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Charles Ponzi and His Connection to Texas

05 Nov

People may recognize the word Ponzi as part of the term “Ponzi Scheme” but may not know where it originates. Charles Ponzi was born Carlos Pietro Giovanni Guglielmo Tebaldo Ponzi on March 3, 1882 in Lugo, Italy. Ponzi would say that his family once had a lot of money, but by the time he was born, they had fallen on hard times. For a while he worked as a postal worker, but was able to get accepted into University of Rome in Sapienza, though after four years, he had no funds and no degree. At that time Italians were emigrating to the United States sending back stories of a wealthy country where one could become financially successful. Ponzi decided to seek his fortune in America, arriving at Ellis Island with $2.50 in his pocket, he said.

Once in the United States, he found jobs as a dishwasher, waiter and various other “odd job” positions until he moved to Montreal. After a while he went to work in 1907 for Banco Zarossi, founded by an Italian and catering to the Italian community. Banco Zarossi was offering 6% interest to depositors at a time when the prevailing rate was half that. As bank manager, Ponzi began to realize that the bank was actually in financial trouble and was funding the higher than market interest rate with cash received from new depositors. Banco Zarossi eventually failed with its founder fleeing the country with a goodly portion of the bank’s cash.

After his experience at the bank, he was arrested for the theft by forgery of about $500. He served some time in jail and after his release became involved in a plot to smuggle Italian immigrants into the United States from Canada. He was again arrested and served two years in an Atlanta prison. Ponzi next appears in Boston where here he was working as a nurse in a mining camp. A newspaper article reported that Ponzi was noted for having donated some of his skin to a female burn victim, becoming something of a local hero.

After leaving this job he met Rose Maria Gnecco, a stenographer and the daughter of Italian immigrants who ran a fruit stall in downtown Boston. He and Rose became enamored and married. Afterward, he came to work for his in-laws in their fruit stand and business until it also failed.

Ponzi settled on the idea of buying and selling International Reply Coupons, IRCs, by buying them at a discount and selling them at market. An IRC stamp could be utilized as postage for return mail, much like the postage return or business reply system today. A company or individual could send mail from Italy to the United States. Inside the incoming mail document, the recipient would find an IRC stamp with which he could use to respond though the postal system. The holder of an IRC could also sell it or exchange it for other stamps. Ponzi was aware of certain volume and market discounts that sometimes existed. Due to disparities in foreign exchange rates, he determined how to legally make a profit from these transactions.

This gave Ponzi the idea to take his operation to a larger scale. He approached various banks including the Hanover Trust Company for financial backing and was initially rebuffed. Ponzi established a stock company called Securities Exchange Company and began offering above market returns to investors. At a time when banks were offering returns of 5%, Ponzi promoted returns of 50% in 90 days (later shortened to 45 days) and money from investors began to flood in. The early investors were paid according to his promises with funds coming in from later investors. The word spread, Ponzi hired agents to find new investors and soon amassed a small fortune of his own.

Ponzi deposited some of his funds in the Hanover Trust Company and used his other funds to purchase a controlling interest in the bank by 1920. Ponzi could have spent his time and efforts buying and selling IRCs, but the scheme became a promotional tool to bring in more and more investors. In addition, some early investors were inclined to reinvest their “profits” with the home of increasing them. However, in the summer of 1920, Ponzi’s business became the target of financial journalists who questioned the legitimacy of his operation, leading to a run on Securities Exchange Company and the start of an investigation by the United States Attorney’s office who investigated the company and Massachusetts Attorney General to investigate the bank, Hanover Trust Company, which eventually failed.

Ponzi was arrested for federal charges and charged with similar crimes by the state of Massachusetts. He plead guilty to the federal charges and served as his own attorney in the state trials. Released on bail, he fled the state for Florida where he soon had started a land swindle, resulting in another trial and conviction.

While out on bail from the Florida charges, Ponzi fled the state and attempted to leave the country on a freighter that he boarded in Tampa. He had faked his death by leaving clothing and a suicide note on a beach. Using an alias, Ponzi hired on as a waiter and dishwasher on the ship ultimately bound for Italy. He revealed his true identity to someone on the crew and was subsequently was arrested by a Texas deputy when the ship made a routine stop in New Orleans. Ponzi was confined in Texas while Massachusetts negotiated his extradition.

Ponzi had been captured in New Orleans by Harris County deputy sheriff George J. Lacy. Ponzi had been the subject of a nationwide manhunt since June 4, 1926. According to newspaper reports, Ponzi had been traveling under the name Luciano Andrea on board the Italian ship Sic Vos Non Vobis. Harris County Sheriff T. A. Binford said that the authorities had received a tip that Ponzi was aboard the freighter when it had docked earlier in Houston, but the ship had departed before an arrest could be attempted. The ship made another stop in Galveston but also left there before Lacy could reach the dock. There was some confusion initially about the expected destination from Galveston. Some had said that the ship was bound for Havana, then South America, but Sheriff Binford sent Deputy Lacy to New Orleans once its next port became known. Had Ponzi not been arrested in New Orleans, the ship’s next stop would have been Norfolk, Virginia before it sailed on to Genoa, Italy.

Though there is some question about his jurisdiction in Louisiana, Deputy Lacy arrested Ponzi and brought him back to a local hotel where he interviewed him. Ponzi had grown a mustache and shaved his head in an attempt to conceal his identity but otherwise his description fit that which was furnished by Massachusetts authorities. Deputy Lacy brought Ponzi back to Houston where his fingerprints were positively compared with those received by officers from authorities in Miami, Florida. Ponzi admitted that he was the fugitive after being confronted with the evidence.

The law provides that extradition requests may be made from the office of one state’s governor to another state’s governor. If the request is approved by both governors, an extradition hearing is held and a court in the state holding the fugitive will make a decision either to grant or deny extradition. Texas Governor Miriam “Ma” Ferguson approved Ponzi’s extradition her last year in office, 1926, and he was returned to Massachusetts. After serving some time in prison, his United States legal issues were effectively ended with his deportation in 1934.

Ponzi’s mug shot (Image credit: Smithsonian.com)

Carlo Ponzi

Ponzi found his way to Brazil where he was known to have held a number of jobs. Rose divorced him in late 1936. In Brazil, Ponzi worked as a teacher and held other positions, including running a boarding house and working for a Brazilian airline that failed during World War II. Ponzi died virtually penniless on January 18, 1949. His name lives on via the “Ponzi Scheme” fraud which is characterized by the methods he used, to promise returns to investors and fund them by using money raised by later investors.

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Posted by on November 5, 2020 in biography, outlaws and crimes

 

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