Charles Ponzi and the Ponzi Scheme

      Charles Ponzi was a financial criminal and used the Ponzi Scheme, now named after him, where he paid back investors who gave him millions with the money of other investors. Ponzi started his business as a bank teller in Montreal at the Bank Zarossi, which was mainly for Italian immigrants and had absurdly high interest rates. Soon enough, the bank failed and Zarossi fled with the money to Mexico leaving Ponzi impoverished.

       Finding a checkbook, Ponzi forged a check and cashed it in, but due to the massive amount of wealth he deposited, the police became suspicious. Ponzi was caught and sent to three years in prison. After getting out, moving to the US, and failing at making money, Ponzi happened upon an IRC and found an exploit to make profit. An IRC is an international reply coupon, which could be exchanged for stamps across countries. However, the prices of each side are usually different, so Ponzi used the IRCs by buying in European countries, trading them in for higher priced US stamps, then immediately selling them for a huge profit. Ponzi blew up this exploit, creating a stock company to let the public supply the money needed to buy the IRCs, giving, at one point, 50% interest in 90 days. He created the Security Exchange Company to expand even bigger, and more investors were won over. He made more than a million dollars a week and was rapidly rising. With so many US stamps in Europe, Ponzi realized that it would be impossible to actually sell all of them, but investors kept on investing. Thus, Ponzi kept on paying them with the money from other investors and kept that cycle going. This was the essence of the Ponzi scheme, as the profits he had hoped from selling the US stamps would be impossible, but he was profiting from this scheme through the zealous investors.

                                                           

       This scheme eventually caught up to Ponzi, as investigations from all sides showed evidence that Ponzi was actually 7 million in debt, but he was making profit from liquid funds. On August 12th, 1920, Ponzi surrendered to federal authorities and was charged with 86 counts of mail fraud and 22 accounts of larceny. He served several years in prison on account of these charges and was deported to Italy after it was revealed that Ponzi never became a citizen. He died in Brazil as an Italian translator in 1949.

       Even though Ponzi did not invent the scheme, he was one of the most infamous users. Ponzi schemes still happen to this day, notably the 2008 incident by Bernard Madoff which is said to be the greatest financial fraud in history.

Sources:
http://www.biography.com/people/charles-ponzi-20650909
https://en.wikipedia.org/wiki/Charles_Ponzi
http://mentalfloss.com/article/20377/who-was-ponzi-what-was-his-scheme
http://www.celebrateboston.com/crime/ponzi-scheme.htm