Hidden History: The Original Ponzi Scheme

Charles Ponzi: The Documentary

Directed by Patrick A Boyle (2019)

Film Review

This fascinating documentary concerns quirky entrepreneur who launched the world’s first “Ponzi scheme”* in Boston in 1920. Charles Ponzi was an Italian immigrant who spent most of his life launching phantasmagorical business schemes. Despite the common portrayal of Ponzi as a swindler and sociopath, the filmmakers paint a very sympathetic portrait.

Thanks to the rollout of miraculous new technologies (eg the internal combustion engine, the electrical grid, the telephone, radio, moving pictures) that made their inventors fabulously rich, in the 1920s wealth ceased to be a monopoly of the well-born.

Ponzi’s first two (failed) ventures were a magazine and an import-export business. In the scheme that finally brought him to public attention, he proposed to buy large numbers of discounted international postal reply coupons overseas and exchange them for stamps worth ten times the cost of the coupons.

Ponzi sold his scheme to the public by selling Ponzi certificates to be cashed in for 50% profit within 45 days or 100% profit within 90 days. After opening offices in more than 20 states, by June 1920 Ponzi had taken in more than $32 million. He was so busy taking in new money and using it to pay off initial investors that he never got round to buying any international reply coupons.

Instead he invested most of the money he collected in Boston banks. For example, he used $2.7 million he deposited with Hanover Trust to buy 3/4 of new stock the bank issued in 1920. For this reason, the collapse of Ponzi’s scheme would lead to the failure of Hanover Trust and three other banks.

In August 1920, the scheme began unraveling after the Boston Post published articles exposing Ponzi’s criminal history (ie he was successfully prosecuted for check fraud and helping immigrants enter the US illegally). After regulators and law enforcement officials demanded to see Ponzi’s books, it became clear his liabilities exceeded assets by $3 million.

After he completed a four-year sentence on a “Common and Notorious Thief” charge, Massachusetts convicted him on new fraud charges, for which he received a 5-8 year conviction. Appealing the conviction, he fled to Florida, where he changed his name to Charles Borrell and started a real estate scheme in which in promised to triple investors’ money in 60 days. After serving a years for violating Florida’s security laws, he boarded a ship attempted to flee to Italy. He was rearrested after bragging to fellow passengers about his exploits in Boston.

On his release in 1934, he was deported to Italy. In 1939, he relocated to Brazil in 1939, where he ran a rooming house.


*A Ponzi scheme is a form of fraud that lures subscribes by paying out to earlier investors with funds from more recent investors.

**An international reply coupon (IRC) is a coupon that can be exchanged for one or more postage stamps representing the minimum postage for an unregistered priority airmail letter. Because European postal rates were much lower than those of the US, Ponzi could buy a $1 IRC in Italy and exchange it for $10 worth of stamps in the US.

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