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is planet money from NPR.

0:21

Most of us in this world are destined

0:23

to be forgotten. I know it's

0:25

sad, but it's true. A lucky

0:27

few will land in the history books. Fewer

0:29

still might get our names on something.

0:32

A road sign, a stadium, maybe even get a

0:34

statue or a plaque. Probably

0:37

the least likely scenario is to become

0:39

so famous or infamous that our

0:41

names will live on in language.

0:44

Jerry Mander, the word, named after

0:46

Elbridge Gary, nineteenth century governor

0:48

of Massachusetts, and early pioneer

0:51

of the Gary Mander. Sachs

0:53

phone named after its inventor, a

0:55

Dolphe Sachs. And then

0:58

there's the Ponzi's. The

1:00

Ponzi's scheme, named

1:02

after Charles Ponzi. A

1:05

Ponzi scheme is an investment opportunity

1:08

that's more of a con.

1:10

The way it works is you have to use

1:12

or steal money from

1:14

newer investors to pay back the earlier

1:16

ones. They happen all

1:19

the time these days. But I'm just gonna

1:21

come out and say it, most of the time,

1:23

they're amateur hour compared to the one

1:25

pulled off by Charles Ponzi's. Italian

1:27

immigrant living in Boston who pulled

1:30

off his scheme for a brief seven

1:32

months about hundred years ago. He

1:34

wasn't first, he wouldn't be the biggest, but

1:36

after you hear his story, you'll

1:38

get it. You'll get why he's allowed to

1:40

live on forever in

1:42

Infamy. Hello, and welcome to Planet

1:44

Money. I'm Nick Fountain. Today on the show,

1:47

the story of how Charles Ponzi's

1:49

stole millions of dollars and defrotted tens

1:51

of thousands of people. It's way

1:53

wilder than you think. It involves daring

1:56

plan to Rabobank, a system

1:58

of speculating on currencies, thanks to a

2:00

loophole in the global mail system,

2:02

and a very generous pound of flesh.

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Year's is here and with it brings the possibility

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of change. As one behavioral

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scientist put it, fresh starts are really

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2:51

Ponzi's,

2:54

a word so familiar that just

2:56

rolls off the tongue, a shorthand

2:58

for robbing Peter to pay Paul.

3:01

And while his name has become infamous,

3:03

the story of Charles Ponzi's was

3:05

not that well

3:06

known. That is until journalist and author,

3:08

Mitch Zuckerberg, just kinda stumbled

3:10

upon it. I was a banking reporter for a

3:12

while at the Boston Globe. And I was at

3:14

a press conference and the state treasurer

3:17

just off handedly said, you know,

3:19

banks haven't failed like this in Boston

3:21

since Ponzi's day. And

3:23

I did a, like, a comic double

3:25

take of And

3:27

he said, yeah, you knew. Ponzi was based here

3:30

in Boston. And I said, yeah,

3:32

sure. I knew that. I'm a banking reporter. Of course,

3:34

I knew that. You know, I had no

3:35

idea. Mitch kind of became obsessed with

3:38

and wrote a book about him. It's called

3:40

Ponzi scheme, the true story of

3:42

a financial legend. To write

3:44

the book, Mitch went to Italy and found Ponzi's

3:47

birth records. He read thousands

3:49

of court documents. He found records of

3:51

every single victim. And

3:53

he read Ponzi's private letters. He

3:55

also looked through a bunch of photos. There

3:57

aren't many from when Ponzi's young,

3:59

but in one, he's dressed in this three piece

4:01

suit with he has a pretty

4:03

well kept mustache perfectly combed

4:06

hair and these big thick

4:07

eyebrows. And it's also

4:09

worth mentioning that Ponzi is he's

4:11

diminutive. You know, he's a guy of 525I

4:14

think he lied about being five three, you know.

4:17

Classic. Yes. You know? And

4:19

so if Ponzi was going

4:21

to make it. He understood. He had to do

4:23

it with his head. Just

4:26

because he's a little guy. He's a little

4:28

guy. Yeah. Maybe

4:29

it was the height, maybe it was something else.

