Canada and the World
Current Events with a Canadian Perspective
Last update
19 November 2010
Stock Market Swindles still Work
Bernie Madoff is just the latest in a long line
of fraudsters who copy the tactics of Charles Ponzi
Bernie Madoff (below) has set a new record for a financial scam. It’s generally
accepted Madoff’s plot cost investors $50 billion, although some sources such as
CNN say it could be as much as $65 billion.
One of Madoff'’s victims, Burt Ross, a former mayor of Fort Lee, New Jersey, told the BBC he did not expect to recover a single cent of the $5 million he invested. “Bernard Madoff is a genius,” said Mr. Ross. “You’re dealing with the greatest con artist probably in the history of the world.”
Madoff’s swindling makes the man whose name carries the Ponzi scheme title look like an amateur. But he paid a stiff price for his notoriety; in June 2009 he was given a prison sentence of 150 years.
Charles Ponzi Bilked Thousands of New Englanders
In 1920, Charles Ponzi (below) set up the Securities Exchange Company in Boston.
He went looking for investors and his pitch was simple and beguiling enough to draw crowds.
As Time Magazine reported in January 1931, “He promised his clients a 50% profit in 45 days. On especially busy days, six mounted policemen handled the crowds in the street, 14 kept the corridor crowds in line.”
Charles Ponzi described himself as “The ‘wizard’ who could turn a pauper into a millionaire overnight.”
Fraud Based on Postage Reply Coupons
Ponzi told investors he could deliver such fabulous returns by buying discounted postage reply coupons in foreign countries. He would then bring them back to the United States and redeem them a full value.
But, in his 1994 book, Bloodletters and Badmen, Jay Robert Nash says that Ponzi never made an effort to create legitimate profits. The money machine he had built relied on paying his first investors with the money he got from later ones.
Some interest payments were made to early investors to entice new ones to come in; they rushed in and the base of his pyramid grew wider and wider.
Reporters Begin to Investigate
Unlike Madoff, whose con according to prosecutors had been going on since at least the 1980s, Ponzi came to grief after only a few months.
The press started to get suspicious. The Boston Post asked Clarence Barron, the publisher of Barron’s financial newsletter, to look at Ponzi’s numbers. Barron said they didn’t add up; the Securities Exchange Company was insolvent, he said.
On August 2, 1920, the Post ran an article saying that both Charles Ponzi and his business were bankrupt.
Investors started a run on the company and most of them were actually paid off.
But, ten days after the newspaper story, the law moved in and Ponzi was off to jail, a place his investors now learned, to their bitter regret, with which he was quite familiar. He had done two stints in jail in Quebec, and one in Georgia.
Ponzi’s Later Life
Authorities tried to figure out the extent of Ponzi’s swindle, but it turns out he was not the most careful of bookeepers so a final accounting was impossible. It was vaguely left that the Ponzi scheme had cost its investors many millions of dollars.
In 1934, Ponzi was released from prison and deported to his native Italy. In January 1949, Time Magazine reported that the con man had been hired by Italy’s Nazi dictator Benito Mussolini as business manager for Italy’s LATI airlines in Brazil.
“The war ended his job;” the magazine wrote, “after that he eked out a meager existence as a translator. Committed to a Rio charity ward, blind in one eye and partly paralyzed, he said...‘I guess the only news about me that most people want to hear is my death.’ ”
They didn’t have to wait long. Charles Ponzi died a pauper on January 18, 1949.
Sources
“Ponzi Payment.” Time Magazine, January 5, 1931.
“Ponzi Lived here.” Jesse-
© Canada and the World, April 2010
All rights reserved
Hardly a day goes by without news of another Ponzi scheme unravelling.
Amazingly, given all the publicity surrounding the Madoff sting, there are still
plenty of people willing to fall for the get-
Here’s a partial sampling of news from April 20, 2010.