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Nobody knows who did it first. Swindlers have been pulling off the scam for centuries, paying existing investors with the deposits of new ones to create the illusion of an incredibly profitable investment opportunity. Before 1920, it was known as “robbing Peter to pay Paul” or “the Peter-to-Paul scheme.” For example, Sarah Howe, a fortune-teller and frequent guest of the State Lunatic Asylum in Massachusetts, employed it in 1880 to take in nearly $500,000 from her followers. In 1884, former president Ulysses S. Grant fell victim to such a scheme that left him penniless.

But it was Charles Ponzi who, in Boston in 1920, earned permanent naming rights to the scheme by dazzling the investing public and dumbfounding authorities like no other. That sweltering summer, Bostonians of every stripe were all but begging this diminutive investment banker to take their money for an unheard-of return: 100 percent in 90 days. In less than a year, Ponzi raked in nearly $7 million⁠⁠—more than $90 million in today’s dollars. His downfall came as swiftly as his meteoric rise.

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi was born on 03 March 1882 in Lugo, Italy. His father, a postal worker, died when Carlo was ten, leaving the family without a breadwinner. His mother, Imelde, was descended from Italian aristocracy. She sent Carlo to the University of Rome with just enough money to earn a degree, and high hopes he would use it to prosper and restore the family to its erstwhile rank in society.

Carlo dashed any such hopes. He loved college, 500 miles from home, but not for the education. There he enjoyed the life of a bon vivant, skipping classes and befriending students from more privileged families. He spent much of his money on fine dining and equally fine clothing, and by picking up more bar tabs than books. He returned home penniless and diploma-less.

Determined to patch things up with his unhappy mother, Carlo vowed to sail to America, scoop up some of the gold rumored to line its streets, and become a very rich man. He left Naples on 03 November 1903 with $200 in his pocket. He arrived in Boston with $2.50, the balance in the pockets of cardsharps who earned their living from unsuspecting immigrants on ships.

Ponzi found making money in America rather harder than he’d expected. For nearly four years, he worked as a grocery clerk, factory hand, dishwasher, waiter, and painter. He did repair work, folded laundry, and anything else to keep food in his belly. He took the first name Charles and a variety of surnames other than his own, including Bianchi, Ponsi, Ponci, and Ponce.

Ponzi did not limit his job search to Boston. Willing to go anywhere for employment that exercised his mind and not just his back, he found it in Montreal in July 1907. There, a man by the name of Louis Zarossi hired him as a bank clerk after a 5-minute interview. He fit right in at Banco Zarossi, which did a booming business catering to the Italian immigrant community and paying 6 percent interest to depositors⁠⁠—three times the rate other banks offered. And he did so in a most unscrupulous manner.

Among Zarossi’s customers were not just depositors but immigrants who gave him money to wire home to family in Italy. Some of these funds he simply stole, using it to pay his depositors their promised 6 percent. It could take months for wire customers to complain, and when they did he pleaded ignorance and laid blame on the receiving end. Nobody can say exactly how much Zarossi stole in this manner, but in July 1908, he filled a suitcase with cash and fled to Mexico.

Again out of work and tired of earning money in the conventional manner, Ponzi one day entered the office of the Canadian Warehousing Company, a former Banco Zarossi customer. The office staff knew and trusted Ponzi. While nobody was looking, he located their company checkbook, removed a check, and slipped it into a pocket. Later, he wrote it out to himself in the seemingly authentic amount of $423.58, then carefully forged the signature.

After cashing the check and visiting a number of clothiers to outfit himself in style, Ponzi found his buying spree short-lived. Bank officials suspected the authenticity of the check’s signature. They contacted the police, who had little trouble finding and arresting him. He feigned mental illness by chewing a towel to shreds, then wildly climbing a wall toward a barred window. Convincingly calmed by a straitjacket, he earned an upgrade to the infirmary by persuading his jailer he suffered from epilepsy. His insanity act only went so far. Ponzi was ultimately sentenced to a three-year term at the Saint-Vincent-de-Paul Penitentiary, his jailers settling on the name of Charles Ponsi.

