105
International Reply Coupons,
which could be exchanged for postage
stamps, inspired Ponzi’s scam. This
particular design was adopted by the
Universal Postal Union in 1906.to afford the following month’s rent
for his office, desperation was
setting in again.
It was around this time that
Ponzi received a letter from Spain
with an unusual document inside.
Similar to a self-addressed stamped
envelope, the internal reply coupon
(IRC) looked like money but was
actually a system for prepaying
international postage. It could be
redeemed in various parts of the
world, but the fixed prices did
not reflect the dramatic post-war
devaluation of some currencies.
Ponzi realized that he could turn
a profit if he bought the coupons in
Italy, where they were relatively
cheap, and exchanged them for
more expensive stamps in the US.
Although Ponzi did not have a
plan for converting the coupons into
cash, he figured that he could make
a profit of $2.30 (£14 today) for every
$1 (£6) that he invested. Realizing
the potential for a business venture,Ponzi obtained a loan and sent the
money to his family back home in
Italy. He asked them to purchase
postal coupons and send them back
to him in the US. He reportedly
made more than 400 per cent profit
on some of his sales.Generating investment
The scheme was not illegal – Ponzi
was buying an asset at a lower
price and selling it for a high price
in a different market – but he had
no idea how to redeem the coupons
for cash. Undaunted, he promised
friends and investors that he could
double their investment in 90 days.
He confidently explained that the
fantastic returns on the postal reply
coupons made profiting simple.
Many investors were paid as
promised, receiving $750 (£4,635)
interest on initial investments of
$1,250 (£7,725). However, these
profits did not come from trading in
IRCs. Instead, Ponzi paid back hisSee also: Bernie Madoff 116–21 ■ Jérôme Kerviel 124–25WHITE COLLAR CRIMES
initial investors using money from
new investors, while all of his
investors were kept unaware of his
methods. To add a sheen of
legitimacy to his endeavour, Ponzi
opened his own company, the
Security Exchange Company. Word
quickly spread about the returns he
had produced, and an initial tiny
pool of investors soon expanded into
Boston’s elite society, fuelled by the
impressive rates that initial
investors were being paid.
Whether it was a scam from the
beginning, or whether Ponzi
intended to pay the investors once
he figured out how to convert the
coupons into cash, is unclear, but
Ponzi made no effort to generate
legitimate profits. Eventually, he
stopped purchasing IRCs and kept
all of the money for himself. By
June 1920, Ponzi had made $2.5
million (£19 million) from about
7,800 customers. His desk drawers
overflowed with cash; money was ❯❯He is one of the best examples
of misdirected energy in the
annals of American crime.
The Washington Post102-107_Charles_Ponzi.indd 105 13/01/2017 15:10