4:32

But throughout his life, was

4:34

always looking for the thing that was gonna

4:36

make him rich. He was the

4:38

type to take big swings, big

4:40

risks that often involved leaps

4:42

of faith. And in nineteen o

4:44

three, he did what many young Italians insert

4:46

of riches we're doing back then, he got

4:49

on a boat to America. For the

4:51

greater part of the next two decades, Ponzi

4:53

tried to make his

4:54

fortune. This guy had

4:57

more jobs and

4:59

more of a varied resume than anybody

5:02

I've ever heard of. Can you just list off some

5:04

of the jobs? Oh, boy.

5:07

He he he worked in a bank. He was a

5:09

translator. He was a mining

5:11

camp nurse. He was a road roller.

5:13

He was a sign painter, you

5:15

know, on and on. Grocery, clerk,

5:17

factory

5:18

hand, dishwasher, waiter, librarian.

5:21

He was, you know, He was an itinerant

5:23

in immigrant, you know, rolling

5:25

up and down the east coast

5:27

of the United States looking for work

5:30

and trying to find his

5:30

place. And Ponzi's, big swings,

5:33

high risk, figure out the details later attitude,

5:36

it wasn't just about getting rich.

5:38

This one time, Mitch says Ponzi

5:40

was working at a mining camp in

5:42

Appalachia when there was a terrible

5:44

accident at a hospital. A nurse

5:46

named Pearl was burned when a

5:48

gas stove was He's sitting

5:50

down for a beer with this

5:51

doctor. He knows at the mining

5:54

camp and and he's asks, you know, how's

5:56

Pearl? And the doctor tells him, you

5:58

know, it's pretty desperate. And Green is

6:00

setting in, and and so says,

6:02

how can you help her? And he says,

6:04

maybe a skin graft. And, you know,

6:06

he wanted to try it, but he couldn't find

6:08

anyone who'd give up their skin to save this

6:10

woman. They they didn't know at

6:12

all. And Ponzi didn't

6:14

really know her either, but in

6:16

the moment, Ponzi said

6:19

How much do you

6:19

need? How much skin do you need? And he said,

6:22

well, probably forty or fifty square inches.

6:24

Wow. Ponzi said, you got him.

6:26

I'll give you all the skin you

6:27

need. Ponzi was on an

6:29

operating table that evening.

6:31

Doctors cut off seventy two square

6:34

inches of skin from his thighs. Later,

6:36

he gave another fifty inches from his

6:38

back. It was a classic ponzi

6:40

big swing and it was risky. He ended

6:42

up spending months in the hospital.

6:44

But it paid off. The nurse,

6:46

Pearl, she lived. It's

6:49

an incredible story and

6:51

it doesn't fit the picture I

6:53

have Of

6:55

Ponzi's love that. I thought

6:57

I was gonna write about a guy who

6:59

was just a

7:00

schemer, who was just a snake. And

7:04

the deeper I went. The

7:06

more I felt sort

7:09

of

7:09

the sturings of sympathy, the sturings

7:11

the sturings of empathy, and,

7:14

you know, what he did was wrong, and and what you

7:16

know, and and I'm not confused by

7:18

that. But I kind of understood

7:21

the motivation of a guy

7:23

who couldn't stop as he put

7:25

it. You know, the snowball once it started

7:27

rolling downhill, and not

7:28

get get rolled over by it.

7:31

This next chapter of Ponzi's story

7:33

is all about that snowball. How

7:36

he got the idea that started it rolling

7:38

and how he turned this big

7:40

idea into a big scam that was

7:42

hard to stop. And as

7:44

his story unfolds, you're gonna hear some

7:46

obvious red flags. In part because

7:48

I'm gonna point them out. I'm gonna give the

7:50

red flags these little rhymes. Here

7:53

it goes. By nineteen nineteen,

7:55

Ponzi had spent fifteen years trying

7:57

to make it in the US. He was living

7:59

in Boston, he'd gotten married, he'd rented

8:01

an office downtown, right next to City

8:03

Hall, And then one day in

8:04

August, he's going through the mail. He

8:07

opens a letter and outflutters this

8:09

little it almost looks like a dollar bill,

8:11

but it's it's kind of squared. And

8:14

it's an international reply coupon.

8:17

An international reply coupon.