At the penitentiary, he crushed stone, slept on a bed of corn cob husks, and shared a cell with an especially nasty convict named Louis Cassullo. Ponzi would later describe him as “one of those prowling, petty, sneaky thieves whose counterparts in the animal kingdom are the hyenas and the jackals.” After serving a term shortened to 20 months for good behavior, Ponzi was only too happy to bid farewell to his unpleasant cellmate.

Not three weeks later, after living with friends and doing odd jobs to earn a bit of money, Ponzi hopped on a train headed back to the U.S. Sitting with him were five other Italians, all recent immigrants who spoke no English and lacked proper papers. They appreciated his company, advice, and interpretation skills, all of which he would soon regret providing. When a customs official questioned the group, Ponzi was assumed to be their leader, despite his protestations that he did not know the men. Bias against immigrants of Italian origin⁠—also known as Anti-Italianism⁠—was the discrimination du jour. Ponzi was arrested on charges of smuggling aliens. At trial, prosecutors secured a conviction, aided by the testimony of the other Italians, each of whom testified against Ponzi in return for their release.

Ponzi was sentenced to two years at the federal penitentiary in Atlanta. Upon release, he wandered the Southeast U.S. for the next five years working a variety of jobs⁠⁠—bookkeeper, translator, painter, librarian⁠⁠—before finding himself back in Boston.

There, in 1917, Ponzi landed a most promising job as a clerk for the J.R. Poole Company, an import/export firm. His job was to keep track of foreign operations. The starting pay of $16 a week was not great, but soon rose to $25, and then $50.

•     •     •

In May of 1917, Ponzi met and married Rose Gnecco, the daughter of a produce merchant. Rose enjoyed their modest, newlywed lifestyle. But Ponzi was determined to make her the wife of a millionaire. “I want you to be able to throw away a hundred dollars,” he told her.

In September 1918, Ponzi quit his job at J.R. Poole to help run his father-in-law’s failing produce business. Ponzi was confident he could turn things around and turn the shop into a commercial empire with himself at the helm. Instead, the business quickly went into bankruptcy. Ponzi found himself again out of work, but not out of ideas for getting rich, this time as a commodities broker.

Unfortunately, the first commodity he tried to sell apparently belonged to someone else. In May 1919, authorities served Ponzi a warrant for stealing 5,387 pounds of cheese. It’s unknown whether the warrant was warranted. As the investigation got under way, Ponzi feared that once authorities learned of his two prison sentences, he might be deported. He feared too that Rose would learn of his criminal past, in the mistaken belief she did not already know. During their engagement, his mother had told Rose all about his prison stints, and both women decided not to tell him Rose was privy to his past. But Ponzi had a lucky break⁠—a misspelling of his name on the cheese charge court documents, as “Charles Pouzi,” led to the dismissal of charges.

Ponzi then decided to publish an international trade publication he called the Traders Guide, in which advertisers would pay for listings seen in every corner of the world. So confident was Ponzi in his new scheme that he rented office space, bought $350 of furniture on credit from the Daniels & Wilson Furniture Company, and hired a small staff.

Ponzi quickly exhausted his meager savings. To keep the operation afloat, he applied for a loan at the Hanover Trust Company. Henry Chmielinski, the bank’s president, turned him down personally. Ponzi reminded him he was already a loyal customer of the bank. Chmielinski added an insult Ponzi would never forget: “Your account is more of a bother than a benefit to us. Good day, sir.” Ponzi returned to his office and laid off his staff.

Not long after the demise of the Traders Guide, in August 1919, Ponzi received a letter from a merchant in Spain asking about it. Enclosed with the letter was a curious, official-looking square of paper. It was an International Reply Coupon, or IRC. Created in 1906 by a multinational body of postal services to simplify the international exchange of mail, one could buy an IRC at a local post office and enclose it in a letter sent to any of the participating countries. There, the recipient could redeem it for whatever local postage stamps were required to send a return. Staring at the coupon, Ponzi at last realized how he could make millions. And this time he was right.

International Reply Coupon
International Reply Coupon

Known today as arbitrage, the strategy Charles Ponzi devised was theoretically sound. Owing to interest rate and foreign exchange fluctuations among countries, say the United States and Italy, one U.S. dollar could buy 20 IRCs in Boston⁠⁠—or more than 60 in Rome. Hence Ponzi knew he could have someone buy IRCs in Italy for roughly 1.5 cents each, and send them back to the U.S., where he could sell them for 5 cents each, earning the eye-popping profit of 233 percent⁠—more than enough for him to offer investors a tantalizing 50 percent return in 45 days, or 100 percent in 90, and keep the rest for himself. He just needed funding to get things started.

