Who Was Ponzi?
In 1918, Charles Ponzi arrived in Boston as a newlywed, ex-convict with an eye for get-rich quick schemes. He spotted an arbitrage opportunity where it was possible to buy International Reply Coupons in Europe and exchange them in the US for stamps worth more than he had originally paid. Once he sold the stamps, he claimed that it was possible to make profits exceeding 400%.
The first group of friends and investors were paid exactly as promised making a 50% profit within 45 days of their original investment. As word spread among the wealthier citizens of Boston they began lining up to invest. Within months, Ponzi was a millionaire taking in money faster than he could possibly have turned his scheme around legitimately.
At one point it was noted that in order for Ponzi’s company to cover all the current investment, it would have to have bought over 160 million International Reply Coupons when the reality was there were only ever around 27,000 of these coupons in circulation.
Today Ponzi’s name is used to describe any fraudulent investment scheme where the money from later investors is used to pay the early investors and so on right up until the moment when the whole thing collapses in on itself.
As the dust settles after Bernard Madoff’s multi-billion dollar Ponzi scheme collapsed in late 2008, the lesson remain the same as it was in the 1920s. If it looks too good to be true, it probably is.
What’s the highest rate of return for an investment you could be offered before you would get suspicious?
Comments
thanks for letting me know history of Ponzi, at the moment being offered any interest would make me suspicious