Meet the Man Who Pulled Off the Biggest Scam in History

hey 42 here if there's one lesson you need to learn early on in life it's this whether it's that brand new cryptocurrency that's definitely going to be bigger than bitcoin or a suspiciously large pair of boobs if something looks too good to be real it probably is and yet as the surprisingly large number of inexplicably wealthy princes from nigeria a country that has no monarchy will happily tell you even to this day people still fall for too good to be true cons all the time perhaps the most famous example of a too good to be true opportunity is the ponzi scheme in case you aren't familiar with the concept let me talk you through it a ponzi scheme is a kind of fraud that promises large returns on an investment of some kind in reality those returns aren't financed by the promised investment itself but by money deposited into the scheme by new investors it's a classic case of robbing peter to pay paul ponzi schemes are responsible for some of the biggest frauds in history and have duped those taken in by them out of literally hundreds of billions of dollars but have you ever wondered why we call them ponzi schemes in the first place that's thanks to one charles ponzi an italian immigrant who arrived in the united states at the start of the 20th century charles ponzi wasn't the first person to pull off this kind of con but he was so wildly successful at it that all future attempts would be named after him even today more than 100 years later ponzi was born in northern italy in 1882 into a once wealthy family that had fallen on hard times he was desperate to see his kin elevated back to the status he felt they deserved but unable to reclaim the lost wealth of his ancestors in his homeland he ended up doing what so many europeans did in those days he boarded a ship and set sail for america somewhat ironically for a man who would go on to be immortalized for getting unimaginably rich at other people's expense ponzi wasn't actually very good with money in fact he was terrible he didn't have much of the stuff when he set out from italy and had even less by the time the ss vancouver docked in boston in november of 1903 having gambled away almost everything he owned in the time it took to cross the atlantic in his own words he arrived in a new world with 2.50 in cash and a million dollars in hopes unfortunately he soon found his suitcase full of hope wasn't considered legal tender in boston and getting his hands on large stacks of cash of what was you know dollars wasn't anywhere near as easy as he'd expected ponzi had arrived in america in hopes of finding the streets paved with gold but in reality they turned out to be paved with dishes that needed washing road signs that needed painting and tables that needed waiting for a man seeking to change the fortunes of his family it wasn't going to be easy and that's pretty much how ponzi's life continued until 1907 when he secured a job at a bank owned by fellow italian immigrant luigi zarasi don't be like charles ponzi uncover a new industry that has longevity and potential for huge growth with the help of trends who've kindly sponsored this video if you're a budding entrepreneur investor or just have ambitions for personal growth trends is an absolute gold mine let me tell you in business timing and insider knowledge are everything and when you subscribe to trends you get access to a community of industry leaders in virtually every field where you can learn how to capitalize on emerging opportunities learn growth strategies seo and so much more trends also provide regular signals that tell you exactly what those emerging markets are and it's the only place i've ever found to get that information the business experts and industry leaders at trends also publish regular articles to teach you how to be better at business and succeed no matter what your product is i particularly enjoyed the trends article esports the rise of the next bm off in competitive sports i'm amazed at the wealth of information in this peak behind the scenes at the business of esports which is now growing at lightning speed did you know esports is now a multi-billion dollar global industry join the trends community today you can get your first seven days for just one dollar go to trends.ceo forward slash aaron to get started zarossi's bank was offering investors two or three times the interest rate of its competitors which ensured a steady stream of new customers came through the door each day to hand over their savings and that was lucky because zarasi wasn't funding those generous rates through his own sound investments he was paying for them with cash from newly opened accounts or to put it another way he was running a ponzi scheme of course it wasn't actually called a ponzi scheme at the time that would have confused the hell out of charles ponzi for a start but the principles were there for all to see a ponzi scheme is a bit like a house of cards the bigger you build it the harder it is to keep the thing standing because as soon as new customers dry up you're in big trouble and it seems the rossi was well aware of that fact because one night he grabbed as much cash as he could carry and legged it to mexico in the absolute chaos that followed it was ponzi who was left to pick up the pieces he took care of zorossi's family it seems the banker forgot to mention his plans to them while stuffing his pockets full of cash and tried to placate the hordes of disgruntled customers who'd been taken in by the scam it wasn't the kind of behavior you'd expect from someone like ponzi but as with most of history's villains there was another side to the man who became famous for his greed ambition and delusion having said that what ponzi did next would ably demonstrate all three of those traits when he went to visit one of zarossi's former customers he was briefly left alone in one of their offices and there sitting on a table in the corner was an open checkbook as far as get rich quick schemes went a blank check and a forged signature was about as simple as it got and ponzi didn't hesitate he wrote himself a check for 423. and 58 cents a number he hoped would look random enough