The Ladies’ Deposit: ‘Women-Only’ Scam

The Ladies’ Deposit is an early Ponzi scheme, succeeded in Boston during the late 19th century. It’s amazing, but it was the scam invented by woman for cheating women.

The scheme was created by Sarah Howe, a former fortune-teller, who attracted small investments from single and wealthy women. She promised trustful clients 8% interest on a “Ladies’ Deposit” under the guise of a charitable organization. She said it was only for women, selling an implicit assumption of safety.

Widowed at the age of 24, Sarah Howe made a living from clairvoyance and performed odd jobs a large part of her life. In April 1879, the fifty-three-year-old Sarah Howe created a banking fund called the Ladies’ Deposit, that entered history as one of the first successful Ponzi schemes in America. Sarah Howe promoted the fund as a charitable organization — a safe place for investment only for women.

A group of 1880s women. A fragment of the article in the Boston Daily Advertiser.

Howe promised a extremely high interest rate — 8% per month. It guaranteed a doubling of the initial deposit only within 9 months. She attracted investments from over 1200 women in the Boston area. At its height, the Ladies’ Deposit held over half a million dollars from local women, roughly $11 million in 2012.

According to the conditions of the deposit, investors could only withdraw their interest earnings. Sarah Howe explained this rule from position of concern about women. She insisted on using this rule in order to keep women from waste of money and prevent them from using the interest to survive.

Of course, this rule prevented Howe from becoming victim to large withdrawals and fed the pyramid scheme. She used initial deposits from new members to make interest payments with peace of mind. Until women queued up join the Ladies’ Deposit Howe’s scheme could be run.

The ladies’ pyramid collapsed in September 1880 when the Boston Daily Advertiser, the first daily newspaper in Boston, initiated an journalistic investigation of the Ladies’ Deposit. The inquiry showed the vulnerability of the Howe’s fund, scaring many investors.

The attacks from the Advertiser led to a run on the Ladies’ Deposit, with Howe paying out $80,000 to furious members who wanted their money back. Boston authorities soon went after Howe, with Howe’s finances in such disarray that she could not make her $500 bail. Howe spent 3 years in prison for creating and sustaining the scam scheme.

It may sound incredible, but after her release in 1884, Sarah Howe began to attract investors in a similar scheme. In a short time Howe raised another $50,000 before disappearing into retirement — not so bad for a 19th century sixty plus woman!

Ponzi Scheme is an investment scheme that provides incomes of earlier investors on account of the funds received from later investors. At first, it may seem perfectly legitimate, but Ponzi scheme is usually destroyed as soon as the flow of funds from new investors is no longer sufficient to make payments to the old ones.The scheme is named after Charles Ponzi, who is notorious for using this affair in early 1920. Ponzi is not the author of the idea, but he was the first con artist in the United States who managed to get a huge amount of investment.