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Who Was Ponzi & What Was His Scheme?

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What is a Ponzi scheme? And why does it bear this name? First, you need to know a little bit about its namesake, Charles Ponzi.

Anyone can work a simple swindle, but you have to be a special kind of con man to have your name become synonymous with "fraud." Ponzi pulled it off, though. After arriving in the U.S. from Italy in 1903, Ponzi knocked around in a variety of unskilled jobs that usually ended when he got into trouble for theft or cheating customers. A few years later, he moved to Canada, where he spent a hitch in prison for passing a forged check. When he eventually drifted back down to the U.S., he needed a way to make some quick cash.

Making Money via Mail

Ponzi eventually found his way to get rich quick using a vagary of the postal system. At the time, it was common for letters abroad to include an international reply coupon "“ a voucher that could be exchanged for minimum postage back to the country from which the letter was sent. Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. (This practice still exists but is less common.) As exchange and postal rates fluctuated, though, there was an opportunity to make a profit. You only had to purchase postal reply coupons cheaply in some foreign country, send them back to the U.S. to swap them out for American stamps of a higher value, then sell these stamps. This arrangement was perfectly legal; it was just cleverly gaming the system. Ponzi started buying and selling postal reply coupons using agents in his native Italy, and he was making a good living doing it.

Unfortunately, whatever defect made Ponzi steal from his employers and pass bad checks prompted him to get greedy here, too. He started to recruit investors into his system with the promise of 50% returns in just a few days. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy.

Ponzi was pocketing millions, and he enjoyed a sumptuous life outside of Boston. At his peak, Ponzi was raking in $250,000 a day, which enabled him to collect such necessities as gold-handled canes. He became a celebrity investor, almost like the Warren Buffett of his day.

The Scheme

Why is it hard to think of Ponzi's name without affixing "scheme" to the end of it, then? Ponzi's underlying "business" — the arbitrage on the postal coupons — wasn't actually as sound as he claimed. In fact, there wasn't even really a business. However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.

Fuzzy Math

Eventually, though, smarter financial heads started looking at Ponzi's business. Clarence Barron, owner of the Wall Street Journal and founder of the financial magazine that bears his name, realized Ponzi must have been a huckster and went on the offensive. While Barron conceded that there probably was a way for a person to make a small amount of quick cash on the postal reply coupon scheme, he figured that Ponzi would have to be moving 160 million coupons around to raise the cash he needed to support the business. Since there were only 27,000 postal reply coupons circulating in the world, Ponzi's story didn't check out. (Things only got worse when the Postal Service reported that there wasn't a huge flow of the coupons from one country to the other.)

On top of that, Barron noted that Ponzi told newspapers he invested his own cash in real estate, stocks, and bonds like any normal investor. Barron pointed out the obvious question here: if Ponzi had this failsafe scheme in which he could make a 50% profit, why was he putting his own money into plain old investment instruments that would give him (maybe) a 5% return? Those certainly didn't sound like the actions of a financial genius.

Barron's conclusions ran as front-page news in the Boston Post in July 1920, which would have been damning for most cons. Ponzi was such a charismatic force of nature, though, that many people chose not to believe the paper's report. Few believed that their hero, the man who had "tripled" their life savings, was anything less than 100% legitimate. In fact, the morning that the Post ran Barron's report, investors lined up around the block outside of his office in an attempt to give him more money "“ even after they'd been told that they'd been scammed. Ponzi later boasted that he'd taken in a million dollars in new investments the day the report ran.

The Unraveling

Things were starting to look less rosy for the scammer, though. Although he'd largely placated his investors after Barron's report, Ponzi must have realized his window of opportunity was closing. He hired a publicist, William McMasters, but the PR man saw through Ponzi's lies and renounced his client in the press. James Walsh reprints part of McMasters' slam of Ponzi in his book, You Can't Cheat An Honest Man. Of Ponzi, McMasters said, "The man is a financial idiot. He can hardly add"¦He sits with his feet on the desk smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons."

The next month, regulators raided Ponzi's office and discovered that he didn't have a huge quantity of postal reply coupons. Since Ponzi had used the mail to notify his marks of how their "investments" were performing, he faced serious mail fraud charges; in total, the government brought 86 charges against him in two separate indictments. Ponzi pled guilty to one of these charges in exchange for a light sentence of five years.

He served around three and a half years, then got his release to face state charges, for which he received a sentence of nine more years. But before he could go back to jail, he jumped bail and tried to start new scams in Florida and Texas. (You'd think the government would have learned their lesson about trusting this guy.) Eventually, though, his time on the lam ran out, and he served his whole sentence.

Upon his release, Ponzi was deported to Italy and spent the rest of his life in poverty before dying in 1949 in Rio de Janeiro, where he's buried in a pauper's grave.

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Big Questions
Where Should You Place the Apostrophe in President's Day?
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Happy Presidents’ Day! Or is it President’s Day? Or Presidents Day? What you call the national holiday depends on where you are, who you’re honoring, and how you think we’re celebrating.

Saying "President’s Day" infers that the day belongs to a singular president, such as George Washington or Abraham Lincoln, whose birthdays are the basis for the holiday. On the other hand, referring to it as "Presidents’ Day" means that the day belongs to all of the presidents—that it’s their day collectively. Finally, calling the day "Presidents Day"—plural with no apostrophe—would indicate that we’re honoring all POTUSes past and present (yes, even Andrew Johnson), but that no one president actually owns the day.