to slip under the radar and walked straight out the front door unfortunately for him his little theft was spotted almost immediately as were the extravagant purchases he made with his loot ponzi spent the next few years behind bars and when he'd finally served his time his freedom only lasted a matter of weeks before he got himself caught again trying to smuggle some fellow italians into the us all in all it's fair to say ponzi's plans of bringing prosperity back to his family were going rather badly by 1917 a full 14 years after he'd moved to the states he was working as a nurse at a mining camp with two stints in jail on his record and hardly a cent in his pocket but it was here at his lowest point we got to see ponzi's surprisingly charitable side once again whilst working at the camp a fellow nurse was badly burnt in an explosion ponzi only knew the woman by sight but when he found out she needed a donor for her skin grafts he signed up immediately giving 1 400 square centimeters of skin from his back and legs skin is a fairly important organ it keeps all your insides from falling out and stuff and ponzi had given away rather a lot of it not so much that his liver popped out but he did need mumps in hospital to recover from the ordeal by 1919 ponzi was fully recovered and had saved enough cash to set himself up in a small office in downtown boston he just wasn't quite sure what kind of business he was going to run from it if you could say one thing for ponzi he was an incredible ideas man the only trouble was all his ideas were but by this point he was desperate literally writing to companies around the world trying to convince them to partner with him in one of his harebrained schemes and what do you know eventually a spanish firm wrote back it was to be a letter that changed ponzi's life forever not as it turned out because he'd finally found someone prepared to do business with him but because of a small square of paper tucked inside the envelope it was an international reply coupon if you've never heard of an international reply coupon or irc you aren't alone neither had charles ponzi but after a bit of research he discovered the coupon was essentially a way for ascender to pre-pay return postage and it could be exchanged for the relevant stamps at post offices around the world ircs had fixed prices wherever they were sold but thanks to wild inflation after the first world war along with the kind of market craziness that would make gamestop shares look stable the relative values of ircs varied dramatically from country to country that meant theoretically at least they could be bought in one country then sold in another for a profit ponzi had stumbled across a legitimate business opportunity taking advantage of prices in one market to profit in another is known as arbitrage and if he hadn't been such a dreamer he may have even been able to make himself a tidy little income from it instead ponzi went big touting the profit to be made from his international reply coupons as the investment opportunity of the century and this is where his real genius finally had a chance to shine ponzi may not have been the sharpest tool in the shed but one thing he had in spades was charisma drawing on his italian heritage he was always immaculately dressed and he soon discovered a latent talent for winning people over and gaining their trust something that was about to come in very handy indeed ponzi gave his business a suitably important sounding name the securities exchange company and drawing on inspiration from his days working for zarasi he offered those willing to stump up the cash a frankly ridiculous 50 percent return on their investment after 45 days if ever there was an offer too good to be true it was this after all traditional banks at the time were offering around five percent annual interest and that's probably why people were skeptical at first but a few brave souls decided to trust the enigmatic italian with their cash drawing on all his charm in the first month he managed to persuade punters to part with five thousand dollars a tidy sum in those days and more cast and ponzi had ever seen in his life and when those early adopters received their 50 interest payment on time and in full word of boston's new financial wizard started to spread like wildfire almost overnight the name charles ponzi was suddenly being whispered on every street corner across the city in his second month of trading ponzi took in 10 times what he'd made in his first and a couple of months after that he'd accepted deposits of almost half a million dollars as the money started to roll in ponzi became seen as boston's prophet of prophet the pied piper of paper the all-powerful monarch of mulan mountain and the people of boston loved him for it he hired salesmen to push the securities exchange company to more and more people offering 10 commission on every sale they made the job was so lucrative his salesmen hired agents of their own splitting their commission with as many subcontractors as they could hire in under six months some 2.5 million dollars had been invested into ponzi's scheme that's around 32 million dollars in today's money as a testament to how legit the whole thing appeared it's said that at the height of the scam 75 percent of the boston police force had invested not that ponzi cared who the money came from just so long as it kept on coming he even accepted investments from family and friends it's hard to believe this is the same guy who literally donated the skin from his own back to a stranger in need people were investing their life savings into the securities exchange company remortgaging their houses and queueing outside of ponzi's offices in their thousands for the chance to hand over every cent they owned ponzi had spent the previous 15 years of his life trying to scrape a living together well when he wasn't in jail anyway but now almost overnight he'd become rich beyond his wildest dreams he bought himself a 12-room mansion in the best part of town and a locomobile which sounds like the love child of a car and a train but was basically the 1920s equivalent of a rolls-royce he bought diamonds and jewels fine clothes and even a bank then