Charles Ponzi (1920): The Post prints the gap

Charles Ponzi's 1920 Boston collapse, built on promised profits from postal reply coupons, gave the English language its name for paying earlier investors with later ones. In 1919-1920 Charles Ponzi, an Italian-born promoter in Boston, promised extraordinary short-term returns through a business he said would exploit price differences in International Reply Coupons, postal instruments intended to prepay return postage across borders. Crowds brought cash to his Securities Exchange Company. The promised coupon arbitrage could not support the volume of money taken in.

The Boston Post, with help from financial publisher Clarence W. Barron, published investigations in July and August 1920 that compared the coupon market's real size with Ponzi's intake. State and federal authorities moved as redemptions and a run developed. Ponzi surrendered in August 1920. He pleaded guilty to federal mail fraud and later faced Massachusetts larceny convictions after a first state trial hung and a second convicted him.

The dollar scale was of its time: contemporary estimates put liabilities on the order of $15-20 million in 1920 dollars, a fraction of later cases in this atlas, but the legal and linguistic imprint was larger. English-language law and journalism adopted 'Ponzi scheme' as the name for a fraud that pays earlier participants with money from later ones. Earlier operators had used the pattern; this collapse named it.