No money being generated from the investment, only from future investors.
AKA Carlo Ponzi
Birthplace: Parma, Italy
Location of death: Rio de Janeiro, Brazil
Cause of death: Cerebral Hemorrhage
Remains: Buried, unmarked grave, Pauper’s Cemetery, Rio de Janeiro, Brazil
Religion: Roman Catholic
Race or Ethnicity: White
Sexual orientation: Straight
Executive summary: Get-rich-quick schemes
In the summer of 1920 a dapper and charming Italian immigrant named Charles Ponzi was raking in millions on promises to pay investors 50 percent interest in 45 days.
Charles Ponzi, alias Charles Bianchi or Charles Borelli, was an Italian immigrant to Canada, where he was convicted of forgery in a scandal that brought down Zrossi & Company, a Montreal banking firm. He was sentenced to three years in prison, but served only twenty months before being released. Within weeks he was arrested again, this time for smuggling illegal aliens from Italy into the United States. He was jailed for two years in a federal prison in Georgia, and after serving his sentence he settled in Boston, where he operated the famous swindle that now bears his name -- the Ponzi scheme.
Ponzi established the Securities Exchange Company, a one-man operation that offered coupons reflecting a purported investment in international reply coupons (IRCs). IRCs are legitimately sold in the postal facilities of many nations, intended to be enclosed with international correspondence and redeemed for return postage from the recipient's nation. At the time, IRCs were sold for a fraction of a cent less than the price of the stamps they could be redeemed for, so the plan's profitability seemed plausible to investors. In reality, though, the profit margin was so slim it would take millions of IRCs to make just a few dollars, but Ponzi promised his customers a 50% profit on their investment, payable in ninety days.
His coupons sold so briskly that Ponzi was able to make his first few rounds of payment to investors in only 45 days instead of 90, so word about the coupons spread quickly, and more and more people invested. He had started his business with a loan of $200, but within months he had two offices in Boston with a staff of dozens of employees processing sales, and he bought a modest mansion for the then-staggering sum of $35,000. Of course, there were no actual profits -- Ponzi had not actually bought the IRCs, only promised to, and he paid early investors with the funds derived from later investors.By the time the scheme collapsed his income was estimated at $1M per week, and latecoming investors were defrauded of between $7-$15M. Most of Ponzi's ill-gotten gains were seized in an involuntary bankruptcy hearing, and what little remained was spent in his subsequent legal battles.