brought his mother over from italy so he could show her how he'd finally brought prosperity back to the family on the surface he had everything he'd set out to achieve but behind the scenes things were starting to unravel you might be wondering what the problem was here after all i did say there was money to be made in ircs but whilst they could indeed be arbitraged for a profit in theory in practice ponzi had absolutely no idea how to pull it off the problem was buying ircs in europe and selling them in the us meant shipping them across the atlantic but the cost of shipping what was effectively a stamp introduced enormous overheads and the only way to make the business viable would have been to transport them in huge quantities and i mean huge it was only a matter of time before someone else figured that out in the end that someone was financial expert one-time president of dow jones and manager of the wall street journal clarence barron who'd been hired by a local newspaper to investigate the business that was causing such a stir in town ponzi had always been secretive about his business model but baron was a smart guy he made a few assumptions scribbled down some calculations and concluded that in order to sustain the magnitude of investments in the company ponzi would have had to have traded some 160 million ircs a quick call to the united states post office reveals that only 27 000 were in circulation globally and that nobody so far as they could tell was buying them in significant quantities ponzi was lying so if the securities exchange company wasn't arbitraging ircs how was it making money you guessed it it wasn't ponzi didn't actually have to make many of those 50 interest payments most of his investors were so happy they simply reinvested whatever they made but those that did cash out were of course paid off with other investors money ponzi was running a ponzi scheme obviously incredibly enough when the authorities finally figured out what was going on and raided the securities exchange company offices they discovered the business empire apparently built on international reply coupons owned a grand total of 61 of them ponzi had convinced people to part with hundreds of millions of dollars in today's money for nothing more than a single box of stumps the boston post published their findings and as you can probably imagine panic ensued for a time ponzi kept the ship afloat pretending all was well while sneakily taking loans from the bank he now owned to pay out several million dollars to terrified investors but when one of his own employees came forward to reveal what had really been going on the game was finally up ponzi's books were examined and he was found to be as much as seven million dollars in debt whilst his investors had lost a collective 20 million dollars around 275 million in today's money the fallout from the whole sorry mess was colossal five local banks collapsed and tens of thousands of investors were wiped out people lost everything they had life savings houses family fortunes and there was only one man to blame considering the absolute carnage he'd caused you're probably assuming ponzi went down for life and of course he did soon find himself once again behind bars but remarkably enough he was a free man again after just 3.5 years though admittedly he did end up back in prison not long after when massachusetts brought state charges to bear alongside the federal ones he'd already gone down for the first time he would remain there for some nine years though he did manage to get out briefly on bail during which time he fled to tampa grew a glorious mustache and set up a new scam selling swampland to gullible floridians it seems none of ponzi's regular stints in prison did much in the way of reforming him now that he had a taste for it he would continue trying to scam people out of their money for the rest of his days so much so he was eventually deported from the u.s and sent back to italy where he died at the age of 66. considering so many people lost so much money to the securities exchange company you might think society would have learned to steer clear of these kinds of schemes now named after charles ponzi or that strict financial sector regulation would make these kinds of scams impossible today but uh yeah not so much you've probably heard of bernie madoff the one celebrated wall street investor he managed to keep his ponzi scheme going for almost 40 years before the scam was uncovered in 2008. all told it's thought he defrauded his investors out of 65 billion dollars in what was the biggest ponzi scheme in history and the largest financial fraud ever committed in the us but at least modern lawmakers seem to have figured out that this kind of behavior needs to be discouraged instead of the handful of years ponzi spent in jail madoff is currently just over 10 years into a 150 year term meaning he'll die in jail unless he lives to be at least 201 and one thing's for sure he certainly can't afford to be cryogenically frozen anymore he owes 170 billion dollars in restitution to those he defrauded whilst ponzi is the guy immortalized for this particular kind of scheme he wasn't the first to try it there was zarussi's bank in montreal of course but there were others too in 1889 a woman from munich called adele spitzer ran a ponzi scheme that cost her 30 000 or so investors 38 million golden that's close to 500 million dollars in today's money and even she likely didn't come up with the idea in the first place in fact that honor might just go to none other than charles dickens yes that's charles dickens he wasn't a con man as far as i know but ponzi-like schemes did appear in two of his novels martin chuzzlewit and little dorit both written in the mid-19th century but yeah bernie madoff's infamous chuzzlewit dorit scheme doesn't have quite the same ring to it does it thanks for watching thanks again to trent for sponsoring this video don't forget to check it out using the link in the description below

Channel: Thoughty2

Views: 704,285

Rating: 4.9412875 out of 5

Keywords: ponzi, scheme, documentary, money, finance, history

Id: PxByoc9zHu8

Length: 21min 50sec (1310 seconds)

Published: Tue Feb 16 2021