This is the Part 3 of the “Ponzi Scheme: History Of Famous Italian Fraudster” article. Read the Part 2.
It happened in the mid summer of 1920. Then the Ponzi’s “old friend” Daniels, who watched the ascent of the Italian, sued him in court. He believed that Ponzi owed him half of all profits, according to their contract (yes, we are talking about that loan worth $ 400). According to the law of Massachusetts during the trial all Ponzi’s accounts were frozen (now this terrible law is not in effect in this state any longer).
As you know, frozen accounts are a heavy blow for the pyramid scheme! But that was only the beginning. Soon, the government started an audit of Ponzi’s company. Charles pressed by the state prosecutor stopped receiving money. Investors came to Ponzi’s door to take their money back. Someone managed to do it (according to some estimates about 1,000 people), and someone, alas, failed.
Be that as it may, the audit revealed the Italian’s fraudulent scheme, who was not involved in what he planned (and could not, as there were not enough coupons in turnover to cover the whole amount). Ponzi’s company was an ordinary pyramid, where the money was simply distributed. It did not have any profits. Money from the new members just went to the old investors.
The result of this affair: Charles Ponzi was able to return only $8 million from 10 received to depositors. The rest was gone, probably on the salary of his employees and his own. He got only 5 years in prison for this fraud.
After the release Charles did not start a new life. He continued to create new fraud. However, in scope, they did not reach even to one-hundredth of “Ponzi scheme.” These were small affairs, for which eventually in 1934 he was deported to his homeland.
In Italy, Charles didn’t remain for long. World War II was imminent, and he went to seek his fortune in Brazil where he died in 1949. Capital of the great financial fraudster was only $ 75, which was enough for only his funeral.