As Ponzi set about looking for investors, the Daniels & Webster Furniture company came looking for him. He had fallen behind on his payments for his office furniture. With unbridled confidence and charm, Ponzi convinced Joseph Daniels to not only hold off on repossessing the furniture, but to essentially convert his obligation into a loan. Daniels even wrote Ponzi a check for $20 as a further investment in the IRC operation.

Ponzi tried but failed to convince other acquaintances to trust him with their money, including the grocer Ettore Giberti. Giberti was walking out the door after politely declining Ponzi’s offer to invest, when Ponzi sweetened the offer: Invest just $10 and become his first sales agent, keeping 10 percent of whatever Giberti raised. This did the trick. By early January 1920, Giberti had raised $1,770 from 18 investors. More agents soon came on board, as did a modest stream of small investors.

While essentially legal, Ponzi’s IRC idea was in practice absurd. Beyond the problem of how to compete with the U.S. Postal Service for selling stamps, there were simply not enough International Reply Coupons in existence to make any significant profit through arbitrage.

At the end of February 1920, Ponzi owed $2,655 to Giberti’s initial investors⁠⁠—their $1,770 capital plus $885 interest. Ponzi had no arbitrage profits with which to pay them. But he had money from more recent investors, so he simply used that, dipping into funds from Peter, as it were, to pay Paul. He claimed the gains were legitimate, that an associate named Lionello Sarti had gone to Italy and returned with large quantities of coupons, along with the fortunate news there were plenty more to be had. It’s very likely Sarti never existed⁠⁠—nobody other than Ponzi would ever report meeting the man. Ponzi’s satisfied investors didn’t care as long as they were getting paid.

Ponzi saw his February deception as a stopgap, necessary only until he generated the juicy profits that to him were so obviously available through his IRC strategy. When word got out that Ponzi’s word was good, that he actually did pay 50 percent in 45 days, more people clamored to invest. When the next investors were due their interest, he again used the proceeds from the newest investors. And then again and again. The stopgap didn’t stop. And Charles Ponzi would never again have to ask investors for money. From then on, they asked him to take it.

Bostonians literally lined up at the door of Ponzi’s office at 27 School Street to entrust their money with him. In February 1920, Ponzi’s Securities Exchange Company took in $5,290 from new investors. In March, 110 investors turned in nearly $25,000.

Most of the people gathering at his door had only a few dollars to spare. Ponzi tailored his pitch directly to them. Climbing atop the stoop, which helped to augment his 5 feet 2 inches of height, he spun a story of humble beginnings in Italy, of descending the gangplank in Boston with a mere $2.50 in his pocket, then toiling tirelessly in the years since. He intended to build a financial operation that would benefit not Wall Street bankers, he told the mesmerized crowd, but honest and hard-working people just like them.

His populist appeal, playing on fears that rich bankers were keeping exorbitant profits to themselves, would remain the foundation of Ponzi’s pitch. Far from hiding his humble days of barely making ends meet, he was happy to talk with prospective investors about the years of working one menial job after another. It made a moving story. But he left out the part about going to prison for check forgery, knowing it would spell the end of his reputation as a legitimate financier.

So it was with no little alarm that one day he recognized the face of one of the many people applying for a job at his office. It belonged to Lou Cassullo, his former cellmate from Montreal, who had tracked Ponzi down after learning of his success. The man Ponzi compared to a hyena knew very well that Ponzi could ill-afford for anyone to know of his prison past, and Ponzi knew that he knew. Cassullo soon found himself on Ponzi’s payroll, accepting a generous paycheck and helping himself to a few bonus bills whenever he chose. Ponzi wanted him out. With Prohibition in full swing, he once tried to get his new hire arrested by sending him out to buy a few bottles of his favorite whiskey. But Cassullo just returned with the booze.

Whether Cassullo kept his mouth shut or not, Ponzi feared that sooner or later law enforcement would take an interest in his operation. And one day, the Boston police did indeed send two detectives to look it over. Ponzi put on an especially convincing show for the two men, each of whom deemed the plan legitimate, then pulled out their wallets and invested on the spot.

