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Posted by on May 29, 2018 in Theft and Burglary | 0 comments

Charles Ponzi and Modern-Day Embezzlement

Have you ever heard of a Ponzi scheme? A Ponzi scheme is essentially a fraudulent investment practice where the person in control of the scheme tries to get investment money by offering fabricated financial reports and data. The party in control of the scheme will often promise very high returns to potential investors. The point of a Ponzi scheme is to attract new investors and to use these new investments to pay off old investments.

What many people didn’t know is that Ponzi schemes are named after an Italian con artist named Charles Ponzi. In 1920, Ponzi started a company known as the Securities Exchange Company. Ponzi would get large investment sums from several investors, and then he would pay them off the following month. As his business grew, he hired a staff of agents that received a commission for the investments they received from the Company. The business became so large that in one month, the total amount of investment money, adjusted for inflation, rose from $62,000 in February 1920 to $309,000 March 1920. The investment numbers continued to grow at an alarmingly quick rate. In fact, By the end of July 1920, they were making $1 million per DAY.

Despite this, the Securities Exchange Company was grounded in a flawed business model. Though large sums of money from investors continued to funnel in, necessary payments to the old investors could not be paid out. Essentially, the Company was not generating a profit. However, this did not stop Ponzi from leading a luxurious lifestyle. Eventually, Ponzi’s business collapsed, and he surrendered to federal authorities. He eventually pled to a charge like modern-day embezzlement. Before Ponzi received his 5-year sentence, the sentencing judge stated, “Here was a man with all the duties of seeking large money. He concocted a scheme which, on his counsel’s admission, did defraud men and women. It will not do to have the world understand that such a scheme as that can be carried out … without receiving substantial punishment.”

Because of my interest in these types of famous cases, I decided to further my understanding of the case of Charles Ponzi by researching modern-day embezzlement. I came across an article by Bruno Law Offices that succinctly described the crime of embezzlement in this day in age. It explained that embezzlement occurs when an individual takes money that has been entrusted to them, and without the knowledge of the person who gave the money, the individual that received the money does not use it for its intended purpose. The key to the crime is that someone entrusts their money to someone else.

Charles Ponzi was certainly entrusted with the money of other individuals. He then used the money for unintended purposes. In fact, the reasons for which he used the money were so blatantly unintended that we now have a term to highlight this kind of behavior: the Ponzi scheme.

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