8:19

What's that? An international

8:21

reply coupon is basically,

8:23

it's a coupon that enables

8:26

you to buy a stamp

8:28

in another

8:28

country. It's actually a pretty

8:30

clever solution to a problem. If you want

8:32

to send a letter to say your nonah

8:35

enables and you want to make it easier for

8:37

her to respond with news from the

8:39

motherland, what are you gonna do? You can't

8:41

send her US stamps, you can't

8:43

send her Nichols, you can't send

8:45

her an Italian lira because you're

8:47

paid in dollars. Instead, you can

8:49

send her an international reply

8:51

coupon, which is like a voucher that you

8:53

can buy at your local US

8:55

post office and she can redeem

8:57

for an Italian stamp at her

8:59

local Italian post office.

9:01

It's an easy way to prepay

9:03

for a reply. And what

9:05

Ponzi realized sitting right there in his

9:07

office was that these international

9:09

reply coupons were a

9:11

magical way to make money through

9:13

arbitrage. That is taking advantage

9:15

of price differences to make an easy

9:17

profit. He

9:18

had he had what can only be described

9:20

as a as a the Eureka moment. And

9:22

he started doing sort of back of the envelope

9:25

calculations. See, this

9:27

was just after the Great War

9:29

and the Great Influenza. And the

9:31

economies of Europe were in a bad

9:33

place. Many of their currencies had been

9:35

devalued. But the organization that

9:37

set the going rate for these international

9:39

reply coupons had not adjusted for

9:41

inflation, how much it costs to buy the

9:43

coupons in different countries.

9:45

And that meant essentially he

9:47

could buy these coupons

9:49

on sale in

9:52

Europe. Yes. So

9:54

a dollar could

9:56

buy twenty of these

9:58

coupons for five cents each in the

10:00

United States. But

10:04

because The value of the

10:06

lira had been so devastated

10:08

by the war. Italian lira. Yes.

10:10

The Italian lira, you could buy more than

10:12

three times as many of those. In

10:15

Italy for the equivalent of a

10:17

US dollar. Correct.

10:20

And so he realized that after

10:22

expenses he could make two dollars and thirty

10:24

cents for every dollars worth of

10:26

coupons he bought in Italy.

10:29

Amazing profits perfect

10:31

arbitrage opportunity. Sign

10:33

me

10:33

up. Yes.

10:34

I want in. And and

10:37

and and it's legal. There

10:39

are a few minor

10:41

details that Ponzi can't

10:43

quite figure out yet. For instance, how

10:45

to sell these coupons or stamps

10:47

for cash in the US. But he

10:50

figures he can sell them in bulk to companies

10:52

that send a lot of mail. There is

10:54

also the transport problem at

10:56

scale these might be kinda heavy, but he thinks, you

10:58

know what? It's a good

11:00

idea. I'll figure out the details

11:02

later. Now is the time to take

11:04

big

11:04

swings. Now's the time to

11:06

create a company. He goes right next

11:08

door to City Hall and he

11:10

incorporates a business

11:12

and he calls it the securities

11:15

exchange company. The

11:18

SEC. Why not? The Securities

11:20

Exchange Commission won't be around

11:22

for another decade and a

11:23

half. starts calling

11:25

around the community to find people who will

11:27

invest in his company. He

11:29

tells them, if they give him cash

11:31

now, he'll be able to make a profit by

11:33

buying and selling these stamp coupons

11:35

and share a bunch of that profit

11:37

with them. It's hard to

11:39

pinpoint exactly when

11:41

Ponzi scheme turned into a scam,

11:43

but you could argue that it was during

11:45

these first few pitches. Because

11:47

Ponzi was soliciting investments

11:50

without figuring out those pesky

11:52

details of how he would actually make

11:54

money. Ponzi got around this by giving

11:56

out just enough information for people to

11:58

think it was a brilliant idea. But

12:00

when they asked him questions like, hey,

12:02

how exactly are you gonna sell these stamp

12:05

coupon things for cash? He

12:07

didn't tell them well, I haven't

12:09

worked that out yet. He'd say,

12:11

Well, that's the proprietary sauce.

