Listing Conspiracy: The Ponzi Scheme – The Great Liar – Charles Pontz (II)

After his release from prison, Ponzi returned to Boston. Here he met and proposed to Rose Maria Gecco, who would later become his wife. Although Ponzi did not dare to tell Neko about his disgraceful history, the mother was very reasonable and told her future daughter-in-law everything about her son. Neko, who has long fallen in love, does not care about Ponzi's past. The two married in 1918. Over the next few months, Ponzi decided to "get back to life" and tried many different jobs, including working at his father-in-law's grocery store until he got a job as a translator. The salary, though modest, is sufficient to support the family.

A few weeks later, something happened that made Charles Pontz's name go down in history forever.

It was a perfectly ordinary morning, and Ponzi opened the mailbox as usual. He saw a letter from a Spanish company asking about the product list. What intrigued Ponzi was the "International Reply Coupon" (IRC) that came with him. He had never seen such a thing, and after asking the people around him, he learned that the original IRC was a credit, and he could send the letter abroad by pasting it, without having to pay the postage separately. The role of the IRC is equivalent to that of an international stamp.

Ponzi immediately sniffed out the business opportunity. IRC can be purchased in one country and used in another. If the postage rates of the two countries are not equal, then there is room for arbitrage. After World War I, many European countries fell into hyperinflation and their currencies depreciated sharply. Countries like Italy, if the postage is converted into dollars, is much cheaper than in the United States. Ponzi estimated that buying IRC from Italy and sending it back to the United States, then exchanging it for an equivalent stamp in the United States and selling it, after excluding various costs, the arbitrage profit was as high as 400%! The so-called "arbitrage" is what we often call "speculation": buy low and sell high, and use the spread to make a profit. This is perfectly legal behavior.

As soon as he could do it, Ponzi immediately quit his translation job. He borrowed a large sum of money and sent it to relatives in Italy to buy IRC And then send it to the United States.

But the business was far from easy. IRC's liquidity is very poor, and Ponzi has a hard time finding buyers to liquidate. Soon, there was a problem with his capital chain.

Ponzi was not discouraged. He told his friends who had lent him money: "Please spare some more time." Within 90 days, I will surely double your return on investment! IRC stamp arbitrage is a lump sum business. "Ponzi is really trustworthy. Many creditors got their principal and interest back on schedule. Some people put in $1250 and really got $2000 back, and the yield in just 90 days was as high as 60%!

Soon, Ponzi set up his own company on School Street, giving it an absolutely "confusing" name, the "Securities Trading Company", to further promote his business. The news soon spread, and people knew that Ponzi was doing a big money business, so more and more people invested money in him. And Ponzi is also quite trustworthy, after the debt is due, the interest is given as much as it is, and it will never renege on its word. In February 1920, Ponzi had only $5,000 (equivalent to $110,000 in 2020); by March, the total amount had soared to $30,000 (equivalent to $660,000 in 2020)!

The frenzy began. Charles Pontz's name spread through the streets and alleys, and investors from all over the country flocked to him, almost bursting his threshold. Ponzi even hired a group of agents to help him receive money from New England and New Jersey. Early investors got their principal back and incredibly high interest rates, which reassured subsequent investors and flocked to them. By May 1920, Ponzi had more than $420,000 in funds under management (about $4.59 million in 2008).

Mr. Ponzi deposited the money in a small Boston bank called the Hanover Trust Bank of Boston. The reason why he chose such a bank was because he hoped to be able to control it, and one day if there was any trouble, the bank could be rescued at any time as "its own person". He even felt it possible for him to become the president of the bank. Soon, Ponzi really got what he wanted. After saving a huge amount of $3 million, he and some friends bought the bank's top management and various stakeholders, and finally succeeded in taking control of the bank. By July 1920, Ponzi had absorbed several million dollars. People scrambled to mortgage their life savings, or even mortgage their properties, to Ponzi to take care of. Most people who have already made money are also reluctant to withdraw their money, but continue to stay in Ponzi for "reinvestment".

People with a little accounting knowledge are not difficult to see that Ponzi's business is not enough to make ends meet. The high interest he pays to investors is simply not supported by the so-called "stamp speculation" alone. But as long as new money continues to flow in, he can continue to maintain it by "demolishing the eastern wall to make up for the western wall". The principal of the new investor is the only source of income for the old investor, because he does not actually have any channel to legally obtain profits. (To be continued)

(Sijin Note: Except for the author, all articles are original... ）