The internet is polluted with these sneaky Ponzi schemes. And unfortunately, they are not all that easy to identify. On the surface it appears to be a perfectly legitimate business enterprise. If you are wondering how the Ponzi Scheme got its name, here are some background information on this infamous person, whose name lives till today.
Charles Ponzi. He was born in Italy in 1882 and migrated to the United States as a very young man of a tender 21 years in 1903. He was a poor boy. He had only two dollars and fifty cents in his pocket when he landed on our shores. He was poor but he had big dreams and a whole boat load of ambition…not to mention a propensity for shady dealing. He pulled off one of the worse swindling schemes in history…so bad that the swindle bears his name…the Ponzi Scheme.
He stole some money, got caught, went to prison, met a man by the name of Charles Morse and learned that rich people can get away with almost anything. He decided to become rich.
He married a woman named Rose Gnecco in 1918. He suffered through several failed business ventures. One such failed adventure was a catalog similar to what we know today as the yellow pages. His business failed shortly after he launched this campaign but a few weeks later he received a letter from a company in Spain asking about the catalog. Included in the letter was a ‘postal coupon’. Ponzi didn’t know what it was so he asked. He found out that the postal coupon was way in which a company could send mail to a foreign company and include a postal coupon so that the person could reply at no cost to themselves.
I won’t go into great detail here. If you want to read about the details of the scheme, click here. What the deal amounted to was buying postal coupons in countries with low rates and cashing them in countries with high rates. It was a form of currency trading….which is illegal. He claimed that after expenses he was making a 400% profit and easily attracted investors into his scheme.
The scheme was a complicated but very effective one….albeit illegal. Ponzi, of course, got greedier and began convincing more investors to sink large sums into his company and using those funds to pay former investors.
“A fraudulent investment operation that involves paying returns to investors out of the money raised from subsequent investors, rather than from profits generated by any real business. A Ponzi scheme offers high short-term returns in order to entice new investors, whose money is needed to fund payouts to earlier investors, and to lure its victims into ever-bigger risks” is the way in which Wikapedia defines a Ponzi scheme.
Charles Ponzi died in 1949 but his name lives on in infamy….the scheme didn’t die with him.
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