Saturday, July 31, 1920: Ponzi scheme

Posted on January 24th, 2009 – 5:00 PM
By Ben Welter

In 1903, Charles Ponzi emigrated from Italy to the United States, where he found work as a dishwasher, bank teller, forger and smuggler. Enough to pay the bills, but hardly the stuff of the American dream. You can’t get a magnificent scam named after you by thinking small. In this interview published in the Minneapolis Sunday Tribune, he details the “great idea” that attracted thousands of investors, earned him millions of dollars, thrust him to national prominence and landed him in jail — all within a year.

Ponzi Tells
How He Made
15 millions

Financial Juggler Explains
How ‘Exchange’ Pays
Him 350 Per Cent.

$3,500,000 Cleanup in Week
Balked By Federal In-
Quiry, He Says.

Defends Scheme; Defies
Government to Wrest
Secret From Him.

Boston, July 30. – Charles Ponzi, the man who ran a shoe string into $15,000,000, whose amazing financial juggling has brought him to the attention of federal investigators, whose life’s history includes a career as a waiter in a cheap Italian restaurant, has consented to tell how he became a figure of world interest almost overnight.

“I want it understood from the start,” he said tonight, in beginning his story, “that I have done nothing criminal.”

Charles Ponzi: His numbers just didn’t add up.

“For the time being I have ceased operations. Whether I shall continue remains to be seen. There is no law forbidding my continuing. The United States government may make a ruling that will hurt my business, but if I cannot go on as I am I shall go on as an ordinary banker and broker. At the outside I owe $3,000,000. I could meet three times that amount this minute. But let me explain.

“The idea, which is referred to as the ‘great idea’ and which really is not great, came to me last August. It came because I was thoroughly awake and on the lookout for the main chance. Are not you also doing just that? I had a scheme to start an export publication, a pamphlet, or periodical, dealing with the most ordinary export and import trade. I wrote to a man in Madrid, asking him certain things that I had to know about exports, and in reply I received an international coupon, which I was to exchange here in the United States for United States postage stamps and for these stamps I was to mail to the man in Madrid a copy of my magazine.

“Perhaps you do not know about these coupons. They are simply international postal reply coupons. One buys them for 6 cents in one’s own country and sends them to a correspondent in another country. You do this if you desire to render the courtesy of prepaying the postage of the letter or correspondence you hope to receive. They are redeemable in stamps at 5 cents each. The sixth cent goes to the government for the expense of getting them out.

Yields 400 Per Cent Profit.

“Well, that coupon I received from Spain cost in Spain the equivalent of 1 cent here in America. The rate of currency exchange differs, you know, in these times. Do you see? I took that coupon to the United States post office and there I received the value of 5 cents for it.

“That meant the stamp had yielded a 400 percent profit.

“I said to myself that I might buy hundreds, thousands, millions of these stamps in Spain, France, Italy, Switzerland and all the new countries in south and southeastern Europe. Then I planned further. I investigate and studied foreign exchange.

“I bought a small amount of the stamps abroad. I made a neat turnover. I had little money of my own and I figured it was best to make money in this way while the possibility was here. So I went out among the few men I knew and begged them to let me have their wages, their earnings and what they could obtain in loans. I worked hard. It was hard work. It almost drove me mad. Here I had an opportunity to make a legitimate fortune and I was going to fail because there would not be time and I would have to do it like a piker unless some one helped me. I worked all day and all night. Men laughed at me. They warned me I’d go to jail. I knew I was right and kept looking for a man who would take a chance or let me take a chance with his money. I had none of my own.

“I took one room. I found a man who said he’d put money in my scheme if I’d prove its worth. I had a couple of thousand dollars and I decided to let it go into advertising and office rent. I shot the roll, as they say, and the roll came home. I really got under way in December.

“I got a few investors, many of them my own countrymen. To each of them I issued a promissory note, as I do now, saying they could collect in 90 days. Why I pay in 45 days I shall explain presently.

“Within a month the few thousand dollars increased to fifteen thousand. Persons who had received 40 to 50 per cent on their money in two months naturally told their friends. And their friends came and brought more funds and these friends brought more friends, ad infinitum.

