Charles Ponzi Essays

Charles Ponzi Essays Charles Ponzi Essay Charles Ponzi Essay Name: Course: Instructor: Date: Charles Ponzi Charles Ponzi was born in Parma, a city in Italy from a family that had its recognition as being prosperous. He was born as Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi on the third day of March in 1882, to his parents known as Roberto and Maria Ponzi (Dunn, 16). He was infamous for his fraudulent and swindler lifestyles. To date his schemes were regarded as among the worst in the United States resulting in the term â€Å"Ponzi Scheme† for what is considered as Ponzi scheme (Zuckoff, 21). His schemes were synonymous with promises of doubling the funds and the purchase of postal coupons with claims of substantial returns on investments. Ponzi arrived in the United States on November 15 1903, in Boston, in the state of Massachusetts. This was on the vessel S.S Vancouver. He carried with him the hopes of achieving the American dream. He had gambled all of his savings during his voyage into the United States. During his stay in the East Coast of the United States, he performed odd jobs to enable him survive. In Boston, he managed to work as a dishwasher, and he was later promoted to a waiter. However, he was later laid off for claims of theft and shortchanging the restaurant customers. In the year 1907, he opted to move north into Montreal where he sought employment. He was lucky and managed to get employment at a new bank in the city that had just started operations known as Banco Zarossi. The bank’s owner Luigi Zarossi, aimed at tapping into the large Italian consumer market living in the city of Montreal (Zuckoff, 39). The bank at the time issued a 6% return of bank deposits, which was significantly higher than the going market rate at the time. This was one of the main attractions of consumers to the bank resulting in rapid growth of the bank. Ponzi was later appointed as the bank manager of Banco Zarossi (Dunn, 28). However, it became evident to Ponzi that the entity was not as profitable as it implied because Zarossi used funds form newly opened bank accounts to pay for the enormous interest rates. The bank eventually collapsed, was closed, and Zarossi ran away to Mexico with all the funds saved by the populace in Montreal. Ponzi had come into the United States to find employment. Ponzi was later arrested in Montreal for forging a check of $423 that he aimed to use to travel back to the United States. He was later released in the year 1911 and was involved in a crime for smuggling illegal Italian immigrants through the border. He was arrested and sent into the Atlanta Prison where he spent another two years in prison. This prison played a momentous responsibility in influencing him into the world of crime and specifically that of fraud and theft. He befriended an infamous mobster by the name Ignazio Lupo alias â€Å"the Wolf†. In addition, he also befriended a Wall Street businessperson by the name Charles W. Morse who was also in the same prison (Dunn, 33). Ponzi, after release, went back to Boston and married Rose Gnecco in the year 1918. He was unable to find appropriate employment and opted to work in the home product store that was owned by the father to his wife. During this period, he came up with an idea to make money through advertising and started his individual advertising company, which failed. In the same period, a Spanish firm wrote to him with interests in the catalog. The letter was accompanied by an International Reply Coupon that he thought had a weakness that would enable him to make money. An international reply coupon was used by people for payment of postage of a reply after receipt from a correspondent. Such were usually charged at the price tag of the postage from the country where the post originated. The IRC’s could be used to make exchanges for stamps in the country of receipt; hence, there was potential from making a profit by the recipient of the IRC. Thus, the newfound idea by Ponzi could be simply termed as arbitrage, in that an asset was purchased from one country and sold in another country for a massive profit. Ponzi claimed that such exchanges would result in excesses of more than 400%. He began his scheme by sending money to his relatives in Italy to make purchases of the vouchers, and then forward them to the United States. However, this resulted in an alarm by the authorities after he tried to redeem numerous coupons. His scheme materialized, and he began to employ agents and reward them with good commissions for the dollars that they brought in terms of the investments. This spread the word about the rapid growth of the firm that he had started and named Securities Exchange Company. His deposits of the funds collected happened in the Hanover Trust Bank of Boston (Dunn, 73). He hoped to attain a large stake in the bank and bought shares with some of his friends who had helped him in the growth of the scheme. From his previous skills and experience as a bank manager