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The (In)famous Charles Ponzi

Jan 26th, 2009 | By | Category: Practice Notes

Ever wonder where the term Ponzi Scheme came from? Meet Mr. Charles Ponzi.  Mr. Ponzi came to America from Italy around 1903. Unfortunately he is famous not for what he did for America but what he did to it. Ponzi was the only person in America to have a crime named after him. In the United Kingdom Ponzi schemes are known as Chuzzlewit schemes after Charles Dickens’ 1844 novel of the same name. Other countries call them pyramid schemes. Ponzi’s scheme revolved around revolved arbitraging international reply coupons or IRC’s. Any post office will sell you an IRC. You can take the IRC to a post office any where in the world and exchange it for a stamp of the same value. In essence, an IRC is a form of international currency. As with all such schemes, after taking a substantial bonus for himself, Ponzi soon found himself unable to pay his original investors and had to “rob Peter to pay Paul.” This is what usually brings down the scheme.

When was the last time you heard of a Ponzi scheme? Here are the telltale earmarks of a Ponzi scheme:

  • A return on investment that is higher than the general market;
  • A form and structure that is outside of the normal form of investment;
  • Individuals or companies that are outside the mainstream of investment;
  • Individuals or companies that are not directly regulated by a government entity.

You should know that if you are the victim of a Ponzi scheme your chance of recovery is low. Often an effective remedy is afforded by the law of equity such as the equitable tracing, constructive trusts etc. But the longer you wait to act the worse your chance of recovery.

Ponzi schemes are criminal. If you Mr. Ponzi’s victim you should report it to your lawyer who will assist you in making a criminal report.

Always remember what another old Italian immigrant who also came to this country in 1903 once said … “if it’s a too gooda to be true it’s a not.” (sorry Grandma)

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