Five police inspectors and a lieutenant would eventually put their money into Ponzi’s Securities Exchange Company, as would hundreds of street cops. Several in fact became agents, earning the 10 percent commission and giving his operation a veneer of legitimacy no money could buy. By the spring of 1920, Ponzi was taking in $30,000 every week. In May alone, 1,525 investors contributed $440,000. In June, nearly 8,000 investors entrusted Ponzi with $2.5 million, equivalent to $32 million today.

A photo from a Ponzi photo shoot
A photo from a Ponzi photo shoot

Flush with cash, Ponzi paid off all of his debts, including $200 he still owed on his loan from furniture dealer Joseph Daniels. He invested in the Splendor Macaroni Company. And the Napoli Macaroni Company. He bought real estate.

It had taken nearly 17 years, but by June 1920, Charles Ponzi had at last made good on his promise to his mother. Now a very rich man, he sent her first-class tickets to sail to America. Imelde arrived to join the Ponzis in their life of American aristocracy at a newly decorated mansion in the affluent town of Lexington, Mass., basking in wealth that only grew with every new investor.

By the end of June, the sheer amount of cash coming in the door at 27 School Street overwhelmed Ponzi’s growing staff. His bookkeeper is said to have put cash into wastebaskets until it could be counted, sorted, and deposited in a bank⁠⁠—minus whatever bills Cassullo deposited into his pocket.

Ponzi could have kept his money at any of Boston’s banks. Curiously, his favorite was Hanover Trust, whose president Henry Chmielinski had rudely turned him down for a loan several months earlier. By June, Ponzi was the bank’s largest depositor, which ensured Chmielinski would never again do anything to risk offending him. Because banks lent out depositors’ money to other customers as loans, a sudden withdrawal by a large depositor would prove disastrous. Well aware of this fact, Ponzi enjoyed his position of power.

As summer got into full swing, with so many Boston police among his happy investors, inquiries into the legitimacy of Ponzi’s operation were minimal. But there were some. In July, U.S. postal authorities issued a formal ban against anyone redeeming more than 50 cents’ worth of IRCs at one time. This made it all but impossible for anyone to turn a large-scale profit by trading in IRCs. But that fact was now moot. By mid-July, Ponzi was taking in $1 million a week, about $13 million in today’s dollars, from investors. He delivered on his promise of exorbitant returns, and to them that was all that mattered.

On the same day U.S. postal authorities issued their ban, a lawyer for furniture dealer Joseph Daniels filed a lawsuit against Charles Ponzi. The suit claimed that, in return for loaning Ponzi some office furniture and giving him a check for $20 back in December, Daniels was entitled to half ownership of the Securities Exchange Company. He wanted $1 million.

Lawsuits for seven-figure sums were still newsworthy at this time. When The Boston Post put it on the front page of its Sunday, July 4 edition, one reader took particular interest⁠—state banking commissioner Joseph C. Allen, a quiet but diligent public servant, whom Governor Calvin Coolidge had just recently appointed to office. Reading about the Ponzi lawsuit, Allen went to Massachusetts Attorney General J. Weston Allen (no relation) to recommend an inquiry. Something about Ponzi didn’t seem right, the newly appointed Allen told the veteran Allen. Sensing a newcomer treading on his turf, the attorney general told the political neophyte to back off. Commissioner Allen eased off as ordered⁠—but his suspicions about Ponzi did not go away.

The Daniels lawsuit had also piqued the curiosity of Robert Grozier, who had recently become publisher of The Boston Post when his father Edwin Grozier fell ill. The younger Grozier never sought nor wanted his father’s position, nor had the son of privilege shown a talent for this or any other job requiring intellectual acumen. He flunked out of Harvard three times⁠⁠—freshman composition had been especially challenging, which is never a good portent for a journalist. Grozier was the first to recognize his own limitations. Out of family obligation, he felt he had little choice but to watch over the venerated Boston Post for his dad.

