The Most Notorious Scammer of The 20th Century

Ryan Fan

“He was a fascinating crook — the ultimate con man,” Donald Dunn, a biographer of Charles Ponzi said.

I first learned what the Ponzi scheme was from seeing Bernie Madoff all over the news as a child. I still had trouble understanding the concept, but all I knew was Madoff scammed thousands of investors, including the New York Mets, my favorite baseball team. My dad tried to explain exactly what he did to me, but gave up after I didn’t understand.

Although I am not a financial analyst, I now have a better understanding of what a Ponzi scheme is. Investors are promised large profits if they give someone money, and money is shuffled from new investors to old ones without any actual investing going on. The idiom to explain the scheme is “robbing Peter to pay Paul,” leading to older investors possibly making some returns with newer investors having their money siphoned away.

Bernie Madoff’s Ponzi scheme was worth $64.8 billion, losing people a lot of money and causing much financial harm to investors several years after his scheme fell apart.

However, I never knew the name came from a swindler actually named Ponzi, particularly a man named Charles Ponzi. Charles Ponzi did not actually invent the Ponzi scheme. In the late 19th century, Adele Spitzeder in Germany and Sarah Howe in the United States used the first known instance of the Ponzi scheme. In an 1881 article in The Atlantic Monthly, an author notes Howe ran a company known as “The Ladies’ Deposit,” which fronted as a savings bank for unmarried women, which grew to such prominence it was known as a “Women’s Bank.”

Howe also alleged the company worked with a Quaker charity, and the company got almost $500,000 from women all over the country that she said she would turn into a major profit. Rose Eveleth at Longreads says Howe promised a substantial 8 percent per month interest rate — if someone invested $100 at the beginning of the year, they would get $96 more at the end of the year.

There was no Quaker charity. Howe used money from new investors to pay old investors. Her fraud was uncovered when the Boston Daily Advertiser uncovered the Ladies’ Deposit as a Ponzi scheme (although it was not called this at the time) and Howe was charged with fraud, convicted, and sentenced to three years in prison. According to Eveleth, Howe got extremely sexist coverage in the press due to her status as an “outrageous character: a woman villain.” Howe, like her victims, had no husband — she’d been a widow for almost 30 years.

So it’s important to note Ponzi did not invent the Ponzi scheme. Historian Robyn Hulsart said the only reason it’s not named the Howe scheme or named after Sarah Howe at all is due to the state of the press at the time. Howe’s crimes were only covered locally, while the national circulation of Ponzi’s schemes gave him much more exposure and notoriety. Ponzi himself was inspired by a Brooklyn bookkeeper named William Miller, who was nicknamed “520 percent” for the returns he promised his investors.

As for Ponzi, he was an Italian immigrant who, according to Biography, was charged with 86 counts of mail fraud. He was known as an expert investor akin to Warren Buffett until the house of cards came falling down. A 1931 TIME Magazine article says Ponzi offered investors a 50% profit within 45 days and a 100% profit within 90 days, and he was true to his word in the beginning. He paid old investors with money from new investors, and never revealed his strategies, claiming he didn’t want competitors to know how to replicate his success.

Eventually, through a series of articles in the Boston Post, Ponzi was caught. His investors lost a total of $20 million, which is about $250 million today.

This is the story of Charles Ponzi, the most notorious scammer of the 20th century.

Before the Ponzi Scheme

Little is actually known or confirmed about the early life of Charles Ponzi, but he was born in Parma, Italy, and attended the University of Rome La Sapienza. Ponzi eventually came to America first through Boston in 1903 on a ship known as the S.S. Vancouver. He told reporters he only had a couple of dollars in his pocket, according to Mary Darby at Smithsonian Magazine. He told the New York Times he landed in the country with $2.50 in cash and “$1 million in hopes.” He originally had more money, but he lost most of it gambling on the ship.

Darby notes Ponzi worked low-level jobs but was known as a swindler pretty early on when he started stealing from customers. First, he painted signs in Florida and worked other small jobs before going to clerk for broker J.R. Poole.

He also met his wife, Rose Gnecco. He was older than her, but throughout their marriage, she would be very loyal to him. They married in 1918, and Gnecco’s father gave Ponzi permission to run his grocery business, which he failed.

Ponzi then pursued the idea of running an international trade journal, but the bank would not give him the $2,000 he needed. Out of options, Ponzi struck luck. In his autobiography, The Rise of Mr. Ponzi, Ponzi recognized the international postal reply coupon on the postage of the envelope. The envelope was sent from Spain, and Spain’s economy had been struggling at the time.

Ponzi could redeem the coupon from Spain at the U.S. postal office for a 10 percent profit, and Ponzi realized he could redeem coupons from weaker economies and make a lot of money redeeming coupons. This idea was the Securities Exchange Company, which ended up being his first Ponzi Scheme.

The Securities Exchange Company

Darby says Ponzi, ever so savvy, got thousands of people to make bulk purchases of international reply coupons, with a broad network of agents who were buying the coupons for him. He told these investors he was turning those coupons into a lot of money, and when people pressed him for details on his moneymaking scheme, he said he had to keep his tactics secret or else he would have more competitors.

Dunn, Ponzi’s biographer, said he only actually bought $61 of coupons, and he never had any agents. As for how he actually swindled so many people, Dunn said Ponzi sold people a dream of instant rags to riches. He did not try to push the idea too much because selling too aggressively might be off-putting, but Ponzi developed a reputation as a person who possessed the secret to instant wealth. Of course, Ponzi never talked about the secret as an investment expert and was always “meeting clients” to appear busy.