“Investigation of my business affairs impended. Naturally the news became general. I did not wait for the authorities to come to me. I went to them and invited them to investigate. For instance, they sent two police officers down to look me over. Each invested a few dollars and each made 50 per cent on his investment in forty-five days. They let their earnings ride and they are due for another harvest.

He Keeps 350 Per Cent.

“I made millions of dollars. It was simple. Suppose you came to me and gave me $1,000 to invest. I purchased international postal coupons in Spain, we’ll say. For one American cent, for that value of that cent, I purchased a coupon that is redeemable for 5 cents here. That makes 400 per cent profit. I pay you 50 per cent profit and there you are. I make 350 per cent on your money.

(Here it must be explained, however, that on July 7 the authorities at Washington, hearing that some such transactions were going on, passed a rule that no one person could redeem more than ten such coupons – 50 cents worth. Any excess offered at any post office had to be referred to Washington for approval. Moreover, Washington let it be known that they were noticing no great speculation in these international postal coupons and that the total redeemed did not exceed more than about $5 worth a day. Ponzi was reminded of this.)

“There you will ask me for me secret. Well, I shall not tell. That is my business. How I get them, how I dispose of them and such things are my business. It is enough to assure you that there is nothing illegal.

“As I said, I had made millions. I purchased the controlling interest in a large trust company. I opened offices in Portland, Manchester, Portsmouth, Burlington, Lawrence, Lowell, Fitchburg, Brockton, Plymouth, Fall River, Taunton, Framingham, Milford, Providence, Woonsocket, Pawtucket, Hartford, Meriden, New Haven, Bridgeport and down in New Jersey in Bayonne and Clifton. Soon I should have opened a great office in Lower Broadway, New York.

$500,000 a Day Handled.

“The peak of my business was reached in May, just two months ago. When I decided to suspend for the time being, while the authorities satisfy themselves that there is nothing illegal about it, I was taking in about $250,000 a day in my Boston office and about the same amount through the branch offices. That made $500,000 a day, and there is not one man who can say that I did not keep my word or who can say that every dollar he invested with me is not his for the asking, provided he does not want to wait the 45 days.

“Merely, I happened to discover something before any one else did. It might have been you. It might have been my neighbor. It might have been a great banker. But it wasn’t. It was Ponzi.

“I think I should have cleaned up $3,500,000 this week had I not suspended. I think the United States is butting in upon a perfectly legitimate proposition. I know it is legitimate. Why should it concern the government what my secret is so long as I have twice as much money in reserve as is needed to meet all possible claims upon me?

“I can tell you this much. I am not redeeming these international reply coupons in this country. I have never said that I am doing so, and I never shall say so. And I am perfectly well aware that France, Italy and Roumania have issued orders to suspend payments, but that does not stop me from doing business in those countries.

“If the government prohibits speculation in these coupons I shall go on making money. Let the government find out how I cash the coupons. I am not called on to tell. I repeat, I made a great discovery and then found out how to work it.”


Boston, July 30 – United States Attorney Gallagher announced that a firm of auditors had begun work on Charles Ponzi’s books in behalf of the federal authorities.

Examination of the books, however, according to Miss Mell, his manager, will not solve the mystery of how Ponzi has made his money. With his ready satisfaction of all demands for payment, question has turned to “how does he do it?”

Intends to Keep Secret

To the statement of Postmaster Patten of New York that there are not enough international coupons in the world to build up the fortune which Ponzi claims is his, Miss Mell declared that her chief’s manner of “cashing in” on his operation was a business secret which he intended keeping and which examination of his books would not show.

“We have money; there has been no violation of law; the public has received and will receive, dollar for dollar, on every promise. Let the investigations come; what can they do?” the manager said.

Of the many stories told about Ponzi’s customers was one of a post office department inspector who, after investigating Ponzi’s methods, is said to have borrowed and begged all the cash he could get and returned to invest it.

A pretty stenographer, who originally invested $50, reinvested the profits until, at the time of the suspension of Ponzi’s business, she had made $1,500.

These St. Paul letter carriers no doubt handled many international postal reply coupons — yet probably never thought to exploit their potential as bait in a multimillion-dollar con. (Photo courtesy mnhs.org)

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