Ponzi’s dealings with Hanover Trust continued to grow. In addition to keeping most of his money in its vaults, he also began buying the bank’s stock and making friends with other shareholders. When the bank announced plans to issue a new block of 2,000 shares, Ponzi made a visit to Mr. Chmielinksi and offered to buy them all. Chmielinksi refused him⁠⁠—politely this time⁠⁠—on grounds this would give Ponzi control of the bank. This was exactly what Ponzi had in mind. When he made a casual inquiry about his current, very large balance, Chmielinski relented some. He told Ponzi he could buy 1,500 shares. Ponzi accepted. With his ties to other shareholders, who would soon elect him a director and then to a position on the executive board, Charles Ponzi effectively controlled the Hanover Trust Bank. He would soon make plans to put this new power to use.

When news of the stock purchase reached commissioner Allen, he again decided to make an inquiry into Ponzi, with or without anyone’s permission. This time the other Allen went along, sending two assistant attorneys general to join the commissioner in a meeting with Ponzi at the Boston state house.

Ponzi had no legal obligation to comply with the invitation but eagerly attended anyway. His pitch polished to perfection, Ponzi handled every question with aplomb, indeed feeling intellectually superior to the government officials. “I was almost ashamed to match wits with them. It was like stealing candy from a baby,” he would later say. After Ponzi left the meeting, the officials agreed that his strategy seemed plausible and could find no reason to stop him.

Given that investors could only be paid as long as new ones kept showing up, Charles Ponzi was well aware that no Peter-to-Paul scheme could last forever. With the IRC strategy no longer an option and authorities beginning to take interest, he devised a number of plans to go legitimate. Among the most grandiose was a plan to buy Navy ships, mothballed since the end of World War I, and turn them into giant floating showrooms where American manufacturers could bring samples of their wares to foreign ports.

Ponzi did not believe he was doing anything fundamentally wrong by paying off investors with other investors’ capital, convinced that in the end he would meet his liabilities through fully legitimate means. He wanted to be sure the public knew of his legitimate business plans, and to help with that he hired William McMasters, a straight-laced publicist with an exceptionally bright future. McMasters had earned his reputation helping numerous public officials to get elected, including political luminaries such as John F. “Honey Fitz” Fitzgerald⁠⁠—future grandfather of President John F. Kennedy. McMasters began work 23 July 1920.

Charles Ponzi en route to a court appointment
Charles Ponzi en route to a court appointment

On 24 and 25 July, The Boston Post ran back-to-back feature stories on Ponzi and his operation. These were generally upbeat and positive⁠⁠—Robert Grozier carefully avoided printing anything that might bring on a libel suit and put the family newspaper at risk⁠⁠—mentioning only that federal authorities were investigating Ponzi’s operation. But on 26 July, the Post reported the more ominous news that respected financial authority Clarence Walker Barron, whose name remains to this day on the masthead of the financial and investment publication Barron’s, found the plan implausible. The stinging indictment might as well have been a full-page endorsement. In the following days, the number of new investors only grew. Ponzi took in $6.5 million from nearly 20,000 investors that month. To date, nearly 30,000 men, women, and even a number of children had entrusted him with a total of $9.6 million.

While the stories excited investors, Ponzi knew they would also excite additional authorities who would soon come knocking. Rather than wait, he decided to go to them. With McMasters at his side, Ponzi hurriedly arranged meetings with U.S. District Attorney Dan Gallagher, County District Attorney Joseph Pelletier, and Attorney General J. Weston Allen. He did not arrange a meeting with commissioner Allen, convinced that their earlier meeting had assuaged any of his concerns.

With McMasters taking notes, Ponzi made an astonishing offer to each of the authorities: He would open his books to an auditor of their choosing, to prove he had sufficient assets to meet his liabilities. This was of course impossible⁠⁠—but only if he limited the assets to his own.

Ponzi calculated he would need to show $15 million in cash and other liquid assets to prove his solvency. But he had, at most, only half of this amount. For the rest, he planned to simply walk into Hanover Trust when the day of reckoning came and, as a bank director, authorize a most unusual loan to himself. He would then enter the vault, exit with several million dollars of other depositors’ money, take it to the auditor as proof of his liquidity, and then return it the same day.