12:13

I can't tell you that. So here

12:15

it is, red flag number

12:17

one. Is there a secret

12:19

sauce? Maybe get

12:21

lost. Do not invest in something where

12:23

you don't understand all the details.

12:26

Ponzi knew that people wouldn't care though. He

12:28

had them in a trance. And

12:30

then he'd lean in for the

12:31

kill. He would say, you know, what are the banks

12:34

paying you? If you put your money in the bank, they're

12:36

gonna give you what two percent, maybe

12:38

three percent a year.

12:40

I can give you fifty

12:42

percent interest in ninety

12:44

days. In three months, your

12:46

hundred dollars will be a hundred and fifty

12:48

dollars. And and that's the

12:50

moment he knew that

12:52

a calculation was happening in his

12:55

client's head. Is this too

12:57

good to be true or is this too

12:59

good to miss? Too good to be true

13:01

or too good to myth. That's how

13:03

I I see all of this. How could he

13:05

possibly give me fifty percent

13:07

interest in ninety

13:07

days? But if it's true. If

13:10

this is possible, this is

13:12

my ship coming in. This is

13:14

red flag number two, and maybe the

13:16

biggest red flag of all. Regular

13:18

returns you're gonna get burned

13:21

because the world isn't

13:23

regular. Some years are good, some are bad,

13:25

and investments that promise

13:27

amazing returns every year They're

13:29

sketchy. But Ponzi's

13:31

investors didn't pick up on this. People

13:33

started pouring dozens, then thousands at

13:35

some point, a million dollars a week

13:37

into Ponzi's postal coupon

13:40

fake business. And it says to

13:42

understand how Ponzi conned

13:44

tens of thousands of people. You gotta remember

13:46

he started his scheme in December of nineteen

13:48

nineteen, right on the cusp of the

13:50

roaring

13:50

twenties. Yeah. III

13:53

call it, this is the first roar of the

13:55

nineteen case. The idea that

13:57

anything was possible had

14:00

permeated not just the upper

14:01

class, but to the newest immigrant,

14:05

yes, great riches were available

14:07

here. So people were primed

14:09

for this. They had heard stories

14:11

of getting rich quick and

14:13

so it seemed

14:13

plausible. When when I

14:16

was doing the research on Ponzi, I spent

14:18

a lot of time just reading what else

14:20

was in the paper, and it was

14:22

incredible. It was an entire genre

14:25

of stories of sudden wealth

14:27

that, you know, subconsciously

14:30

or consciously, we're playing

14:32

into Ponzi's hands.

14:34

Like, space filler or

14:36

these were prominently

14:37

featured. Permanently

14:40

featured. Oh. Front page

14:42

stories, again, really, and about oh,

14:44

marrying into wealth. You know, she

14:46

rose from Char girl

14:48

to, you know, to to to to

14:50

ground Dom. You know, and

14:53

And

14:53

clearly, people people wanted

14:55

to read it. This might as well be

14:57

red flag number three for an

14:59

investment scheme. Beware the

15:01

unrealistic expectations of

15:04

quick wealth creation because

15:08

this everyone's getting rich quick

15:10

Why not me feeling? It's not just a nineteen

15:12

twenties phenomenon. It pops up

15:14

whenever the economy is popping

15:16

off. Whenever you see your neighbors

15:18

getting rich, you get jealous. And you want

15:20

him. For Ponzi, business

15:22

was booming. But remember, he

15:24

never figured out those details. He

15:27

never used investor money to buy

15:29

postal coupons. Funds. Instead,

15:31

when investors came back to his office

15:33

looking to recoup their investment,

15:35

he just paid them with the new money

15:37

from new

15:37

investors. This robbing Peter to

15:39

pay Paul scheme is what's now known as

15:41

a ponzi. Sometimes

15:44

regulators catch on to these schemes.

15:46

But oftentimes, pawns pop

15:49

up in areas that are new

15:51

or not regulated too much,

15:53

which is red flag number four.

15:56

If you're in the sticks,

15:58

be careful with your picks.

16:00

And postal policy was

16:02

quite the hinterland. Regulators

16:05

started poking around Ponzi's business,

16:07

but they were kind of stumped. For

16:09

instance, the first regulator that came

16:11

around to ask questions was a state bureaucrat.

