A Million Dollars a Week (Part 3 of 5)
It is highly unlikely that Charles Ponzi ever purchased or exchanged even a single International Reply Coupon. Several thousand dollars’ worth of coupons purchased in Italy would have by themselves filled an entire suitcase. His alleged associate in Italy was a shadowy figure who was never clearly identified and only vaguely mentioned, and there is no evidence Ponzi ever cashed in any coupons for stamps, nor did he attempt to sell stamps for dollars. He never admitted that he hadn’t, but his insistence that he had was just one of the many deceits that drove his business.
From the moment his first client purchased a certificate that Ponzi promised would pay fifty percent in forty-five days his business was headed for insolvency, the money invested in a bank account that, at best, may have been earning three percent interest annually. As his list of clients grew and more money was invested in bank accounts, he embarked on a spending spree, a new house, new car, jewelry for his wife, fashionable clothes for himself. He presented himself as wealthy, claimed to have found the secret to success and fortune, the same beguiling potion he was offering his clients. Anyone who wanted to live the rags to riches lifestyle that he was now enjoying was invited to invest in his Securities Exchange Company. Most who heard the pitch did. The cautious declined.
As word of the Securities Exchange Company and the huge profits to be gained spread, the weekly investments swelled from thousands of dollars to tens of thousands, then hundreds of thousands. At its peak, Ponzi was bringing in a million dollars a week. To expand the business, he opened additional offices throughout New England and hired salesmen who worked on a ten percent commission. Their sales pitch was the same as that perfected by Ponzi. Most of them, maybe all, were invested in the International Reply Coupon scheme as well, unaware of the fraud they were perpetrating. The siren song of vast wealth lured an ever-increasing number of investors. The money seemed to flow into the Securities Exchange, and Ponzi made regular deposits in several local banks, the accounts growing to millions of dollars. And when the investors’ certificates came due, Ponzi would delve into those accounts to pay back the principal plus the fifty percent interest as promised, proof to many that the investment was legitimate. Many investors reinvested everything, eager to take advantage of the easy money. As long as there were enough new investors to cover the liabilities of those certificates that came due, this could go on forever.
In retrospect, it’s surprising that Ponzi offered such a phenomenal return. When banks were offering something like three percent annually, he could probably have offered much less than he did, maybe ten percent every forty-five days or twenty-five percent guaranteed annually, both beyond what he could legitimately deliver, but had he done so, he might have kept the fraud secret for years, maybe indefinitely. Instead, the wildly inflated potential for earnings drew the unwelcome attention you might expect, and after only about seven or eight months, a perfect storm of suspicion and investigation would cause Ponzi’s house of cards to tumble.
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