While the audit got under way over the coming days, The Boston Post stepped up its criticism of Charles Ponzi. It ran an editorial stating flatly their opinion that Ponzi’s scheme could not last. One day, it reported that the New York Postmaster said there were not enough International Reply Coupons in the whole world to make a fortune like Ponzi’s. Then they published another, more detailed analysis by Barron. Why would Ponzi put his own money into investments earning single digit returns, Barron argued, if he could realize 100 percent returns in 90 days? The clear indictment used logic that anyone could understand, and should have been more than enough to convince Ponzi’s investors to flee. But it did not. Nearly all of them stayed.

Ponzi might have thanked Barron for the unintended imprimatur, but instead sued him for $5 million, even laying claims on Barron’s vast farm in case Barron didn’t have the cash. To Robert Grozier’s relief, Ponzi did not sue The Boston Post. But he had fired a shot across their bow, threatening to “own their presses” if they weren’t careful.

While the state auditor, a diligent accountant named Edwin Pride, struggled to make sense of the haphazard record-keeping at the Securities Exchange Company, William McMasters struggled with a personal dilemma. At the meetings where Ponzi had offered to be audited, McMasters noted inconsistencies as his boss moved from meeting to meeting. Thus tipped off, he used the next several days to take a closer look at Ponzi’s operation. It took him no time at all to conclude it was a massive fraud. Knowing his own career was at grave risk, he went to Robert Grozier of The Boston Post with his discovery, offering to write a full exposé. Grozier declined. He had gone as far out on the limb as he could go without risking a devastating lawsuit.

Known for being a straight-laced stickler for the law, McMasters made an exception by going to district attorney Nathan Tufts, who guaranteed that the Post would be immune from lawsuits “in case the story turned out to be untrue and libelous.” When Robert Grozier learned of this promise, he allowed McMasters to publish an astonishing exposé. “DECLARES PONZI IS NOW HOPELESSLY INSOLVENT,” blared the headline. The story went on to describe in detail everything McMasters had seen and concluded.

The next day, a small number of Ponzi’s investors asked for their money back. But the exposé did not make a significant dent in public confidence. Ponzi claimed McMasters did not have access to details of the operation, and was telling this lie to divert attention from the true crime: McMasters had not accounted for $2,000 entrusted to him to place ads. To bolster the claim that McMasters was a thief, Ponzi sued him for that amount. McMasters promptly sued him back for $5,000. The public sided with Ponzi. Within a few days, his operation was more or less back to normal.

Ponzi’s plan to temporarily borrow money from the Hanover Trust vaults might have worked were it not for one miscalculation. Bank Commissioner Joseph Allen had not lost interest in Ponzi at all. Indeed, unbeknownst to Ponzi when he made his offer of an audit, Allen used his authority to call Hanover Trust and instruct them to monitor every dollar going into and out of their vaults and to provide him detailed reports. When those reports further raised his suspicions, he posted two examiners at the bank. When further investigation revealed that Ponzi had clearly overdrawn his checking account, and that bank officials had been conducting illegal operations having nothing to do with Ponzi, Allen posted a sign on the door of the bank: He was taking possession of Hanover Trust and closing its doors until further notice.

When Ponzi found out, he knew there was no way he could rob his own bank. He could only hope now that auditor Pride would miscalculate, or some other stroke of luck would come his way. But what happened next was anything but lucky.

A Boston Post reporter had received a most interesting tip: A “Charles Ponsi” was rumored to have spent time in jail in Montreal for forging checks. Dubious of the anonymous tip, Grozier sent a reporter to Montreal to check it out. With photos of Charles Ponzi in hand, the reporter had little trouble finding several people, including the warden of the Saint-Vincent-de-Paul Penitentiary, to identify the man in the photos as the same Charles Ponsi who had spent time in his prison 12 years earlier.

At 1:00 a.m. on 11 August 1920, a Post reporter confronted Ponzi at his home in Lexington about the article being prepared for that day’s edition. Hearing the claim, Ponzi denied being Ponsi and told them not to run the story, else “you are going to get the presses ripped out of your building.” The story ran anyway, encapsulated by its headline: “Montreal Police, Jail Warden and Others Declare That Charles Ponzi of Boston and Charles Ponsi of Montreal Who Was Sentenced to Two and Half Years in Jail for Forgery on Italian Bank Are One and the Same Men.” At an interview with reporters that afternoon, Ponzi changed his response. Yes, he was the man sentenced for that crime. But he hadn’t committed it. He claimed to have taken blame out of mercy, for a crime actually committed by his boss Louis Zarossi, who was struggling to support his wife and children. The impromptu story was so far-fetched that even Ponzi’s own lawyer, standing at his side, resigned on the spot.

