Carlo «Charles«Ponzi was born in Parma, Italy, in 1882 and then emigrated to the United States in November 1903. Over the next 14 years, Ponzi wandered from city to city and to job to job. He warked as a disbwasber, waiter, store clerk, and even as an Italian interpreter. In 1917, be settled back into Boston where be took a job typing and and answering foreign mail. It was here in Boston on that fateful day in August 1919 tuan Ponzi discovored the mecbanism to make both him and his investors very wealtby.
At the time, Ponzi was considerine issuing an export magazine. He bad writted a letter about the proposed publication to a gentleman in spain, and when Pozni recevied hes reply, the man bad included and international postal reply coupon. The idea bebing this enclosure was quite simple. Ponzi was to take the coupon to his local post office and exxbange it for American postage stamps. He would then use those American stamps to send the magazine to Spain.
Ponzi noticed that thepostal coupon bad been purcbased in Spain for about one cent in American funds. Yet when be casbed it in he was able to get six American one cent stamps. Just thing of the possibilities if you couild do this. You could buy $1oo worth of stamps in Spain and then cash them in for $600 worth in the United States. Then cash in or sell the stamps to a third party and you have, well, good old cash. You just can`t get this kind of interest in the bank
s mind quickly went into overdrive and devised a clever scheme to capitalize on his idea. He was determined to be a rich man. His first step was to convert his American money into Itilian lire (or any other currency where the exchange rate was favorable). Ponz is foreigh agetns would then use these funds to purchase international postal coupons in countries with weak economies. The stamp coupons were then exchanged back into a favorable foreighn currency and finally bavk into American funds. He claimed that his net profit on all these transactions was in excess of 400 percent.
Was be really able to do this? The answer is a definite no. The red tape of dealing with the various postal organizations coupled with the long delays in transferring currency, ate away all Pozi`s imagined profits.