Situated along Boston’s Hanover Street in the early 20th century was the former site of the Security Exchanged Company. This company, much different to the similarly named Securities and Exchange Commission, was the business under which Charles A. Ponzi operated one of the largest money schemes in the history of the United States.
Charles Ponzi emigrated to the US from Italy in 1903 with only $2.50 to his name but with the conviction to build an empire. Shortly after being fired for stealing from a restaurant where he was working he noticed an apparent loophole or opportunity to actually profit via the acquisition of Postal Reply Coupons.
Postal Reply Coupons, or International Reply Coupons if you are unfamiliar, allow an individual to purchase postage in their resident country and then exchange it for equitable postage in another country. Due to factors such as inflation and exchange rates, one could profit by as much as 400% of the exchange of such coupons, albeit in small individual sums.
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| Charles Ponzi |
Money began to pour in so quickly that it was stacked up in Ponzi’s office before being deposited daily in massive sums at the nearby Hanover Trust Bank of Boston (also located on Hanover Street). Concerned over appearances on depositing such continual large sums, Ponzi actually acquired a controlling interest in the bank to ensure no questions over the funds arose.
Questions did arise though, in 1920 when a Boston writer explored how Ponzi’s return was economically improbable due to the short investment period. Ponzi immediately retaliated on the author and sued him for libel for which he actually won a $500,000 settlement. This, however, did not fully deter skeptics. In a July article in the Boston Post, Clarence Barron (the founder of modern financial journalism) made two notable observations. The first point Barron inquired about was, if Mr. Ponzi’s scheme is so fantastic and fool proof, then why was it that he himself not an active participant with his own funds? Secondly, and more damning, was the point that based upon known investments, 160 million postal reply coupons would be required to be in circulation. Per the United States Postal Service, however, only 27,000 coupons were in circulation.
Rather quickly things began to unravel for Charles and by August of 1920 he was arrested on mail fraud charges. Ponzi was exposed for never having invested in postal reply coupons. He had simply taken the funds from later investors to pay off earlier investors. Robbing Peter to pay Paul as the saying goes. Ponzi’s once vast $7 million businesses had collapsed almost overnight into $4.5 million in debt and all his outstanding investors were left with a return of only $
For their efforts, the Post won a Pulitzer Prize in 1921. And, Charles, well he spent most of the next 14 years in jail before eventually being deported back to Italy. The scheme he made famous, however, continued to live on most recently via Bernie Madoff in 2009. Despite the fact that the Ponzi scheme is named after himself, Charles did not actually come up with the scheme. It’s unknown who was the first to actually come up with and use the investment scam, however, the concept was noted back as early as 1857 in Charles Dickens’ novel, Little Dorrit.
- Website: http://en.wikipedia.org/wiki/Charles_Ponzi
- Address: Hanover Street, Boston, MA
- Cost: Free to invest time learning about, not free if you choose to participate in one
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