Who Was Ponzi & What Was His Scheme?

What is a Ponzi scheme? And why does it bear this name? First, you need to know a little bit about its namesake, Charles Ponzi.

Anyone can work a simple swindle, but you have to be a special kind of con man to have your name become synonymous with "fraud." Ponzi pulled it off, though. After arriving in the U.S. from Italy in 1903, Ponzi knocked around in a variety of unskilled jobs that usually ended when he got into trouble for theft or cheating customers. A few years later, he moved to Canada, where he spent a hitch in prison for passing a forged check. When he eventually drifted back down to the U.S., he needed a way to make some quick cash.

Making Money via Mail

Ponzi eventually found his way to get rich quick using a vagary of the postal system. At the time, it was common for letters abroad to include an international reply coupon "“ a voucher that could be exchanged for minimum postage back to the country from which the letter was sent. Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. (This practice still exists but is less common.) As exchange and postal rates fluctuated, though, there was an opportunity to make a profit. You only had to purchase postal reply coupons cheaply in some foreign country, send them back to the U.S. to swap them out for American stamps of a higher value, then sell these stamps. This arrangement was perfectly legal; it was just cleverly gaming the system. Ponzi started buying and selling postal reply coupons using agents in his native Italy, and he was making a good living doing it.

Unfortunately, whatever defect made Ponzi steal from his employers and pass bad checks prompted him to get greedy here, too. He started to recruit investors into his system with the promise of 50% returns in just a few days. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy.

Ponzi was pocketing millions, and he enjoyed a sumptuous life outside of Boston. At his peak, Ponzi was raking in $250,000 a day, which enabled him to collect such necessities as gold-handled canes. He became a celebrity investor, almost like the Warren Buffett of his day.

The Scheme

Why is it hard to think of Ponzi's name without affixing "scheme" to the end of it, then? Ponzi's underlying "business" — the arbitrage on the postal coupons — wasn't actually as sound as he claimed. In fact, there wasn't even really a business. However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.

Fuzzy Math

Eventually, though, smarter financial heads started looking at Ponzi's business. Clarence Barron, owner of the Wall Street Journal and founder of the financial magazine that bears his name, realized Ponzi must have been a huckster and went on the offensive. While Barron conceded that there probably was a way for a person to make a small amount of quick cash on the postal reply coupon scheme, he figured that Ponzi would have to be moving 160 million coupons around to raise the cash he needed to support the business. Since there were only 27,000 postal reply coupons circulating in the world, Ponzi's story didn't check out. (Things only got worse when the Postal Service reported that there wasn't a huge flow of the coupons from one country to the other.)

On top of that, Barron noted that Ponzi told newspapers he invested his own cash in real estate, stocks, and bonds like any normal investor. Barron pointed out the obvious question here: if Ponzi had this failsafe scheme in which he could make a 50% profit, why was he putting his own money into plain old investment instruments that would give him (maybe) a 5% return? Those certainly didn't sound like the actions of a financial genius.

Barron's conclusions ran as front-page news in the Boston Post in July 1920, which would have been damning for most cons. Ponzi was such a charismatic force of nature, though, that many people chose not to believe the paper's report. Few believed that their hero, the man who had "tripled" their life savings, was anything less than 100% legitimate. In fact, the morning that the Post ran Barron's report, investors lined up around the block outside of his office in an attempt to give him more money "“ even after they'd been told that they'd been scammed. Ponzi later boasted that he'd taken in a million dollars in new investments the day the report ran.

The Unraveling

Things were starting to look less rosy for the scammer, though. Although he'd largely placated his investors after Barron's report, Ponzi must have realized his window of opportunity was closing. He hired a publicist, William McMasters, but the PR man saw through Ponzi's lies and renounced his client in the press. James Walsh reprints part of McMasters' slam of Ponzi in his book, You Can't Cheat An Honest Man. Of Ponzi, McMasters said, "The man is a financial idiot. He can hardly add"¦He sits with his feet on the desk smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons."

The next month, regulators raided Ponzi's office and discovered that he didn't have a huge quantity of postal reply coupons. Since Ponzi had used the mail to notify his marks of how their "investments" were performing, he faced serious mail fraud charges; in total, the government brought 86 charges against him in two separate indictments. Ponzi pled guilty to one of these charges in exchange for a light sentence of five years.

He served around three and a half years, then got his release to face state charges, for which he received a sentence of nine more years. But before he could go back to jail, he jumped bail and tried to start new scams in Florida and Texas. (You'd think the government would have learned their lesson about trusting this guy.) Eventually, though, his time on the lam ran out, and he served his whole sentence.

Upon his release, Ponzi was deported to Italy and spent the rest of his life in poverty before dying in 1949 in Rio de Janeiro, where he's buried in a pauper's grave.

