What Is A Ponzi Scheme?
Named after the Italian con artist Charles Ponzi, a Ponzi scheme is an investment fraud where existing investors are paid with funds from new investors. Typically, the orchestrator of a Ponzi scheme will promise to invest a person’s funds to generate higher returns with little or no risk, similar to, though not to be confused with, a pyramid scheme. However, some fraudsters don’t invest the money at all.
1. Charles Ponzi
Although the term “Ponzi scheme” took its name from fraudster Italian Charles Ponzi, the first recorded instances of this type of investment scam can be traced as far back as the mid-1880s, carried out by the likes of Adele Spitzeder in Germany and Sarah Howe in the United States.
Nonetheless, Charles Ponzi is widely thought of as the “original Ponzi scheme”. His scam centred on the postal service, at a time when it had developed international reply coupons (IRC) which allowed a person in one country to pay for the postage of a reply to a correspondent in another country. An IRC was priced at the cost of postage in the country of purchase, though could be swapped out for stamps to cover the cost of postage in the country where it was redeemed. A difference in these values would lead to a potential profit and, due to post-Great War inflation, an IRC could be bought cheaply in Italy and exchanged for US stamps of notably higher value. These stamps could then be sold on. Ponzi claimed that the net profit of these…
