Ponzi did not invent the pyramid scheme, but his name will forever be associated with it.

Ponzi Emigrates to North America Flat Broke

Charles Ponzi arrived in America with two dollars and fifty cents in his pocket, having gambled away the rest of his life savings playing cards during the boat trip. In Boston, he took a job at a restaurant, initially as a dishwasher and then, after he had learned to speak English, as a waiter. He was fired after being caught short-changing customers.

In 1907, Ponzi moved to Montreal, Canada, and took a job at a bank that catered to other Italian immigrants. Starting out as an assistant teller, he worked his way up to bank manager. In that position, he discovered that the bank was in serious financial trouble. Its owner promised high interest rates on savings accounts, but was funding the interest payments with money from new accounts. The bank’s owner packed up and fled to Mexico, taking a portion of the bank’s money with him.

Of course, the bank folded leaving Ponzi without a pay check. For some reason, he went to the office of one of the bank’s depositors. When he found it empty, it dawned on Ponzi that he could still get a slice of the pie. Locating the man’s checks, he simply wrote one to himself. It was not a particularly smart move, and Ponzi wound up doing 3 years in a prison near Montreal.

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When once again he became a free man, his emancipation would not last long. He became involved in a scheme to smuggle illegal Italian immigrants into the United States, was caught, arrested, and sentenced to two years in an Atlanta prison.

Ponzi Returns to Boston, and Stumbles on to the Con that Would Immortalize Him

Ponzi took a wife in Boston, but was still searching for a scheme that would make him rich. He hit on the idea of publishing a list of business advertisements, similar to the Yellow Pages. To his chagrin, not enough businesses were interested to make the venture profitable. Then he received a mail inquiry about the listing from a company in Spain. The letter did not pique his interest, but what was enclosed with it did. This was an international reply coupon (IRC), something he had never seen before.

An IRC was commonly included as a courtesy in international mail to which a reply was anticipated; it was redeemable at a post office for enough stamps to facilitate return correspondence. IRCs are still available today, but are used far less often. It was now 1919, and Ponzi knew that in the wake of World War I many European nations were experiencing rampant inflation, and this meant that IRCs issued by those nations were more valuable in the US. Using borrowed money, Ponzi had some of his Italian relatives purchase IRCs and send them to him.