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Ponzi Scheme – The Origins

March 16, 2015 by  
Filed under Blog

Whenever we talk about a fraud scheme or when the media reports on some scam, we always use the term ‘Ponzi scheme’ to describe it. Have you ever wondered where the name came from? In the insurance and scam investigation circles, the man behind the popular phrase is well known. But every day individuals don’t know who Charles Ponzi was and why his name became synonymous with fraud.

Today we will talk about this infamous man, who concocted a quick get rich scheme and forever became a symbol for scams and fraud schemes around the world.

Who was Charles Ponzi?

Charles Ponzi was an Italian immigrant who arrived in America in the early 1900s, most likely to find his American dream. He did some odd jobs to make a living and was never successful in anything; he stole or cheated in every position he held and got fired frequently as a result.

He eventually found a legal way to make some quick cash. He used to sell postal coupons in America that his acquaintance would send to him from his native Italy. But you can’t keep a good fraudster down for long. So, Ponzi came up with a scheme that would forever brand his name thus.

Ponzi’s Scheme

Ponzi came up with a plan to expand his business and attract investors. He offered investors an unbelievable deal that they couldn’t refuse; a 50% return on their investment in a matter of days. Initially, he made good on his promise and delivered the returns to his investors, so his business scheme took off. Soon he had a country wide operation and investors flocked to become a part of Charles Ponzi’s scheme.

He would take from the new investors and pay back the old investors and vice versa. Eventually, all the investors wanted to invest their profits in the scheme as well, so Ponzi put all the money in his own pocket. At the height of this scheme, Ponzi was earning $250,000 per day; he raked in millions via his scheme, but as they all do, this scam soon came crashing down as well.

The Fall

When Ponzi’s scheme grew, it attracted the attention of a lot of potential blind investors, but at the same time, smart money men and financial heads started paying attention to the man and his scheme. It was soon realized that the amount of money that Ponzi was receiving as investments, would require him to purchase over a $100 million postal stamps. This illuminating piece of information, coupled with the fact that the postal service only had about 30,000 stamps in circulation, spelled doom for Charles Ponzi.

He was caught and consequently served multiple prison sentences, after which he was deported back to Italy where he lived a meager life, far from his golden headed cane, and eventually died in this poor state.

So, now you know the man and the scheme that is the origin for the phrase ‘Ponzi scheme’. If you think you are dealing with a Charles Ponzi of your own, give us a call (800-960-6748) and we will use our investigative services to find out the truth.


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