16:13

He explained he was in charge of making

16:15

sure that loan sharks weren't charging

16:17

too much interest. But Ponzi

16:19

said, no, you have it backwards. I'm the

16:21

one who has to pay these big returns. I'm

16:23

the one who's gonna pay out fifty percent.

16:26

The bureaucrat's like, oh

16:28

yeah, you're right. You're not alone

16:30

shark. You're the

16:30

opposite. I guess, good

16:32

day, sir. Basically, he

16:34

goes back to his little cubby hole at the state

16:37

house. And

16:38

you know, he sort of tells the police,

16:40

well, just keep an eye on this guy.

16:42

And he he passes the buck so to

16:44

speak. Did the Boston police keep

16:46

their eye on

16:47

them? Mostly

16:48

to invest. Two

16:51

thirds of the Boston Police Department

16:54

We're investing in Ponzi. Two

16:56

thirds of the Boston police.

16:59

Yes. The police weren't gonna do anything

17:01

about it. Some of them even worked for

17:03

Ponzi as sales them. The regulators who

17:05

probably visited Ponzi's operation, the

17:07

most, were the postal inspectors.

17:09

But try as they might, they could

17:11

not figure out how Ponzi was

17:13

making money on this stamp coupon arbitrage.

17:16

Of course, that's because Ponzi hadn't

17:18

figured that out either. So Ponzi

17:20

scheme got bigger and bigger.

17:22

At its peak in July of nineteen twenty

17:24

seven months after he started taking

17:26

investments, Ponzi took in

17:28

nearly six and a half million dollars from twenty

17:30

thousand investors in a single

17:33

month. He had a nice mansion, he had

17:35

a limo, he was on

17:37

the front page of newspapers. After the break,

17:39

how Ponzi's luck eventually ran

17:41

out, just like almost

17:43

every Ponzi

17:44

ever. Support for

17:47

this NPR podcast

17:49

and the following message come from

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in a hard inquiry, which may impact

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your credit score.

18:16

New Years is here and with it brings the

18:19

possibility of change as one

18:21

behavioral put

18:22

it. Fresh starts are really powerful. So as

18:24

you

18:24

head into twenty twenty three, Life Kit is

18:26

a great resource to help you plan your

18:28

life and tackle changes.

18:30

Both big and

18:31

small. Listen to the Life Kit podcast

18:34

from

18:35

NPR. Remember,

18:37

to keep up his stamped coupon

18:39

scheme, Ponzi needed a constant stream of new investors.

18:41

In fact, more investors than

18:43

before, to pay the earlier investors

18:45

their profit, that fifty percent.

18:48

Things started to turn when someone sued

18:51

Ponzi. They said they were part owner

18:53

of the company. Ponzi said no, you just

18:55

gave me a loan that I paid off a long

18:57

time ago. But in the a court decided to

18:59

freeze a bunch of Ponzi's bank accounts

19:01

while they figured it all out. And

19:03

this causes a mini panic.

19:06

Mitch says thousands of investors showed

19:08

up at Ponzi's

19:08

office. It's like a scene of a bank run.

19:10

They're all demanding their money back. People

19:13

are excited and they're anxious and

19:15

they're afraid and and and people are pushing

19:17

and shoving. And and wades

19:20

into the crowd and incredibly,

19:22

it calms them. And

19:24

he survives the the the the

19:26

run. Things settle

19:27

down. He pays off everyone

19:30

is seeking their return. But then

19:32

state and federal regulators decide to

19:34

take a second look at his business.

19:36

Ponzi meets with him and tells him, you know

19:38

what? I'm above board. I'm so

19:40

above board. I'll let you check my

19:42

books. You can even pick the

19:45

auditor. This is a stall

19:47

tactic and it's a problem. For

19:49

one, Ponzi has been spending a lot.

19:51

On his new mansion, that limo,

19:53

but also on stakes in

19:55

legitimate businesses. He's even become part

19:57

owner of multiple banks. And

19:59

the second problem is he'd never

20:01

figured out how to make money off the

20:03

stamp thing. So he can't come up money

20:05

he owes to all his investors.

20:08

Ponzi is getting desperate. He knows that there

20:10

is gonna be this moment.

