A man invested money in a project and waited for income. Time passes, and he gets a profit — only not Thanks to the successful activity of the company, but at the expense of the new participants of the project. This scheme, a pyramid scheme familiar to everyone, has been in operation since the beginning of the last century, and has many famous followers. Let's talk about the pioneer among financial swindlers, the Italian pyramid scheme builder Charles Ponzi.

We recommend modern "speculators", or, as they say today, traders, not to invent financial pyramid schemes. It is better to concentrate on studying technical analysis. To begin with, it is worthwhile to find your forex broker. Learn how to determine the best key levels, find trends or consolidations. Learn everything you need to know about risk management. Studying the theory of trading will give you much more than strenuous intraday trading with lots of trades. If you constantly put too much effort into finding the right trading setups, you will fail.

Ponzi scheme: dreams of wealth come true

In 1919, Ponzi published The International Trade Guide, a directory of American and European trading company addresses. In this way, Charles wanted to help firms find each other. The idea was not a success, but it is suggested that it was indirectly the starting point for a new Ponzi scheme.

  • Charles receives a letter from Spain--probably a catalog order. A return coupon was enclosed with the letter; it was to be exchanged for postage stamps, the amount of which would be enough to pay the cost of the return shipment — Spain.

  • The value of the coupon was 30 centimes (Spanish pennies) — 4.5 U.S. cents. In exchange for the coupon, however, Ponzi was to receive 5 cents worth of stamps.

  • Charles realized that there was money to be made on the monetary difference. It was the time after World War I when many countries were in serious inflation, but postal exchange competition remained stable Thanks to the international postal convention.

  • Ponzi would convert dollars into other currencies at a favorable rate; with these funds agents had to buy coupons in the respective countries and send them to the United States. Already in the States after the exchange, Charles realizes that the difference in exchange rates can be substantial, which means that he can make money on it.

  • But the profit remains theoretical — the stamps cannot be exchanged for dollars. Ponzi, who adhered to the "all or nothing" motto, decides to do the following: he tells future investors about the "coupon" business and how they can make money, and hands out unsecured bills of exchange, just printed on paper, to which they are guaranteed a refund with interest. Neither dollars, nor coupons, nor stamps are sent on a trip to Europe for exchange — the money is brought to investors by new participants interested in Ponzi's "business.

  • Ponzi registers with the Securities Exchange Company and at first works in it himself. To investors he promises to increase the deposited sum by 50% in 45 days, and to double it in three months.

  • The company staff increases, and Charles gives the management of the 18-year-old Lucy Martelli. Things go uphill: Ponzi begins to walk with canes with gold tips, buys a mansion for $35 thousand, and finally fulfills his childhood dream of getting rich.

Collapse: Jail and Homecoming

The merchant Daniels, looking at the luxury in which Ponzi lives, made claims: he appeared to Charles with a lawyer, and said that he gave a loan of $200 on the condition that he would be entitled to half of the profits of the future company. Litigation ensued, and at this time Charles' assets as a defendant were frozen. The company began to be audited; Ponzi announced a temporary suspension of funds, and anxious depositors began demanding their money back.

As a result, Ponzi was sentenced to five years in prison, with the agreement stating that "Mr. Ponzi received $10 million from depositors and paid back $8 million. The shortfall was $2 million."

After their release, Charles continues to engage in petty fraud and is deported to Italy. At home he teaches English, then finds a job as an Italian airline representative in Brazil. Because of World War II, he is again without his main income — renting out apartments, giving English lessons, looking for occasional sources of income. Ponzi died in the charity ward of a hospital in Rio of a brain hemorrhage.