy where we discovered all of a sudden what we had done in 40 years, my books, my lectures, everything was gone.”
According to Weisel, calling Madoff a “psychopath” is too kind of a word to describe the cruelty of the man: “Psychopath means there is a sickness, a pathology. This man knew what he was doing. I would simply call him a thief, scoundrel, criminal.”
The Wizard of Lies
In 2017, Madoff’s scheme reached the screens but, this time, the messy ordeal was played out by Robert De Niro as Bernie and Michelle Pfeiffer as his wife. The casting choice is incredible. It’s creepy how similar De Niro and Madoff are (visually).
1.5 million viewers watched its premiere on HBO, and additional replays and views through streaming added up to a total of 2.4 million people for its premiere weekend! People find these types of stories incredibly interesting because it’s hard to fathom how someone could do such a thing.
John Malkovich Was Humbled by His Loss to Bernie
Actor and film producer John Malkovich is yet another celeb who fell for Madoff’s act. But the way he reacted when he discovered he lost $2 million to the conman is simply incredible. He said, “I don’t view it as a negative experience. To me, it was, ‘You think you have a bunch of money – and you don’t.’ So what? Most people don’t (have a lot of money). I think it kind of reconnected me to how most people live all the time.”
John said he had to work non-stop the decade following his tremendous loss. But as you can see from the quote noted above, he didn’t let it wear him down. He appreciated the fact that he was still alive and lucky enough to have a job.
Where’s Ruth Madoff?
Bernie’s wife, Ruth, got a ton of heat after her husband’s cruelties were exposed. Whether she knew of his wrongdoings or not was irrelevant to the masses. All they wanted was to tear the whole Madoff family down.
Ruth lost everything: her family, money, and friends. Some loyal companions still keep in touch, but a lot of people couldn’t go on talking to her. It’s incredibly sad, considering she swears she had no idea of her husband’s sick plans. She now lives in Old Greenwich, and neighbors say her life is pretty comfortable.
So What Can We Learn From All This?
As mentioned at the beginning, if something seems too good to be true – it probably is. Don’t let personality traits fool you into believing the person in front of you is speaking the truth. Charisma, wit, and intelligence are wonderful, but those qualities say nothing about the person’s honesty.
Ponzi schemes occur because people have faith in others and feel like financial issues are too complicated to understand, so why to bother looking closely at what’s happening with their money. Well, that’s a huge mistake, and you should always be wary of whose hands you give your hard-earned cash to.