When Ponzi’s Bubble Burst
Summer 2010, Vol. 42, No. 2 | Pieces of History
Charles Ponzi’s Inmate Case File contains his mug shot from 1910, annotated with personal description and measurements.
Among the documents in Ponzi’s Inmate Case File is a 1920 telegram from the Boston Post city editor to the warden of the Atlanta Federal Penitentiary.
“Get rich quick” schemes never go out of style. Throughout our history, those looking for easy money have pinned their hopes on “too good to be true” deals. Ninety years ago this summer, the original Ponzi scheme unraveled. Charles Ponzi, once hailed as a financial wizard, was unmasked as a fraud, and his name became a synonym for scams and swindles.
In late 1919, Ponzi began to cultivate possible investors, telling them that he had found a way to make huge profits by buying international postal reply coupons in bulk in foreign countries with weak currencies and redeeming them at higher values in the United States. He promised a staggering return of 50 percent interest in 90 days. By early 1920, thousands turned over their money to Ponzi in hopes of fast and easy payback.
Over eight months, Ponzi took in roughly $15 million. Those who came in at the start did receive their promised returns, but Ponzi was able to make these huge payoffs only by using the money coming in from later investors.
The Post Office Department began investigating Ponzi’s claims to make millions through exchanging international postal reply coupons. In late July 1920, in an effort to quell the doubts among his investors, Ponzi announced he would allow a government auditor to examine his books.
The bubble burst when the Boston Post revealed that Ponzi had served two terms in prison between 1908 and 1912. The pyramid, held up only by confidence in its builder, crashed.
In the course of its investigation, the city editor of the Boston Post sent a telegram to the warden of the Atlanta Federal Penitentiary asking for verification of Ponzi’s incarceration. Ponzi had been imprisoned from 1910 to 1912 for bringing five Italians illegally into the United States from Canada. Immediately before that, he had been imprisoned in Canada in 1908–1910 for forging checks.
The telegram joined other documents in Charles Ponzi’s Inmate Case File, including his mug shot and personal description.