Scandal!: Ponzi’s fateFinancemuseum | April 8, 2010
The Museum is opening a new exhibition, Scandal! Financial Crime, Chicanery and Corruption that Rocked America, on April 29th and we’ve been doing a lot of research on different topics ranging from the first major financial scandal in the United States to the history of Ponzi schemes and instances of egregious disregard for corporate governance. Unfortunately, we won’t be able share all of the information and interesting tidbits we’ve amassed over the last few months. Instead of letting these juicy facts go to waste, we’ve decided to share some of them via the blog.
It wouldn’t be possible to put on an exhibition on financial scandals without a portion dedicated to Charles Ponzi, the namesake of the Ponzi scheme. We’ve been researching Charles Ponzi and two other infamous Ponzi artists. Each of the three men paid for their crimes after their schemes unraveled. Although all three men’s fates have garnered attention and been featured on the covers of newspapers around the world, Charles Ponzi’s is probably the most prolonged and intriguing.
Ponzi’s scheme was exposed in 1920 by investigative reporting by the Boston Post (the paper is now defunct, but won a Pulitzer in 1921 for their coverage of Ponzi’s crimes) and financial reporter Clarence Barron (founder of Barron’s and a famous financial journalist of his time). Ponzi was charged by the Federal Prosecutor for two indictments to which he reluctantly pled guilty and served only three and a half years of a 5-year sentence in federal prison. During his federal prison sentence the state of Massachusetts additionally charged him with 22 charges of larceny for the same scheme, and he was forced to immediately return to court. Nearly penniless in jail, Ponzi represented himself in court, and to the surprise of many (especially the prosecutors), Ponzi was actually quite deft in the courtroom. On the state charge of larceny he argued that a promise of profits is not a crime because it is simply a promise and in regards to investments, promises may be broken when circumstances change. His aptitude for law panicked the state prosecutors who changed the charge to only 12 indictments (this seemed advantageous to Ponzi at the time but worked to his disadvantage when he was tried for them in another case later) and was acquitted on all charges by a jury.
After his early release on parole in 1924, Ponzi’s freedom didn’t last long because only a few months later the state of Massachusetts responded with a vengeance and charged Ponzi with five of the remaining indictments he had originally been charged. He was forced back to court in February 1925. This trial ended in a deadlock, requiring a third state trial later that year. Having effectively been tried four times for the same scheme, Ponzi was found guilty again on this third state trial. Before he was sentenced, though, he escaped to Florida and elsewhere in the South where he attempted another scheme but gave up, traveled around the Southern United States where he requested a deal of a presidential pardon in exchange for his immediate deportation (which neither President Coolidge not Mussolini acknowledged) and eventually surrendered himself to authorities to serve seven years in jail. Ponzi was released early again on parole in February 1934. As the Bennington Evening Banner from July 1934 here reports, the United States continued hunting Ponzi after his release from state prison and pursued his deportation. He petitioned the charges against him, claiming double jeopardy, as the Bennington Evening Banner reports on his request for pardon from Massachusetts Governor Joseph Ely:
He urged that the state conviction and a federal conviction of using the mails to defraud were based on the same offense and that only one charge of moral turpitude was involved. Whether or not he succeeds in halting execution of the federal deportation order which has been pending for some months since his release from the Massachusetts state prison Ponzi will remain in this country until Sunday at least.
In the meantime he planned to apply for a writ for habeas corpus.
Ponzi’s appeal was denied yet again, and he was deported back to his homeland in Italy where he lived for a short while before moving to Brazil. He attempted to find his fortune there but died in poverty there in 1948.