Ponzi, Charles

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Charles Ponzi, 1882–1949), Italian-American swindler. He came to the United States from his native Italy in 1903, then went in 1907 to Canada, where he was convicted of check forgery. In 1911 he returned to the United States, and subsequently was convicted of smuggling illegal immigrants. In 1919–20 he masterminded a fraudulent investment scheme that supposedly exploited currency fluctuations by trading in prepaid international postal reply coupons to yield very high returns (50% in 90, later 45, days). In actuality, earlier participants who cashed out were paid with funds invested by later participants. When the scheme collapsed, investors' losses totaled some $7 million. Ponzi, who had enriched himself, was convicted on federal (1920) and state (1925) charges. He subsequently engaged in land fraud in Florida. After his release (1934) from prison, he was deported. He later worked for an Italian airline in Brazil, where he died.

See his memoirs (1937, repr. 2001); biography by M. Zuckoff (2005).

A Ponzi scheme is an investment fraud in which earlier investors are paid returns using money contributed by later investors. It depends on a continuous stream of new money; it collapses when the incoming funds become inadequate to make the required payouts. Ponzi schemes are typically characterized by very high short-term yields, unusually consistent yields, and claims of being a low-risk investment, all of which are usually attributed to the skill of the investment scheme's manager, who tends to be secretive about how the investments are managed. Well-rewarded early investors make the scheme appear to be legitimate.

Althought the Ponzi scheme is named for him, Charles Ponzi was not the first to devise this type of fraud; William Miller, a bookkeeper, had run a similar fraud in Brooklyn, N.Y., in 1899. In 2008 an investment firm run by Bernard Madoff was exposed as a long-running Ponzi scheme that had defrauded investors of some $65 billion, and Texas financier Allen Stanford was convicted in 2012 of an $8 billion fraud in a Ponzi scheme that involved high-yield certificates of deposit issued by a Caribbean bank.