5 Facts About Charles Ponzi and the Original Ponzi Scheme

Wikimedia Commons, Public Domain
Wikimedia Commons, Public Domain

Some of the most infamous scams in history have been Ponzi schemes, but before Bernie Madoff (or Bitcoin), there was Charles Ponzi himself. The con he built was so successful that his last name became synonymous with fraud. In January 2020, a century after he set up his fraudulent Securities Exchange Company, the phrase Ponzi scheme is still used to describe any scheme in which funds from new investors are used to pay back old investors. Here are some facts about Ponzi and his scheme that you should know.

1. Charles Ponzi arrived in the U.S. with $2.50 in his pocket.

Charles Ponzi was born in Lugo, Italy, in 1882. As a young adult, he worked as a postal worker and studied at the University of Roma La Sapienza. Neither path panned out for him, however. In 1903, when faced with dwindling funds, Ponzi boarded a ship for America in search of a better life. But Ponzi wasn't a master hustler at this point in his life; he arrived in Boston with $2.50 after gambling away the rest of his life savings on the ship.

2. Charles Ponzi spent time in prison before his famous scheme.

Ponzi was no stranger to crime before concocting the scheme that made his surname infamous. Not long after arriving in Boston, he moved to Canada and got in trouble for forging checks. He spent two years in a Canadian prison for his offenses. Back in the U.S., he served a term in federal prison for illegally transporting five Italians immigrants across the Canadian border. It was only after his so-called Ponzi scheme began to crumble that his criminal history was made public by journalists, thus speeding up his downfall.

3. Charles Ponzi got rich off the postal system.

In 1920, Ponzi discovered the key to the ultimate get-rich-quick scheme: an international postal reply coupon worth $.05. It had been included in a parcel he received from Spain as prepayment for his reply postage. Thanks to an international treaty, the voucher could be exchanged for one U.S. postage stamp worth a nickel, which Ponzi could then sell. Ponzi knew that the value of the Spanish peseta had recently fallen in relation to the dollar, which meant that the coupon was actually worth more than the 30 centavos used to purchase it in Spain. He took this concept to the extreme by recruiting people back home in Italy to buy postal reply coupons in bulk from countries with weak economies, so that he could redeem them in the U.S. for a profit.

4. Charles Ponzi swindled $20 million from investors.

Ponzi technically wasn’t breaking any laws with his postal service transactions, and if he had kept his idea to himself he would have gotten away with it. Instead, he turned his small money-making operation into a wide-reaching scam. If people invested money into his “business” of cashing in foreign postal vouchers, which he dubbed the Securities Exchange Company, they would get their money back plus 50 percent interest in 90 days. The deal was too good for many investors to pass up.

It was also too good to be true: The money wasn’t being used to buy coupons overseas. Ponzi kept most of the investments for himself and used the flood of money coming in from new investors to pay off the old ones. Many investors were so thrilled with their returns that they invested whatever money they had made back into the business, which helped Ponzi keep the sham afloat.

Ponzi was finally rich and famous, but soon enough, cracks in the scheme started to form. The Boston Post launched an investigation into Ponzi and revealed that in order for his business to be functional, he would need to be moving 160 million vouchers across world borders. There were only 27,000 postal reply coupons in circulation at the time. The final blow came when the publicist he had hired to represent him came out against him to the public. His system fell apart and it was revealed that he had stolen $20 million from investors.

Because he had lied to his clients about their investments through the mail, Ponzi was ultimately charged by the federal government for mail fraud. He served three-and-a-half years in prison and then served an additional nine years for state charges.

5. Charles Ponzi didn’t invent the Ponzi scheme.

Though Ponzi schemes were eventually named for him, Charles Ponzi didn’t invent this type of scam. There were many crooks before him who used the same method to exploit investors. Charles Dickens even wrote pre-Ponzi Ponzi schemes into his 1857 novel Little Doritt.