Why Are Poinsettias Associated with Christmas?

iStock
iStock

Certain Christmas traditions never seem to go out of style. Along with wreaths, gingerbread cookies, and reruns of A Christmas Story sits the poinsettia, a red-tinged leafy arrangement that’s become synonymous with the holiday. Upwards of 100 million of them are sold in the six weeks before December 25.

Why do people associate the potted plant with seasonal cheer? Chalk it up to some brilliant marketing.

In 1900, a German immigrant named Albert Ecke was planning to move his family to Fiji. Along the way, they became enamored of the beautiful sights found in Los Angeles—specifically, the wild-growing poinsettia, which was named after Joel Roberts Poinsett, the U.S.-Mexican ambassador who first brought it to the States in 1828. Ecke saw the appeal of the plant’s bright red leaves that blossomed in winter (it’s not actually a flower, despite the common assumption) and began marketing it from roadside stands to local growers as "the Christmas plant."

The response was so strong that poinsettias became the Ecke family business, with their crop making up more than 90 percent of all poinsettias sold throughout most of the 20th century: Ecke, his son Paul, and Paul’s son, Paul Jr., offered a unique single-stem arrangement that stood up to shipping, which their competitors couldn’t duplicate. When Paul III took over the business in the 1960s, he began sending arrangements to television networks for use during their holiday specials. In a priceless bit of advertising, stars like Ronald Reagan, Dinah Shore, and Bob Hope were sharing screen time with the plant, leading millions of Americans to associate it with the holiday.

While the Ecke single-stem secret was eventually cracked by other florists—it involved grafting two stems to make one—and their market share dwindled, their innovative marketing ensured that the poinsettia would forever be linked to Christmas.

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Why Does Santa Claus Live at the North Pole?

allanswart/iStock via Getty Images
allanswart/iStock via Getty Images

As children settle in for a restless night’s sleep this Christmas Eve, they’ll no doubt be picturing Santa Claus on his way from the snowy ’scapes of the North Pole to deliver them Star Wars LEGO sets, Frozen 2 dolls, and everything else on their wish list. They picture Santa at the North Pole, of course, because they’ve seen him living there in numerous Christmas movies, books, and television specials, from perennial Rankin/Bass programs to more modern classics like 2003’s Elf.

While it might seem a little more magical if we told you that nobody really knows why Santa lives there, there is a relatively traceable paper trail: The first known reference to Santa’s North Pole residence is in an 1866 cartoon from Harper’s Weekly.

According to Smithsonian.com, famed political cartoonist Thomas Nast—who was also responsible for establishing the donkey and elephant as the symbols for the Democratic and Republican parties, respectively—first started creating Harper’s Weekly Christmas cartoons as Union propaganda for the Civil War in January 1863. Borrowing imagery from Clement Clarke Moore’s (alleged) 1823 poem “A Visit From St. Nicholas” (which you’d probably recognize as “’Twas the Night Before Christmas”), Nast developed the white-bearded, rosy-cheeked, all-around jolly guy that we know today, and showed him passing out gifts to Union soldiers, climbing into a chimney as a soldier’s wife prays, and more.

harper's weekly santa claus at camp by thomas nast
Thomas Nast, Harris Brisbane Dick Fund, Wikimedia Commons // Public Domain

The cartoons became so popular that Nast branched out from his source material and began inventing his own details to add to Saint Nick—like where he’s from, for example. A December 29, 1866 issue of Harper’s Weekly debuted a multi-image cartoon titled “Santa Claus and His Works,” which includes a small inscription along the circular border that reads Santa Claussville, N.P. According to The New York Times, we don’t know exactly why Nast chose the North Pole (or if it was even his own idea), but there are a few reasons it made sense for the time period.

For one, Santa Claus was already widely associated with snow because most of the publishing companies producing Christmas cards and other content were located in New England, where it actually snows around Christmas. Furthermore, the 1840s and 1850s were partly characterized by high-profile—and ill-fated, in the Franklin expedition's case—attempts to explore the Arctic, and the public was generally interested in the mysterious, poorly-charted region. Because the Pole was unoccupied, Santa and his elves could toil the year away without interference from prying eyes; and, because it was unclaimed, Santa could remain a bastion of benevolence for every nation.

merry old santa claus by thomas nast
"Merry Old Santa Claus," perhaps Nast's most famous illustration of Santa, from the January 1, 1881 edition of Harper's Weekly.
Thomas Nast, Wikimedia Commons // Public Domain

Though we’ll likely never know Nast’s personal rationale behind placing Santa Claus in the North Pole, one thing’s for sure: At this point, it’s hard to imagine him living anywhere else. It’s also hard to imagine him riding a broom, wielding a gun, or smoking cigarettes (find out the stories behind those early Santas here).

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