Most people have heard of the term “Ponzi scheme”; however, most have never considered the origin of the name. Ponzi schemes are actually named after an infamous criminal called Charles Ponzi. According to Smithsonian Magazine, Charles Ponzi is probably the most famous con man in American history.
Essentially, a Ponzi scheme is when somebody lures a bunch of investors into a particular penture with promises of extreme profit. However, there is no actual profit being generated. Rather, investors are encouraged to recruit other investors and the money gathered from the new investors is used to pay off the old investors until, eventually, the entire scheme crumbles. This is also known as a pyramid scheme.
Again, the famous name was taken from Charles Ponzi who pulled off what is likely the most famous instance of white collar crime in the US. He purchased postal reply coupons in foreign countries and redeemed them in the United States, and attracted investors to do so as well. Ponzi live luxuriously off the profits of his scheme until the entire pyramid collapsed. When this happened in 1920, multiple banks collapsed. Ponzi was eventually sentenced to prison and ended up serving a total of twelve and a half years in prison before being deported in 1934.
While it is unlikely that anybody will ever pull off a Ponzi scheme on the same scale as the original Charles Ponzi, they still exist today. Particularly now that we have the internet at our disposal, Ponzi schemes are plentiful and run rampant: it is estimated that over 95% of people who purchase into Ponzi schemes lose all of their money eventually.
