Ran Six Cents To 15 Millions In Few Months

1920

Charles Ponzi, "Coupon Wizard," Defies U. S. to Learn Secret of His Alleged Legal Scheme.

1920

BOSTON, Mass. — "It is my secret. Let the United States find it out if it can."

This is the challenge of Charles Ponzi, the "coupon wizard," who leaped into international fame over night when the world discovered that he had run 6 cents into $15,000,000 in less than a year by an astoundingly simple — yet astoundingly mysterious — scheme. Ponzi insists that his business is perfectly legal and so far has paid off every investor who demanded his money back. He declares that he has neither fear of a financial crash or of punishment.

Ponzi's remarkable business is, so far as is known, based on the use of the international reply coupon, authorized under the international postal agreement as the medium for taking advantage of the difference in rates of exchange.

"I simply buy international coupons," explained Ponzi to the district attorney. "They are exchangeable into stamps and I take care to buy them where the rates of exchange are such that $1 of American currency is really worth $4 or more in the native currency. I therefore get $3 clear on the transaction and can well afford to pay back the original $1 and 50 cents additional as interest to the investor. My margin of profit is enormous, but I have the system and the offices abroad. The investor's margin of profit is tremendous in proportion and he has no responsibility and is entirely certain of his money.

Hit on Scheme Year Ago.

"I hit upon the scheme just a year ago in August, when I thought of issuing an export publication on a small scale. I wrote to a friend in Spain regarding it, and in reply received an international coupon, which I was to exchange for stamps to send a copy of the publication to my friend.

"The coupon cost about 1 cent in United States money in Spain and I could get 6 cents in stamps for it here.

"My secret is how I cash the coupons," says Ponzi. "I do not tell it. Let the United States Government find it out if it can. I do not think that it can."

Will Make $40,000,000 More?

The "wizard" asserted that he intended to open an office in New York city immediately and probably in other big cities. He coupled this declaration with the assertion that "there is thirty or forty million dollars more, to be made out of his scheme, but it must be made quickly." And since difficulties have arisen here he says he will have to go outside New England for the money he needs to use. He said he "feared the postal conference in October would formulate an effective check" to his operations.

All day long clerks in the modest office of Ponzi poured cash into the hands of customers who had lost faith in his international postal exchange scheme.

It was after 4 o'clock when one of Ponzi's attaches stuck his head out the door and shouted inquiringly to the crowd:

"Anybody else today?"

Nobody answered and no one else entered the open door. The door was shut and locked.

Paid Back $500,000 in Day.

It is estimated the total returned to clients in one day was in the neighborhood of half a million dollars. The cash was brought from the banks by the "wizard's" employes, under heavy guard, and a huge businesslike revolver rested at the elbow of one of the clerks who "stood guard" over the paying-teller.

Ponzi's secretary, Miss Lucy Meli, says the office has paid back $2,000,000 to investors this week. About forty per cent of this amount, however, was on accounts that had "matured," meaning that the customers were returned their own money and the promised 50 per cent profit agreed within ninety days, but which had been paid steadily in forty-five days.

In spite of close search the nature of Ponzi's business remains a secret to public officials, and he stoutly maintains that he will continue. While he is busy paying off an army of claimants the authorities are searching the files of the telegraph offices to determine if Ponzi has cabled orders of purchase or sale to representatives in Continental Europe.

Scheme May Soon Be Known.

Uncle Sam has set in motion every Federal governmental investigating agency.

Uncle Sam has called to work with him the United States embassies and consulates in Europe and in all the countries that are included in the international postal agreement and deal in international reply coupons.

"I came to this country seventeen years ago and landed in Boston with $2.50. My family is a fine old Italian family and I am university educated.

"Landing in Boston with such a small sum of money, I was downcast I didn't have a friend in the city nor a relative in the country, so I went on where my ticket carried me — to New York. There I did manual labor. Then I moved on to Pittsburgh in search of some friends who I believed were there. I didn't find them, so I went on from place to place, working now as a clerk in a business office, next as a grocery clerk and often at more menial tasks.

"Back to Boston I came again in January, 1917. I went to work for the J. R. Poole Company, merchant brokers. My salary was $16 a week. It might interest you to know that I own the company today, and intend to incorporate it for $10,000,000.

Insists Business Is Legal.

"I insist that my business is entirely legal, even tho it may not be strictly ethical. It will continue as long as there is a marked difference in the rates of exchange among the governments of the world. As the rates 'close up' the interest I will be able to pay will decline. But there cannot be any loss, I insist, for I have provided against loss to investors by the creation of a large reserve in stamps and foreign currency.

"My operations are now going on in nine different countries. None of the foreign stamps are now being redeemed in this country, nor do I intend to do so.

I buy international coupons in immense quantities — by hundreds of thousands, by millions — and exchange them for postage stamps.

"I looked around for some connections here and abroad. I explained my plan to a certain party and he was interested. I had a one-room office where I began doing a little exporting business on a small scale, and there, with a few thousand dollars, I began the present concern, the Securities Exchange Company.

Began Last December.

"We really began operations in December. I began as I am still doing; I gave investors a note guaranteeing payment with 50 per cent interest in ninety days. However, I made all payments in forty-five days. I was safe in giving the notes and I am safe in giving them now, for I have built up a reserve.

"Within a month the few thousands had grown to nearly ten thousand dollars. Persons who received their first profits immediately told their friends, and they told their friends — and then the deluge. Everybody wanted us to take their money.

"When the volume of business increased I took three rooms in the building and recently I acquired a large interest in a trust company — really a controlling interest.

"The peak of my business was reached in May, just two months ago. Now my receipts are about two hundred and fifty thousand dollars a day in the Boston offices, and a total of $250,000 daily thru branches in other cities. What I pay out varies from day to day. I have just given my cashier in Boston $200,000 with which to make tomorrow's payments."

—The Saturday Blade, Chicago, Aug. 7, 1920, p. 1-2.

Note: Unfortunately my copy of this newspaper is missing a couple sections, interesting bits, and I can't figure out entirely what they are. After the paragraph where Ponzi says, "Let the United States Government find it out if it can. I do not think that it can," there is a paragraph, and take into consideration the words of nearly an entire line are missing, "While refraining from giving any clew —— [tran]saction, Ponzi —— said. —— is all very simple. First, the psychology of greed. Then, the psychology of fear. Men and women are children a few years older." Drop down to the paragraph that has the sentence, "Uncle Sam has called to work with him the United States embassies," etc. There is an entire line missing. But the sentence starts off, "It will —————- is a veritable bonanza king or something else." Then that leads into all the Ponzi quotes.