Charles Ponzi, an Italian immigrant, made an incredible fortune on one of history’s greatest deceptions. In fact, his method was so effective, that the government named this type of fraud after him – the Ponzi scheme.
In 1920, Ponzi tricked thousands of New England residents into investing in a postage stamps speculation scheme. He managed to attract investors to put funds into international postal reply coupons, slips of paper that post offices would exchange for stamps.
Currency exchange rates were in flux after the Great War, and Ponzi claimed that enormous profits could be made by purchasing coupons with undervalued liras or francs and redeeming them in the United States. Each time a new investor gave him money, he’d use those funds to pay off earlier investors, creating the illusion they were profiting from a legitimate business. At the peak of his scam, Ponzi raked in $250,000 a day, an amount equivalent to about $3 million today.
This house of cards collapsed in August of 1920 when Ponzi was exposed as a convicted forger by the Boston Post, and the US Postal Service confirmed that no one was exchanging postal reply coupons in the massive volumes needed to generate such profits. Ponzi was charged with 86 counts of mail fraud. Surprisingly, he was only sentenced to 5 years in federal prison.
It’s fascinating to learn about the origin of this scam. Thanks, Sarah!