Updated: 05/10/2010 14:21
Reprints/Permissions  Hyip Monitor
Charles Ponzi is one of the most famous swindlers in the history. He was born in Italy in 1882 and in 1903 he moved to the USA with $2.5 in his pocket...

Charles Ponzi is one of the most famous swindlers in the history. He was born in Italy in 1882 and in 1903 he moved to the USA with $2.5 in his pocket and with desire to have a million. Great ambitions and dreams which came true…

A Ponzi Scheme is a scheme of financial pyramid which is a scam in reality. A Ponzi scam is based on gathering money from different investors and promising to pay out huge interest in short time.

How everything started…

It was a year 1919 and Carlo Ponzi, who took an American name Charles, was still not rich and had already been twice in prison. One day he received a letter from a company in Spain. He found an International reply coupon inside of the envelope – something, he had never seen before. People could exchange them for post stamps and send a reply to the company. He gathered some information about it and a great idea occurred to him. After the World War I, because of inflation, he could buy such coupon at a cost of 1 cent in Europe and sell for 6 cents in the USA.

He borrowed $200 and started his business, but the cost of delivery was too high and he made up a new plan. He started telling people about his postage stamp business and offering them to invest money into it with getting a 50% profit in 45 days. At that time the annual interest rate for bank accounts was only five percent! In truth he created an investing scam scheme which can continue as long as new investors are found. He paid initial investors with the money of new investors. Some of them reinvested received money immediately, because they made so much profit.

Thousands of people started investing into “The Security Exchange Company”, buying so-called “Ponzi promissory notes” at values from $10 to $50,000 .The average investment was around $325.

Everything went well for Charles Ponzi, but eventually he could recruit less and less new investors and his financial pyramid finally collapsed when one of his ex-employees posted a story in a newspaper about real details of Ponzi`s business. Ponzi paid out $2 million in three days to a crowd of angry investors outside his office. After the investigation of his case, he was sentenced to five years.

Example of a Ponzi Scam…
Ponzi schemes can`t last forever. The founder of it will either run away with all money sooner or later, or will go to prison as a scammer.

So if someone wants to start a Ponzi Scheme up, they start by finding an investor. The idea is to offer something interesting and the promised payouts should be large. Let`s say John decided to invest his money into a project. John is told he will receive a 50% profit on his initial investment within 40 days. Everything goes great for him and as a result he gets his payouts.

So as the time flows, John thinks his original money is invested and he can get it back if he sells his stocks. The founder of a scam scheme invites new investor to the project and uses their money to pay John now. And then more new investors…and it can go on and on until the point when the founder shuts the program down and disappears with all the money.

There are lots of programs in Internet which use the same scheme as Charles Ponzi, that is why it is recommended to find out as much information about the project as possible before making an investment. Monitoring sites such as hyipnews.com will help you make the right choice.

About the author

Nicole Berger has over seven years experience writing and editing for online and print media. She has held various editor and associate editor positions in some of forefront independent media publications. A consistently dependable team player, I thrive in a high-pressure environment, enjoy the challenges of meeting deadlines and managing a team, and am comfortable researching, writing and editing on a wide range of topics.
You May Also Like