You would think that in the nearly 140 years since "Washington’s Birthday" was declared a holiday in 1879, someone would have officially declared a way to spell the day. But in fact, even the White House itself hasn’t chosen a single variation for its style guide. They spelled it “President’s Day” here and “Presidents’ Day” here.


Wikimedia Commons // Public Domain

Maybe that indecision comes from the fact that Presidents Day isn’t even a federal holiday. The federal holiday is technically still called “Washington’s Birthday,” and states can choose to call it whatever they want. Some states, like Iowa, don’t officially acknowledge the day at all. And the location of the punctuation mark is a moot point when individual states choose to call it something else entirely, like “George Washington’s Birthday and Daisy Gatson Bates Day” in Arkansas, or “Birthdays of George Washington/Thomas Jefferson” in Alabama. (Alabama loves to split birthday celebrations, by the way; the third Monday in January celebrates both Martin Luther King, Jr., and Robert E. Lee.)

You can look to official grammar sources to declare the right way, but even they don’t agree. The AP Stylebook prefers “Presidents Day,” while Chicago Style uses “Presidents’ Day.”

The bottom line: There’s no rhyme or reason to any of it. Go with what feels right. And even then, if you’re in one of those states that has chosen to spell it “President’s Day”—Washington, for example—and you use one of the grammar book stylings instead, you’re still technically wrong.

Have you got a Big Question you'd like us to answer? If so, let us know by emailing us at bigquestions@mentalfloss.com.

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Big Questions
How Do You Steer a Bobsled?
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Quinn Rooney, Getty Images

Now that the Olympics are well underway, you might have developed a few questions about the games' equipment. For example: How does one steer a bobsled? Let's take a crack at answering this pressing query.

How do you steer a bobsled?

Bobsled teams careen down an icy, curving track at up to 90 miles per hour, so steering is no small concern. Drivers steer their sleds just like you steered your childhood sleds—by manipulating a pair of ropes connected to the sled's steel runners. The driver also gets help from the rest of the crew members, who shift their weight to aid with the steering.

Why do speed skaters wear glasses?

speed-skating

Speed skaters can fly around the ice at upwards of 40 mph, so those sunglasses-type specs they wear aren't merely ornamental. At such high speeds, it's not very pleasant to have wind blowing in your eyes; it's particularly nightmarish if the breeze is drying out your contact lenses. On top of that, there's all sorts of ice and debris flying around on a speed skating track that could send you on a fast trip to the ophthalmologist.

Some skaters also say the glasses help them see the track. American skater Ryan Bedford recently told the Saginaw News that his tinted shades help him focus on the track and filter out distracting lights and camera flashes from the crowd.

What kind of heat are the biathletes packing?

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As you might guess, there are fairly strict rules governing what sort of rifles biathletes carry on the course. They are equipped with guns chambered for .22 LR ammunition. The gun must weigh at least 3.5 kilograms without its magazines and ammunition, and the rifle has to have a bolt action or a straight-pull bolt rather than firing automatically or semi-automatically.

Is a curling stone really made of stone?

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You bet it is, and it's not just any old stone, either. Curling enthusiasts swear by a very specific type of granite called ailsite that is only found on the Scottish island of Ailsa Craig. Ailsite supposedly absorbs less water than other types of stone, so they last longer than their competitors.

Ailsa Craig is now a wildlife sanctuary, so no new ailsite has been quarried since 2002. As a result, curling stones are incredibly expensive. Kays of Scotland, which has made the stones for every Olympics in which curling has been an official event, gets prices upwards of $1,500 per stone.

What about the brooms?

The earliest curling brooms were actual brooms made of wood with straw heads. Modern brooms, though, are a bit more technologically advanced. The handles are usually made of carbon fiber, and the heads can be made of synthetic materials or natural hair from horses or hogs. Synthetic materials tend to be more common now because they pull all of the debris off of the ice and don't drop the occasional stray bristle like a natural hair broom might.

What are the ski jumpers wearing?

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It may look like a ski jumper can pull on any old form-fitting bodysuit and hit the mountain, but things are a bit more complicated than that. Their suits have to be made of a spongy material and can't be thicker than five millimeters. Additionally, the suits must allow a certain amount of air to pass through them; jumpers wearing suits without sufficient air permeability are disqualified. (This rule keeps jumpers from wearing suits that could unfairly act as airfoils.) These rules are seriously enforced, too; Norwegian skier Sigurd Petterson found himself DQed at the 2006 Torino Games due to improper air permeability.

Those aren't the only concerns, though. In 2010, judges disqualified Italian jumper Roberto Dellasega because his suit was too baggy.

What's up with the short track speed skaters' gloves?

Gloves
Cameron Spencer/Getty Images

If you watch a bit of short track speed skating, the need for gloves quickly becomes apparent. When the skaters go to make passes or careen around a turn, they need the gloves to keep from cutting their hands due to incidental contact with other skaters' blades.

There's more to the gloves than just safety, though. Since the skaters' hands often touch the ice during turns, they need hard fingertip coverings that won't add friction and slow them down. The tips can be made of any material as long as it's hard and smooth, but you've got to give American skater Apolo Ohno some style points for the gold-tipped left glove he broke out in 2010.

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