A Legacy Well Deserved (Part 5 of 5)
The audit revealed the inevitable. In just eight months, Ponzi had accrued a deficit of several million dollars. He had taken the money deposited by new investors to pay those whose certificates had come due. If new deposits had not exceeded what he paid out, his business would have collapsed. Fortunately for Ponzi, greed took hold and many reinvested so there was no payout. Without a cash payout, their “earnings” were never real, only figures on a ledger.
The faithful were shocked when Ponzi was placed under arrest, shocked and disappointed. They had placed their trust in the man, believing the fantasy of vast wealth that he offered. It’s hard to imagine that anyone could believe they could earn such a high rate of interest. Maybe the dream of wealth was so strong they just wanted to believe it was true. All they had to do was invest their money and believe the fantasy was real. What money remained at the end was distributed to investors in amounts proportionate to their original investment. Investors who believed the fantasy and stayed with Ponzi to the end despite what was being reported lost a little more than sixty cents for every dollar originally invested.
Charles Ponzi spent four years in federal prison and another seven in state prison. Incredibly, during the months following his release from federal prison while awaiting court proceedings for the state’s charges, he formed the Charpon Land Syndicate hoping to take advantage of a potential land boom in Florida. His plan was to purchase acreage, divide it into small lots, and sell the lots for large profits. He offered investors a two hundred percent return in sixty days. The man clearly had not learned his lesson. With money from relatives, he purchased 100 acres of land described as desolate and waterlogged for $4,000. His plan was to divide the land into 2300 lots (that’s about 1850 square feet per parcel, a little more than 40’x40’, pretty tiny) and sell them for $10 each. Why he thought anyone would want to purchase a waterlogged parcel that small for any amount of money is a bit of a puzzle. When word of the scheme got out, the authorities shut his land syndicate down.
After serving his prison terms, Ponzi was deported to his native Italy. He had never bothered to apply for citizenship in the United States, and, as a felon, was not allowed to remain.
Interestingly, while Charles Ponzi wasn’t the only person to hatch a “rob Peter to pay Paul scheme” while skimming money to enjoy a lavish lifestyle, his is the name ascribed to all such schemes, and there have been many, both before and since. Bernie Madoff is well known for masterminding one of the largest in history, fraud surpassing fifty billion dollars. His sales pitch offered much more modest gains, a steady ten or eleven percent per annum, so he was able to perpetrate the fraud for a much longer period. Yet no one refers to such schemes as a Madoff scheme, only as a Ponzi scheme. Perhaps it’s because Ponzi’s star burned the brightest and flared out so quickly. To convince so many of an outlandish gain of fifty percent in forty-five days demanded heights of salesmanship and deceit that few could ever hope to attain. And yet, Charles Ponzi not only convinced people to buy before his business received scrutiny, he managed to convince thousands to remain loyal after all the evidence pointed to a massive fraud. So perhaps the fact that all such schemes are now known as Ponzi schemes is a legacy well deserved.
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