Most Americans are familiar with the term “Ponzi scheme,” even if they are not entirely sure what the term refers to. At any rate, the name Ponzi likely evokes pictures of fraud in your mind. Of course, anybody can pull off a simple sleight-of-hand trick, but not everybody’s last name becomes synonymous with fraud the way that Charles Ponzi’s has.
Originally, Charles Ponzi immigrated to the US in 1903 and at first worked a slew of menial jobs. According to Mental Floss, at this point Charles Ponzi discovered that there was a way to make money from international reply coupons.
What was the original scheme?
International reply coupons still exist, but they are far less common. An international reply coupon was a way to cover the costs associated with International postage. For example, a letter sender from the United States may purchase an international reply coupon and include it in a letter that he sends to his friend in Germany. Once the recipient receives the letter in Germany with the reply coupon, the recipient can then exchange the coupon for German postage to send a letter back.
Ponzi realized that if he purchased international reply coupons in a country that had cheap postage rates, he could then exchange them for postage in the US and sell that postage.
Was this actually illegal?
No. Originally, Charles Ponzi was simply gaming the system, but it was entirely legal. It became a Ponzi scheme once Ponzi started to recruit investors into the system and promised them 50% returns within days. This was the world’s first and most well-known “Ponzi scheme.”