Ponzi Scheme

Ponzi Scheme is named after Charles Ponzi who defrauded 10.000 investors for 9.500.000$ with this scheme. It certainly was not last and neither the first time this method was put to use, but still the scheme was named after this famous and quite genius criminal. Mr. Ponzi was an Italian immigrant and came from a wealthy family. In the early years of his life he never had to work, his family would pay him for trips and other spendings. At the age of 21 when he first entered the US, Charles Ponzi was left with 2,5$ due to his wealthy living style and no work. He then faced the reality and worked for 15 years many low paying jobs and also was sentenced to prison a few times, because of his strong love for money. In 1920′s Ponzi put this method into use. He claimed he found a loop hole in international trading of postal coupons and promised to return you 150% in 45 days. Explanation to his investors was he was buying some sort of stamps which were worth one cent in Spain, and the sold them in the US for 6 cents. This as well as some other stories and rumors he spread around of course only was a cover for his genius scam. Behind the scene he was just using the later investors money for payouts of the first investors. What he needed was fresh flow of money and the scheme would work constantly until he would run out of new investors. Lets look at an example. Joe invests in Ponzi 1000$, one day later also Maria gives 2000$ to invest in his “business”. Ponzi pays the profit to Joe with Maria’s money and Maria gets paid by money of a later investor. That is how the scheme works, stealing from one to pay the other. And those investors who were actually paid, spread the word how quickly they doubled their money, and thus guarantee the flow of new investors. Ponzi’s criminal financial carrier went from 0 to almost 10 million dollars in 6 months when it was put to an end by the authorities.