It’s possible that Ponzi got the idea for his own fraud from William F. Miller, who pulled a similar stunt working as a bookkeeper in Brooklyn in 1899. But it was the highs of Ponzi’s success—and the lows of his demise—that made his story so memorable.

Looking to Downsize? You Can Buy a 5-Room DIY Cabin on Amazon for Less Than $33,000

Five rooms of one's own.
Five rooms of one's own.
Allwood/Amazon

If you’ve already mastered DIY houses for birds and dogs, maybe it’s time you built one for yourself.

As Simplemost reports, there are a number of house kits that you can order on Amazon, and the Allwood Avalon Cabin Kit is one of the quaintest—and, at $32,990, most affordable—options. The 540-square-foot structure has enough space for a kitchen, a bathroom, a bedroom, and a sitting room—and there’s an additional 218-square-foot loft with the potential to be the coziest reading nook of all time.

You can opt for three larger rooms if you're willing to skip the kitchen and bathroom.Allwood/Amazon

The construction process might not be a great idea for someone who’s never picked up a hammer, but you don’t need an architectural degree to tackle it. Step-by-step instructions and all materials are included, so it’s a little like a high-level IKEA project. According to the Amazon listing, it takes two adults about a week to complete. Since the Nordic wood walls are reinforced with steel rods, the house can withstand winds up to 120 mph, and you can pay an extra $1000 to upgrade from double-glass windows and doors to triple-glass for added fortification.

Sadly, the cool ceiling lamp is not included.Allwood/Amazon

Though everything you need for the shell of the house comes in the kit, you will need to purchase whatever goes inside it: toilet, shower, sink, stove, insulation, and all other furnishings. You can also customize the blueprint to fit your own plans for the space; maybe, for example, you’re going to use the house as a small event venue, and you’d rather have two or three large, airy rooms and no kitchen or bedroom.

Intrigued? Find out more here.

[h/t Simplemost]

This article contains affiliate links to products selected by our editors. Mental Floss may receive a commission for purchases made through these links.

Florence’s Plague-Era Wine Windows Are Back in Business

A wine window in Florence's Via Santo Spirito.
A wine window in Florence's Via Santo Spirito.

Many bars and restaurants have started selling takeout cocktails and other alcoholic beverages to stay in business—and keep customers safe—during the coronavirus pandemic. Meanwhile, 17th-century Florentines are surely applauding from their front-row seats in the afterlife.

As Insider reports, a number of buildings in Florence had been constructed with small “wine windows,” or buchette del vino, through which vendors sold wine directly to less affluent customers. When the city suffered an outbreak of plague in the 1630s, business owners recognized the value of these windows as a way to serve people without spreading germs. They even exchanged money on a metal tray that was sanitized with vinegar.

Wine not?sailko, Wikimedia Commons // CC BY-SA 3.0

Things eventually went back to normal, and the windows slowly fell out of fashion altogether as commerce laws evolved. This year, however, they’ve made a comeback. According to Food & Wine, there are currently at least four in operation around Florence. Osteria delle Brache in Piazza Peruzzi is using its window to deliver wine and cocktails, for example, and the Vivoli ice cream shop, a go-to dessert spot since 1929, is handing out sweet scoops and coffee through its formerly dormant aperture.

Apart from the recent resurgence of interest, the wine windows often go unnoticed by tourists drawn to the grandeur of attractions like the Uffizi Gallery and the Florence Cathedral. So in 2015, locals Matteo Faglia, Diletta Corsini, and Mary Christine Forrest established the Wine Window Association to generate some buzz. In addition to researching the history of the windows, they also keep a running list of all the ones they know of. Florence has roughly 150, and there are another 100 or so in other parts of Tuscany.

They’re hoping to affix a plaque near each window to promote their stories and discourage people from defacing them. And if you want to support their work, you can even become a member of the organization for €25 (about $29).

[h/t Insider]