Ponzi started having offices all over the country, from Maine to New Jersey to New York. Almost 40,000 people bought into his scheme, and many people just reinvested the profits with Ponzi, letting him hold off on paying them what he promised. Ponzi started living luxuriously, making almost $250,000 a day, with a mansion in Lexington, Massachusetts that had a pool and air conditioning. He had several cars, fancy clothes, and even bought out his former employer, J.R. Poole. Ponzi also bought a bank named Hanover Trust, his ultimate goal.


Ultimately, Ponzi would be brought down by the Boston Post, notably editor Richard Grozier and Edward Dunn. The paper first ran the headline that Ponzi “DOUBLES THE MONEY WITHIN THREE MONTHS,” which was a fawning piece on Ponzi’s ability to seemingly manufacture money. The Boston Post also turned against Ponzi after a man named Joseph Daniels sued Ponzi for $1 million in July of 2020. According to Dunn, even though the lawsuit was not successful, people started to become suspicious of Ponzi.

However, the house of cards came falling down when the U.S. Post Office Department announced conversion rates for the international postal reply coupons and said it was impossible for anyone to actually make what Ponzi claimed to be making. Speculation in the postage stamps was effectively impossible, and authorities started investigating his scheme.

Ponzi turned into a cooperator for the federal government, cooperating with the District Attorney’s office. He allowed his investments to be audited by the government and stopped seeking new investors, which led many of his investors to want to redeem their shares. Ponzi, to his credit, did refund about $1 million to investors who got their principal in return.

Ponzi would flipflop between cooperating with authorities and investors, telling the Washington Post at one point in late July of 1920:

My secret is how to cash the coupons. I do not tell it to anyone…Let the United States find it out, if it can.”

Even at this point, Ponzi still had many defenders. One fan called him the “greatest Italian of them all” and said he was better than Columbus or Marconi because “you discovered where the money is!”

But the detractors grew as the investigation moved on. William McMasters, Ponzi’s publicity agent, started cooperating with authorities and the press and revealing all sorts of dirty laundry, like Ponzi being $2,000,000 in debt and trying to meet his expectations without paying any interest. McMasters called Ponzi “hopefully insolvent,” and in response to the leak, Ponzi threatened to sue McMasters and the Boston Post.

Ponzi would go to public events to defend himself, saying he got his coupons from foreign governments. He also said those governments made money themselves and Ponzi did not need to reveal which governments he worked with to protect confidentiality.

And then the Boston Post revealed more information about Ponzi, including his previous criminal history in Canada. According to Darby, Ponzi went to jail for forging checks. The paper ran his mugshots from his time in Montreal in 1908 to 1910, and Ponzi’s criminality was later confirmed when the paper revealed he smuggled five Italians from Canada to America and served time in federal prison in Atlanta for doing so.

The government auditor finally finished his audit of Ponzi’s finances, and all hell broke loose. The auditor found Ponzi had lost $7 million of the investors’ money, and Ponzi was immediately placed under arrest. Several banks fell, and Ponzi’s investors received less than 30 cents on the dollar.

Ponzi would be convicted on federal charges of using mail to defraud, serving three and a half years in prison. The Boston Post won a Pulitzer for its relentless reporting in the face of Ponzi’s threats of litigation. He received three and a half years in jail and then lived the rest of his life in relative obscurity and the details of his later life are hard to confirm. He was deported back to Italy and his wife divorced him. He eventually died in 1949 in Brazil, living the rest of his life in poverty.


Ponzi is a man who obviously promised the sky and more to each and every investor he came across. How he was so successful, according to Dunn, was his appeal to human psychology. Who doesn’t want fast, easy money? Who doesn’t want money to just appear like magic? Darby said Ponzi claimed to make the impossible possible, and many scammers take lessons from Ponzi today.

He was also appealing because of his charisma. He loved scamming people and making a lot of money doing so. Darby speculates about what motivated Ponzi, whether it was his drive to make something of himself as a poor immigrant or whether he just loved the publicity.

I wondered whether the early investors in the scheme actually did make the money and the return. After all, if you seize early, the investor needs to actually make good on the promise to establish their reputation and image, right? It’s just the later investors who get unlucky.

Well, apparently that notion is wrong — Paul Luehr at the FTC’s Internet Coordinating Committee says up to 95% of people who buy Ponzi schemes lose all their money. Only the head of the con makes the fast, easy money.

Perhaps the takeaway is to steer clear of anything that promises fast, easy money in general. While we might enrich ourselves temporarily, money isn’t earned fast or easily in much of the real world.

As for all of us, we can recognize Ponzi schemes and steer clear of them by demanding to understand how investors are making their money. If we give money to investors who promise magic, TIME Magazine says it’s important to understand investment methodology. It’s also important to always be skeptical, trust your instincts, and make sure the investment is registered, according to Investopedia.

People like Ponzi and Madoff tend to blame victims of their scams to shake off some responsibility. I think it is a fair question where responsibility lies — are people who trust investors engaged in Ponzi schemes themselves responsible for their plights? I chafe against the notion of blaming the victims of financial crimes, but it is important for investors to be informed to avoid falling for Ponzi schemes.

Ponzi set the stage and notoriety for Ponzi schemes today that steal about $3.25 billion from investors. A concern about Ponzi schemes is that deregulation and a surging stock market are leading more investors to be defrauded.

By understanding how Ponzi schemes work, we can avoid financial advisors who seek to scam.

Photo of Charles Ponzi from the Public Domain

Originally published on CrimeBeat on June 21, 2021.

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