No, Ponzi is not a car neither a religious sacrament. In the banking world, Ponzi is a devil that has resurrected in different forms under different names. But for most people who have invested and lost their hard-earned millions to FrancSwiss, Ponzi is the latest scary buzzword to enter their vocabulary.
What exactly is a Ponzi?
Ponzi is a term coined referring to any financial scheme that promises quick high returns to investment. It is also equated to any high-yield investment programs (HYIPs). According to Pinoy Money Talk, HYIPs are “supposed investment programs that offer high returns with a corresponding high level of risk. These programs promise a return so high even the best investment banking companies would not dare offer.”
HYIPs are “make money fast” schemes that promise lucrative gains in short period of time. For this reason, thousands have been lured to invest their money with hopes of terrific returns within few months. HYIPs are able to pay off old investors as long as money from new investors come in. Once new investors stop signing up to the program, HYIPs die leaving their investors penniless and program managers, albeit richer, face angry mobs and countless lawsuits. But in most cases, HYIP managers disappear without a trace.
The Father Of All Scams
This type of unscrupulous investment program is not new. Its roots can be traced to a guy named Charles Ponzi (March 3, 1882–January 18, 1949). Ponzi was an Italian immigrant to the United States who became one of the greatest swindlers in American history. His aliases include Charles Ponei, Charles P. Bianchi, Carl and Carlo.
The Ponzi scheme was born in 1919 when Charles Ponzi, then residing in Boston, tried to sell a business directory listing to companies (forerunner of the Yellow Pages) and received an inquiry by mail from Spain with a postal reply coupon. Postal reply coupons were priced at local currencies of countries of origin and were normally paid for by senders. Ponzi bought these stamp coupons at face value from countries with weaker economies and were then exchanged back into a favorable foreign currency and finally back into American funds. This scheme yielded good returns when European currencies suffered devaluation after the war broke out and the exchange rate for the prices of postal coupons retained its original pre-war prices.
Ponzi was able to convince many people to join in this business promising to return their investment with 50% interest after 45 days. He was able to pay them off. By February 1920, his company’s earnings was $5,000. It grew to $30,000 by March when more people started pouring in money to the business. By May 1920, his total take amounted to $420,000 and eventually millions of dollars by end of July of the same year. Ponzi was able to buy himself and his wife, Rose, a mansion.
With no sound investment plan for money his company amassed except for 27,000 postal coupons in circulation instead of 160 million coupons to cover for his operating expenses (US Postal Service found this kind of postal coupon trading with incredible monetary turnout outrageous), he paid off older investors with money that came from new investors. As his business grew, Ponzi’s debt also grew. Eventually, authorities started probing into his business and exposed his fraudulent practice. In August 1920, his company folded up. Ponzi served prison term for mail fraud. In 1949, he died impoverished in a charity hospital in Rio de Janeiro.
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