Dreamer
August 6th, 2005, 07:08 AM
Unfortunately, the info on charles ponzi on the web, though interesting, is, well...not much is there.
Before his finfamous scheme, charles wanted to go into the advertising business. He saw that magazines were selling this outrageous price for advertisements, and he figured he could set up a magazine with one page of reading and 3 pages of advertisements. He figure he could charge less money for advertising but it will see a much wider audiance. Maybe double the audiance at least. He figured with all of that, advertisers would love to advertise with him.
His idea was to set up a magazine in a notebook, so everymonth you just take the new inserts and combine them with last months, so the advertising would be seen forever. And, since it was in that style, he would do a more direct marketing approach, only offering the type of advertising that the person is interested in, and not sending the stuff that the person is not interested in. All he needed was like $5,000 to set this up. I think he finally was able to do it, but nobody wanted to advertise with him.
Later he figured out the whole stamp coupon thing, he knew the postal laws, and he tested out his theory by buying stamps from depressed economies, and having them sent back to the states and selling them for stamps here.
This was actually his intention throughout his scheme, but since the money was coming in so fast, he didnt need to do it. But, during the height of his scheme, he found out that a foreign country wanted to borrow $10million from USA, so he contacted them to sell him $10million worth of stamp coupons, contacted the US govt to insure they will cash in the coupons, and was prepared to sell the stamps at 10% below cost to the general public. Mind you, this is like 6 months into his scheme. So, at that point, he was prepared to lend a foreign govt money in return for stamps, to cash here, make some money to pay off his notes.
He had the postal inspectors asking him questions, and they werent able to poke a hole in his system. He explained it to anybody that will listen. He was always available at his business so people can meet him. There wasnt a question he didnt answer.
Now, there was something that he did that other schemes now adays dont. He offered a full refund to anybody that asked at any time. In fact, that is how he was able to get rid of alot of his debt at the end, by people willing to take back their principle. his logic was, that if somebody came in asking for a refund off their $100, they would tell everybody they know that charles would give a refund, no questions, and get alot of money back.
Charles new full well that most people would reinvest their money. So, if there was a $45,000 payout one day, he knew that he might need less than $1000 cash on hand to satisfy them.
The big flaw with charles system, and other immitators, is their payouts. His was 50% profit in 45 days, or doube in 90 days. That doesnt add up. Take $100. $150 in 45 days or $200 in 90 days? Why not just ask for half of the $150 in another 45 days, earning $225? Thats not much of a difference.
At first, the extremes to invest were $10 - $10,000. Once he started paying people 10% commission to sell these notes, he started asking that the minimum be $300 for a week. Thats kinda close to $320.
The thing with charles, is he actually had investments set up to pay the outstanding notes. Once it got so big, his daily concern was to find the big thing that would pay all the outstanding notes.
His main concern was banks. Since people were withdrawing money out of the banks so quickly to give to charles, he would wait until the bank was struggling, than perform a buyout, and take over it. So, if the initial shares were $150 each, he would buy enough to take control of the bank at $50 a piece, start depositing his money in the banks and making it successful again until the shares went up to $150 again. He was successful doing this because many people were abonding banks to give to him.
He also bought out his previous bosses business for revenue, and he was considering buying a fleet of cargo ships from the US govt for $200million and subleasing them out and selling shares.
All in all, he had like 10 lawyers making sure he was legit, he welcomed questions by the cops, postal commissionar, the government, etc. He kept great books, and fully coperated with the law. One day he even went to the warrents section of the police station to turn himself in in case there was anything oustanding on him.
Everybody loved Charles. So, why did it fail? Greed. Not his. He was too busy trying to find the next big thing to pay off everybody. He didnt have 1 idea, but 10 ideas. But, people wanted to bring him down.
At the end, he had $10million in outstanding notes worth about $15million. He had $8million in the banks. To fully comply with an investigation, he closed down his doors while they went over his finances, but he continued to make the payouts of anybody who asked. Not the 150%, but the original principle.
Here was his goal. I dont have the exact numbers in front of me, but this was his thinking. He could buy back $8million in notes. That would take away $12million of his labiliies leaving him to cover $3million. However, the people in back of the line might be willing to settle for less than their original investment just so they wouldnt have to wait in line. So, he might be able to get that $8million for $7million. If he could get this all done by the time they opened his books, he would only be $3million behind. But, his plan than was to go to the bank he "owned", "borrow" $5million to show he has more than enough to cover the rest, and he would be untouchable. The end of the day he would put the money back in the vault, and nobody would ever know.
Obviously it never went that far. He could have run. No problem. But, he didnt want to go back to prison. He believed in his system. Even though he knew he was seperating fools from their money, he thought he could always pull off buying the coupons if needed.
So, to clear up some misconceptions:
1. Charles Ponzi did have a product that he was buying and selling. Stamp coupons. People couldnt poke holes in his scheme no matter how much they tried.
2. He made himself available to the common investors, to inquiring law officials, and anybody else with a question. Obviously he didnt spend his money on cruises and flying across the world to meet people. He would rather invest the money.
3. Up until the very last day, he paid off everybody whos notes matured or who requested a refund.
4. He paid 10% commissions to people who brought in more sales.
5. He had every opportunity to flee, but never did because he believed in himself.
6. He had lawyers making sure he wasnt doing anything illegial.
7. He was liked by all. Nobody had anything bad to say about him.
8. Most of the money was in fact reinvested into his scheme. Even his employees was investing with him and reinvesting with him.
