The Crime Book

107

A large crowd gathers outside

Charles Ponzi’s Boston office in July

1920 after The Boston Post published

a number of articles questioning his

business practices.

WHITE COLLAR CRIMES

By 9 August, his main bank

account was overdrawn and the

district attorney froze it. Knowing

his arrest was imminent, Ponzi

surrendered to federal authorities

on 12 August 1920. He was charged

with 86 counts of mail fraud.

Final years

Ponzi had lost around $20 million

(£150 million) of investors’ money.

While some were paid, Ponzi was

short by $7 million (£53 million). His

arrest brought down six large state

banks, including the Hanover Trust.

Many investors were financially

crippled, receiving under 30 cents

for each dollar they were owed.

The impulsive Ponzi used his

bail release to flee to Florida, where

he launched the “Charpon Land

Syndicate,” another Ponzi scheme

selling swampland to investors

with the promise of substantial

returns on their money. Ponzi was

arrested for fraud and sentenced

to one year in prison, but he was

freed on appeal.

In New Orleans, he was caught

trying to flee to Italy by boat –

despite shaving his head and

growing a moustache to disguise

himself – and was sent back to

finish his original jail sentence in

Boston. Deported to Italy in 1934,

he tried a few more unsuccessful

schemes in Italy before moving to

Brazil, where he died, in 1948. ■

How Ponzi schemes

impact the economy

Ponzi schemes inflict severe

financial damage on investors

and the economy by diverting

money away from productive

and legitimate investments.

The bigger the scam, the more

damage it causes, particularly

once large banks become

involved. When the scheme

is revealed, investors can

lose confidence in those

institutions and are reluctant

to invest in them again.

Discovering and closing

down Ponzi schemes can be

difficult. Often, neither the

perpetrators nor the schemes

themselves are regulated. And

even in regulated institutions,

Ponzi schemes may use

technical language to hide

their true nature.

Ponzi schemes that violate

a number of financial laws

may be investigated

separately by more than one

regulator, which makes it hard

for the bigger picture to

emerge. The financial

significance of the institutions

that have invested in the

scheme can also make

regulators reluctant to

investigate, believing that the

institutions are too big to fail.

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