in Montreal, he applied identical tactics used by Zarossi and paid the clients with new deposits of funds with promises of vast returns (Dunn, 36). His scheme, however, brought about suspicion given the short rise to wealth by Ponzi, coupled by the rapid growth of his entity given the short period between inception and substantial returns achieved. His day of reckoning began with the claims from McMaster of the presence of fraud, theft and irregularities from the incriminating evidence found in the financial records held by the Securities Exchange Company. The Post in Boston later published that Ponzi had been earlier involved in crimes such as the forgery and fraudulent activities of the Banco Zarossi, where he worked as the Bank manager. This claims played a vital position in the crash of the Hanover Trust Bank given that Ponzi had borrowed massive amounts from the entity, which he could not repay with his swindled money. In addition, despite the numerous investments that were received by the bank in from of checks, his account was in the negative given his large overdrafts to furnish the interest payments (Zuckoff, 44). The fall of the Hanover Trust Bank was also followed by an additional collapse of another five banks. The investors in his scheme lost amounts estimated to be about $20 million, in the year 1920, which could be translated to about $225 million as at the year 2011. After his arrest, he was almost awarded bail, a decision, which was later withdrawn after more incriminating evidence, came into light that showed he had committed significant financial misdeeds. In addition, he was denied bail because he was considered as a flight risk given the large amounts of investments in his name, which could easily enable him to escape from the United States. The investors of this scheme received less than $30c for a dollar of investment (Dunn, 41) He was arrested and charged with two federal indictments and eighty-six mail fraud counts. With potency for a lifetime in prison, Ponzi pleaded guilty to the charges based on pressure from his wife, in the year 1920. He received a prison term of five years that was to be served in a federal penitentiary, due to his involvement in instigating one of the largest defrauding schemes in the world. He was later released after a period of forty-two months but was immediately rearrested by the Massachusetts State on charges of Larceny. He had been promised by the Federal courts that his guilty plea would waiver any other criminal charges against him in his concoction of the fraudulent scheme. Ponzi sued the state with claims that it did not have any jurisdiction to charge him, given that he was a state prisoner. In the year 1922, in one of the larceny charges hearings, he was self-represented since he had inadequate funds to find proper legal representation. He was able to actualize his smooth talking skills and was found not guilty by the jury. In the second charges, he was charged on five counts of larceny resulting g in a jury deadlock. However, during the third trial he was found guilty by the courts and sentenced to nine additional years in jail. Federal agents worked to have him deported given that he had not obtained American citizenship since his arrival in the United States in 1903. In addition, he was released on bail and fled to Florida and initiated another fraudulent scheme known as the Charpon Land Syndicate with the first words as initials for his name. He sold land to people majority of which was swampy in the county of Columbia. He was indicted by the Grand Jury of the state of Florida, specifically in the Duval County in the year February 1926. He posted bond of $1,500 and was released. He tried to flee but was arrested in New Orleans and served seven years in the state of Massachusetts. After his release in the year 19 34, he was met with an order for his deportation back to Italy given the harm he had caused to the American people (Dunn, 57) Ponzi always stands as one of the greatest concocters of fraudulent schemes in the United States resulting in the infamous term â€Å"Ponzi Scheme† to refer to any fraudulent schemes with promises of high returns. Ponzi was able to disclose the presence of loopholes within the postal industry, which enabled the postal services around the world to find new forms of postage to prevent the presence of fraud. In addition, he also enabled the American populace to proceed with caution in relation to investments that promise suspiciously higher returns than the average market returns on any investment. In essence, his schemes were a valuable lesson for the American society in relation to management of individual funds and the necessity for evaluation of investments and investment entities. Work Cited Dunn, Donald. Ponzi: The Incredible True Story of the King of Financial Cons (Library of Larceny) (Paperback). New York: Broadway, 2004. Print. Zuckoff, Mitchell. Ponzi’s Scheme: The True Story of a Financial Legend. New York: Random House, 2005. Print.