"The Eponymous Mr. Ponzi"

From Damn Interesting:

Nobody knows who did it first. Swindlers have been pulling off the scam for centuries, paying existing investors with the deposits of new ones to create the illusion of an incredibly profitable investment opportunity. Before 1920, it was known as “robbing Peter to pay Paul” or “the Peter-to-Paul scheme.” For example, Sarah Howe, a fortune-teller and frequent guest of the State Lunatic Asylum in Massachusetts, employed it in 1880 to take in nearly $500,000 from her followers. In 1884, former president Ulysses S. Grant fell victim to such a scheme that left him penniless.

But it was Charles Ponzi who, in Boston in 1920, earned permanent naming rights to the scheme by dazzling the investing public and dumbfounding authorities like no other. That sweltering summer, Bostonians of every stripe were all but begging this diminutive investment banker to take their money for an unheard-of return: 100 percent in 90 days. In less than a year, Ponzi raked in nearly $7 million—more than $90 million in today’s dollars. His downfall came as swiftly as his meteoric rise.

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi was born on 03 March 1882 in Lugo, Italy. His father, a postal worker, died when Carlo was ten, leaving the family without a breadwinner. His mother, Imelde, was descended from Italian aristocracy. She sent Carlo to the University of Rome with just enough money to earn a degree, and high hopes he would use it to prosper and restore the family to its erstwhile rank in society.

Carlo dashed any such hopes. He loved college, 500 miles from home, but not for the education. There he enjoyed the life of a bon vivant, skipping classes and befriending students from more privileged families. He spent much of his money on fine dining and equally fine clothing, and by picking up more bar tabs than books. He returned home penniless and diploma-less.

Determined to patch things up with his unhappy mother, Carlo vowed to sail to America, scoop up some of the gold rumored to line its streets, and become a very rich man. He left Naples on 03 November 1903 with $200 in his pocket. He arrived in Boston with $2.50, the balance in the pockets of cardsharps who earned their living from unsuspecting immigrants on ships.

Ponzi found making money in America rather harder than he’d expected. For nearly four years, he worked as a grocery clerk, factory hand, dishwasher, waiter, and painter. He did repair work, folded laundry, and anything else to keep food in his belly. He took the first name Charles and a variety of surnames other than his own, including Bianchi, Ponsi, Ponci, and Ponce.

Ponzi did not limit his job search to Boston. Willing to go anywhere for employment that exercised his mind and not just his back, he found it in Montreal in July 1907. There, a man by the name of Louis Zarossi hired him as a bank clerk after a 5-minute interview. He fit right in at Banco Zarossi, which did a booming business catering to the Italian immigrant community and paying 6 percent interest to depositors—three times the rate other banks offered. And he did so in a most unscrupulous manner.

Among Zarossi’s customers were not just depositors but immigrants who gave him money to wire home to family in Italy. Some of these funds he simply stole, using it to pay his depositors their promised 6 percent. It could take months for wire customers to complain, and when they did he pleaded ignorance and laid blame on the receiving end. Nobody can say exactly how much Zarossi stole in this manner, but in July 1908, he filled a suitcase with cash and fled to Mexico.

Again out of work and tired of earning money in the conventional manner, Ponzi one day entered the office of the Canadian Warehousing Company, a former Banco Zarossi customer. The office staff knew and trusted Ponzi. While nobody was looking, he located their company checkbook, removed a check, and slipped it into a pocket. Later, he wrote it out to himself in the seemingly authentic amount of $423.58, then carefully forged the signature.

After cashing the check and visiting a number of clothiers to outfit himself in style, Ponzi found his buying spree short-lived. Bank officials suspected the authenticity of the check’s signature. They contacted the police, who had little trouble finding and arresting him. He feigned mental illness by chewing a towel to shreds, then wildly climbing a wall toward a barred window. Convincingly calmed by a straitjacket, he earned an upgrade to the infirmary by persuading his jailer he suffered from epilepsy. His insanity act only went so far. Ponzi was ultimately sentenced to a three-year term at the Saint-Vincent-de-Paul Penitentiary, his jailers settling on the name of Charles Ponsi.

At the penitentiary, he crushed stone, slept on a bed of corn cob husks, and shared a cell with an especially nasty convict named Louis Cassullo. Ponzi would later describe him as “one of those prowling, petty, sneaky thieves whose counterparts in the animal kingdom are the hyenas and the jackals.” After serving a term shortened to 20 months for good behavior, Ponzi was only too happy to bid farewell to his unpleasant cellmate....

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