The Story Behind's video: Who Was Ponzi What Was His Scheme

Charles Ponzi was either a financial genius or a fraud. But his famous “Ponzi scheme” did work. Ponzi moved to the U.S. from Italy in 1903. He changed a variety of unskilled jobs. He often got fired for cheating customers. Ponzi lived in Canada where he got in jail for passing a forged check. When he returned to America he started his mail fraud. By 1920, he created his famous scheme which is similar to today's "pyramid scheme". In this scheme, early investors were paid with money from new investors. Ponzi’s business started with mail coupons. That time letters contained reply coupons. These coupons could be exchanged for priority stamps. Ponzi realized that he could buy coupons in one country. Then he would exchange them for expensive stamps in another country. His agents from other countries would buy coupons and send them to America. Ponzi would exchange them for more expansive stamps which he later sold. He would gain 400 percent of the profit on these sales. Later he began to search for investors to increase his profit. He promised them returns of 50 percent in 45 days or 100 percent in 90 days. But he paid these returns with other investors’ money rather than actual profit. He reportedly made $250,000 a day. In fact, Ponzi didn’t need to pay off the investors as they wanted to reinvest. Within two years, he had employees all over the country. They were recruiting new investors. Ponzi became a celebrity and attracted much attention. Clarence Barron, an owner of the Wall Street Journal, tried to expose Ponzi’s scheme. He figured that Ponzi needed 160 million coupons to raise the cash for his business. But there were only 27,000 postal reply coupons circulating in the world. Barron’s investigation ran as front-page news in the Boston Post. But people didn’t believe that they were scammed and invested even more. Ponzi hired a publicist but he renounced him in the press. Next month, regulators raided Ponzi’s office. They found out that he didn’t have enough coupons. Ponzi faced 86 mail fraud charges and served for 3,5 years. Then he faced state charges and served nine more years. On release, he was deported to Italy and died in poverty in 1949. Subscribe to The Story Behind https://is.gd/hixAAr Music by Epidemic Sound: https://www.epidemicsound.com/