Ponzi Scheme

In Glogpedia

by mchandra
Last updated 7 years ago

Discipline:
Social Studies
Subject:
Economics
Grade:
8

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Ponzi Scheme

1882 - Born in Lugo, Italy1903 - Arrives in Boston with $2.511907 - Arrives in Montreal and begins work at Banco Zarossi1911 - Returns to US after being arrested twice1918 - Married Rose Maria Garcia1919 - Founded Securities Exchange Company1920 - Ponzi Scheme collapses and Ponzi is charged for mail fraud and larceny.

Lasting Impact

Charles Ponzi was an Italian Immigrant who arrived in the U.S. with very little money. After traveling to Canada, working in a bank, and being arrested multiple times, he reutrned to the states with a dream of getting rich.Ponzi's Autobiography

Citations

The PonziScheme

Biography

Timeline

Max Chandrasekhar Mynard 3/4

Charles Ponzi's upscale mansion.Ponzi was able to buy lots of high-class property, astounding for someone, especially an Italian immigrant, who had been in prison recently.

The original Ponzi Scheme was an isurance scheme that became financially infamous by defrauding investors of over $20 million.

The Scheme

A Ponzi Scheme pays old investors with new investments,promising 50% interest in 45 days and 100% in 90 days.

Charles Ponzi became very affluental through his scheme, which led to suspicions and eventually his downfall.

A visual representation of a ponzi scheme. This anatomy helps to show the scale of a ponzi scheme and how quickly it multiplies. This was apparent in the original ponzi scheme, as investors were flocking to the Securities Exchange company.

After several failed business attempts, Ponzi was mailed an IRC - or International Reply Coupon - which was used to send reply mail internationaly free of charge. He discovered a loophole which allowed him to buy IRC's in Spain for 1 cent and selling them in the U.S. for 6 cents, otherwise known as arbitrage, or taking advantage of different prices for the same products in different markets by buying them cheaply and selling them at a higher price. Arbitrage is completely legal. He gathered a small amount of investments from friends and founded the Securities Exchange Company, the securities bieng the IRCs. With high interest rates, many investors turned to Ponzi. He was legaly able to pay of initial investors, however he soon stopped dealing in IRCs and began paying off old investors with new investments. This is the point were it became a 'scheme' and illegal. A ponzi scheme is essentially when the schemer promisies colossal returns in a relatevaley short period of time. In return the client must find new clients and are paid off with the investments of newer clients. As the amount of clients double each tier, it becomes impossible to sustain a ponzi scheme because of the amount of new investors needed.

An International Reply Coupon similiar to what Ponzi would have used. The difference in cost left him with a 400% profit rate, which was why he was able to offer large amounts of interest. IRC's are still used today, although they have been balanced to counteract large profiting.

The Ponzi Scheme became infamous and influental because; Firstly, it had a large impact on future defrauders and other schemes. Compared to one known instance before Ponzi, there are several dozen significant instances continouing into the 21st century, with the most recent and notorious being Bernie Madoff's $30 billion Ponzi scheme. Secondly, the change it brought to financial law. The ponzi scheme changed how frauds were investigated and prosecuted. Referring back to Bernie Madoff, while Ponzi only served around 11 years of federal prison for the Ponzi scheme, Madoff is currently serving the maximum life sentence of 150 years in prison. Lastly, the enormity of his scheme was unheard of before the Ponzi scheme. He was able to make $8.5 million in 8 months, staggering numbers even to this day. The expansiveness of his scheme was what eventually brought suspision from the press, leading to his downall. This has changed how investors and corporations are monitered for fruadulency in modern times.


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