The next day, authorities informed Ponzi that Edwin Pride had calculated his liabilities at about $7 million. The official tally would be announced the next day. Ponzi did not wait, and instead turned himself in to the authorities. He was placed under arrest on charges of using the U.S. mail to commit fraud. In public statements, Ponzi continued to portray himself as doing the work of the people, this time by admitting that he did indeed lie about relying on the postal coupon scheme, but only to keep Wall Street bankers from discovering his true operation, which would earn not tens of millions of dollars but more than $100 million. He offered no details. But now it made no difference. A stream of additional indictments soon followed.

A run on a Ponzi bank
A run on a Ponzi bank

In the days that followed, hundreds of investors registered their names as victims, hoping to recover some of their losses. They were aided by numerous more fortunate investors, ones who had received payouts from Ponzi and kindly returned their ill-gotten gains. In the end, roughly 20,000 victims were awarded refunds of just under 40 percent of their investments. Thousands more got nothing but a costly lesson in naïveté.

Charles Ponzi was convicted on federal mail fraud charges and sentenced to five years of prison. In May 1921, while Ponzi enjoyed the nice view of Cape Cod Bay from the Plymouth County Jail, The Boston Post’s publisher Robert Grozier won a Pulitzer Prize, the first awarded outside of New York, for his “courage and fine sense of newspaper honor” in exposing Ponzi. There was no mention that his courage was bolstered by a secret and legally dubious promise of immunity from prosecution. That fact would remain hidden until 2009, when the unpublished memoirs of William McMasters were unearthed in a book shop in New Jersey.

Charles Ponzi’s mail fraud sentence was reduced by one year for good behavior. Upon his release in 1925, state prosecutors took their turn and secured another conviction and prison sentence of seven to nine years. While on bail awaiting his return to jail, and confident he would win an appeal, Ponzi went to Florida and hatched a brand new investment scheme, this time in real estate, and this time offering investors a 200 percent return in 60 days. Florida officials quickly shut it down and arrested him. He was sentenced to one year in prison for violating state securities laws.

Out on appeal for this latest charge, Ponzi decided he could not bear the thought of returning to prison. So he disappeared. With a nationwide manhunt underway, he used his fluent Italian and years of experience as a manual laborer to secure a job as a waiter and dishwasher aboard an Italian freighter. Disguised by a moustache and shaved head, he decided to end the manhunt by faking suicide, asking friends to put some of his clothes and a suicide note on a Florida beach. The ship set sail from Tampa and Charles Ponzi, now using the alias Andrea Luciana, was again a free man.

It was a perfect escape. Almost. After revealing his true identity to a shipmate, Ponzi was in time met by authorities in New Orleans who placed him under arrest. Taken back to Massachusetts, Ponzi served seven years in prison and then, having never obtained U.S. citizenship, was promptly deported.

Back home in Italy, Ponzi struggled to make ends meet doing odd jobs. He spent two years writing his autobiography but failed to find an American publisher. He moved to Brazil in 1939 to take a job for the Italian state airline. When that job fizzled, he operated a small rooming house and taught English in Rio de Janeiro, where, following a steep decline in health, he died in 1949 with a net worth of $75.

Charles Ponzi delivered to the SS Vulcania for Deportation, 1934
Charles Ponzi delivered to the SS Vulcania for Deportation, 1934

Charles Ponzi’s Ponzi scheme was not history’s first. But its ingenuity, audacity, and unlikely success was such that the Encyclopedia Britannica, in 1957, lent Ponzi’s name permanently to the scheme. The Oxford English Dictionary would later cement the term “Ponzi scheme” into the lexicon with its definition: “A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.“

Ponzi’s scheme was also not the largest in history. That honor (so far) goes to Bernie Madoff, famously arrested in 2008 for defrauding investors of an estimated $65 billion over the course of 16 years, using the same basic ruse of paying off earlier investors using proceeds from new ones. And in the time since the Madoff conviction, the U.S. Securities and Exchange Commission has enforced actions against more than 50 similar schemes.

And those are just the ones authorities have managed to find.