9. Charles did not keep a penny. He paid out everything he had and till came up short.
Before his finfamous scheme, charles wanted to go into the advertising business. He saw that magazines were selling this outrageous price for advertisements, and he figured he could set up a magazine with one page of reading and 3 pages of advertisements. He figure he could charge less money for advertising but it will see a much wider audiance. Maybe double the audiance at least. He figured with all of that, advertisers would love to advertise with him.
His idea was to set up a magazine in a notebook, so everymonth you just take the new inserts and combine them with last months, so the advertising would be seen forever. And, since it was in that style, he would do a more direct marketing approach, only offering the type of advertising that the person is interested in, and not sending the stuff that the person is not interested in. All he needed was like $5,000 to set this up. I think he finally was able to do it, but nobody wanted to advertise with him.
Later he figured out the whole stamp coupon thing, he knew the postal laws, and he tested out his theory by buying stamps from depressed economies, and having them sent back to the states and selling them for stamps here.
This was actually his intention throughout his scheme, but since the money was coming in so fast, he didnt need to do it. But, during the height of his scheme, he found out that a foreign country wanted to borrow $10million from USA, so he contacted them to sell him $10million worth of stamp coupons, contacted the US govt to insure they will cash in the coupons, and was prepared to sell the stamps at 10% below cost to the general public. Mind you, this is like 6 months into his scheme. So, at that point, he was prepared to lend a foreign govt money in return for stamps, to cash here, make some money to pay off his notes.
He had the postal inspectors asking him questions, and they werent able to poke a hole in his system. He explained it to anybody that will listen. He was always available at his business so people can meet him. There wasnt a question he didnt answer.
Now, there was something that he did that other schemes now adays dont. He offered a full refund to anybody that asked at any time. In fact, that is how he was able to get rid of alot of his debt at the end, by people willing to take back their principle. his logic was, that if somebody came in asking for a refund off their $100, they would tell everybody they know that charles would give a refund, no questions, and get alot of money back.
Charles new full well that most people would reinvest their money. So, if there was a $45,000 payout one day, he knew that he might need less than $1000 cash on hand to satisfy them.
The big flaw with charles system, and other immitators, is their payouts. His was 50% profit in 45 days, or doube in 90 days. That doesnt add up. Take $100. $150 in 45 days or $200 in 90 days? Why not just ask for half of the $150 in another 45 days, earning $225? Thats not much of a difference.
At first, the extremes to invest were $10 - $10,000. Once he started paying people 10% commission to sell these notes, he started asking that the minimum be $300 for a week. Thats kinda close to $320.
The thing with charles, is he actually had investments set up to pay the outstanding notes. Once it got so big, his daily concern was to find the big thing that would pay all the outstanding notes.
His main concern was banks. Since people were withdrawing money out of the banks so quickly to give to charles, he would wait until the bank was struggling, than perform a buyout, and take over it. So, if the initial shares were $150 each, he would buy enough to take control of the bank at $50 a piece, start depositing his money in the banks and making it successful again until the shares went up to $150 again. He was successful doing this because many people were abonding banks to give to him.
He also bought out his previous bosses business for revenue, and he was considering buying a fleet of cargo ships from the US govt for $200million and subleasing them out and selling shares.
All in all, he had like 10 lawyers making sure he was legit, he welcomed questions by the cops, postal commissionar, the government, etc. He kept great books, and fully coperated with the law. One day he even went to the warrents section of the police station to turn himself in in case there was anything oustanding on him.
Everybody loved Charles. So, why did it fail? Greed. Not his. He was too busy trying to find the next big thing to pay off everybody. He didnt have 1 idea, but 10 ideas. But, people wanted to bring him down.
At the end, he had $10million in outstanding notes worth about $15million. He had $8million in the banks. To fully comply with an investigation, he closed down his doors while they went over his finances, but he continued to make the payouts of anybody who asked. Not the 150%, but the original principle.
Here was his goal. I dont have the exact numbers in front of me, but this was his thinking. He could buy back $8million in notes. That would take away $12million of his labiliies leaving him to cover $3million. However, the people in back of the line might be willing to settle for less than their original investment just so they wouldnt have to wait in line. So, he might be able to get that $8million for $7million. If he could get this all done by the time they opened his books, he would only be $3million behind. But, his plan than was to go to the bank he "owned", "borrow" $5million to show he has more than enough to cover the rest, and he would be untouchable. The end of the day he would put the money back in the vault, and nobody would ever know.
Obviously it never went that far. He could have run. No problem. But, he didnt want to go back to prison. He believed in his system. Even though he knew he was seperating fools from their money, he thought he could always pull off buying the coupons if needed.
So, to clear up some misconceptions:
1. Charles Ponzi did have a product that he was buying and selling. Stamp coupons. People couldnt poke holes in his scheme no matter how much they tried.
2. He made himself available to the common investors, to inquiring law officials, and anybody else with a question. Obviously he didnt spend his money on cruises and flying across the world to meet people. He would rather invest the money.
3. Up until the very last day, he paid off everybody whos notes matured or who requested a refund.
4. He paid 10% commissions to people who brought in more sales.
5. He had every opportunity to flee, but never did because he believed in himself.
6. He had lawyers making sure he wasnt doing anything illegial.
7. He was liked by all. Nobody had anything bad to say about him.
8. Most of the money was in fact reinvested into his scheme. Even his employees was investing with him and reinvesting with him.
9. Charles did not keep a penny. He paid out everything he had and till came up short.