20:12

The auditor will count up all his debts

20:14

and Ponzi will have to show all the money that

20:16

he actually has. This

20:19

is the show me the money moment.

20:21

When people could realize that he

20:23

doesn't have all the money to pay his

20:25

investors

20:25

back. And Ponzi, ever the

20:28

hustler, thinks of a plan that's both

20:30

daring and pretty extraordinary.

20:32

He's gonna gather up all his bankbooks,

20:34

all his

20:34

cash, and go

20:37

from his office and he's stop before he

20:40

goes

20:40

over the orders of his office a few blocks

20:43

away. He's

20:43

gonna stop at one of the banks

20:46

he purchased He has this

20:48

idea that he is going to gain

20:50

access to the vault of the Hanover

20:52

Trust Bank, and he's

20:54

going to what should we say

20:56

borrow a few

20:58

million dollars from the

20:59

vaults. Go over to

21:02

the auditor show all of this

21:04

money and then return

21:06

to the bank -- Take

21:06

the money temporarily rob his

21:09

own

21:09

bank. That's one

21:10

way to put it. That is correct. I'm

21:13

not I'm not saying it's a

21:15

great plan, Nick, but it's a plan the

21:17

Massachusetts bank regulator, he senses something

21:19

fishy is up. He starts asking

21:21

the banks, hey, how much does Ponzi have at

21:23

his accounts anyways? And

21:25

the bankers tell

21:26

him, well, not that much actually. So

21:28

the regulator arranges a

21:31

stakeout. So he starts literally

21:33

having guys watching the bank

21:35

that Ponzi is withdrawing money

21:37

from most aggressively, then they see

21:40

that they're ponzi guys coming to make withdrawals

21:42

to collect

21:43

cash, they realized this is

21:46

the moment. They they figure

21:48

there's

21:48

no way there can be any cash left in that

21:50

account because there were only a few thousand

21:52

dollars left. And so they

21:54

pounce and they They

21:57

they declare him hopelessly insolvent

21:59

and hopelessly overdrawn.

22:01

And this is the end of the road for Ponzi

22:03

scheme. The auditor finally finishes

22:05

his work. Ponzi owes about

22:07

seven million dollars probably

22:09

more, but he only has about

22:11

four million dollars. The Khan

22:13

can't go on any longer. He turns

22:15

himself

22:15

in. Did he do time? He

22:19

did. He spent much of the

22:21

nineteen twenties in prison behind

22:23

bars on various charges,

22:25

all related to these few few months

22:27

of glory.

22:28

Charles Ponzi eventually ended up in

22:30

Brazil. He died in the charity ward of a

22:32

hospital with seventy five bucks to his name,

22:34

which went to his burial. But

22:37

we all know his name. All

22:39

because of a brief seven months where he was in

22:41

the right place at the right frothy

22:44

economic time with the

22:46

right pitch. Why do you think it

22:48

was that his his

22:50

scheme, his company, his

22:52

ponzi, grew so

22:55

fast. I

22:55

think there's always, you know, a fear of

22:58

missing out. FOMO. Yeah.

23:00

FOMO. Right? It's a real

23:02

thing. FOMO is real. And

23:04

so financial FOMO, you know,

23:06

cuts even deeper. You're not just missing a

23:09

party. You're fear of missing out

23:11

on the that was supposed to come

23:13

in to change your life

23:15

and to change your family's

23:16

life. And so, you know,

23:19

that is part of human nature, that

23:21

that Ponzi or people like him exploit.

23:24

It's unclear when exactly

23:26

Ponzi's name became a generic

23:28

term for the con he pulled up. Off.

23:30

But one thing's for sure. It's gonna stay that

23:32

way because Ponzi's keep

23:35

happening. It's human nature. FOMO is

23:37

a new word, but It's a timeless

23:39

emotion. So if you'll oblige me, I

23:41

have one final red

23:43

flag. Fear of missing

23:45

out Don't forget to

23:47

doubt. Maybe

23:49

that. Do you have a long

23:52

last bit of economic or inance

23:54

history, email us at plenty money at NPR

23:56

dot org or find us on the socials or

23:58

send us snail mail. Send me a postcard.

24:00

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