Charles Ponzi And The Postal Coupons

Back in 1920 in Boston, the postal coupon enterprise run by Charles Ponzi was the talk of the city.

Whilst nearly everyone considered him to be a fine and astute financial wizard there were a few who suspected he may be a fraud.


Which, of course, he was.

By the time the bubble burst on his investment fraud, Ponzi had collected $9 500 000 from over 10 000 investors (including around 3/4 of the Boston police force!).

He lured them in with promises of 50% profit on their investment in 45 days.

By paying the initial investors in the fraud their 50% profit, as promised, Ponzi was able to create a huge buzz.

This hype served his purpose as it attracted more and more greedy and gullible investors to his scheme.

Postal Coupons

The supposed business model that Ponzi was using was that he was making up to 400% profit trading in postal coupons.

Later investigations would show that there never were any coupons and certainly no profits being made.

Instead, what Ponzi was doing was using incoming money from new victims to pay the earlier ones.

In this classic case of robbing Peter to pay Paul, Ponzi was using the 45 day terms for payout to build up more incoming funds.

By building his client base he was swelling the total amount of money involved up to $9 500 000 whilst paying out the earliest investors.

Of course, with no tangible product or service being offered, there was nothing underpinning the scheme for those who handed their money over as it neared it’s end.

The Hanover Trust Company

Using an account at The Hanover Trust Company, Ponzi would very quickly increase his capital sufficiently to buy a 38% share of his banking service!

The board of the bank were well aware that Ponzi was making numerous deposits, using promisary notes of his own design, that paid out 50% above their original value in 45 days.

They could see what was coming but instead of acting to end it they, in effect, became partners in the fraud.

They managed to get Ponzi to sign papers that allowed them to draw funds from his account at any time to cover the notes and also drew up a certificate of deposit in Ponzi’s name to the value of $1 500 000.

The Bubble Burst

When the bubble eventually burst after new investors to the fraud dried up The Hanover Trust Company found their actions to be inefectual.

Less that 48 hours after Ponzi’s account first went overdrawn the Trust collapsed.

The only assest of significant value that survived was Ponzi’s certificate of deposit.

The $1 500 000 went some way to paying back the victims but most lost small fortunes.

Born in 1882, Ponzi was no stranger to fraud.

In 1909 a bank of which he was a member collapsed.

The fall of Zrossi and Co earned Ponzi a three year jail term.

Ten days later he was arrested again, this time for bringing illegals into the US.

After serving a Federal sentence for the Ponzi fraud he went to Florida where he was indited for another pyramid scheme, this time involving real estate.

Skipping bail he attempted to flee by boat to Italy but was illegally detained by a Texas deputy sherrif whilst docked at New Orleans.

He would go on to serve out his sentence for larceny in the coupon fraud before being deported back to Italy.

Ponzi died in 1949 in the charity wing of a Rio de Janeiro hospital.

All that he left

About Lee Munson

Lee's non-technical background allows him to write about internet security in a clear way that is understandable to both IT professionals and people just like you who need simple answers to your security questions.


  1. […] Ponzi schemes eventually collapse due to the fact that there isn’t enough money coming in to cover the earnings payouts. […]

  2. […] schemes (see Charles Ponzi’s postal coupons) are […]

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