Essay on Ponzi Scheme White Collar Crime

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The Ponzi Scheme

The Ponzi Scheme is a term commonly thrown around in the world of white-collar crime. It is an age-old game of borrowing from Peter to pay Paul – a form of fraud where people believe in a non-existent business or product and the money gathered from today’s investors would be used to repay the debts of those that came before (Darby, 1998). Typically, these investors are attracted by the promise of outrageous profit.

Time and again, people of all socio-economic backgrounds have fallen prey to such schemes demonstrating how many choose to abandon the voice of reason and succumb to a deal that always seems too good to be true. In this day and age, the Internet has then become a vehicle for con artists to cast their net wide and reach a larger group of victims with relative ease. However, it is undeniable that these schemes have been around for a long time and it can be said that many of today’s swindlers have taken their cue from a five-foot-two-inch Italian immigrant, Charles Ponzi.

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Charles Ponzi and His Early Years

Born in 1992 in Italy, Charles Ponzi was the infamous con artist who shuffled money from new investors to pay the old ones. Ponzi was born to parents who both bore titles of aristocracy but were richer in reputation than in savings. He was immensely doted on by his mother, as she staked the family’s future on her little boy, hoping that he could restore the family to its former financial and social status. In his childhood, she often dreamt aloud about the grand future she aspired for him. Ponzi later went on to inherit a modest inheritance from his father and intended to follow his mother’s dreams by attending the University of Rome (Zuckoff, 2006).

However, instead of treating his academic career seriously, he was disillusioned by dreams of grandeur and stories about his aristocratic blood put in his head by his mother, he dug deep into his fast-dwindling inheritance in hopes of emulating his wealthy peers at the university. Ultimately, this led to bankruptcy, forcing him to drop out. He was later convinced by his uncle to leave Italy for America because he was from a good family and was refined and hence could easily be successful there.

Therefore, in November of 1903, 21-year-old Charles Ponzi arrived in Boston with little to nothing to his name after gambling away most of his remaining money on the voyage to the United States (Biography, 2019).

“I landed in this country with $2.50 in cash and $1 million in hopes and those hopes never left me,” Ponzi later told the New York Times.

He then worked a variety of odd jobs along the East Coast of America. He ended up getting into trouble for theft and cheating customers, moving to Canada and spending time in prison for passing a forged cheque (Trex, 2008) Ponzi then headed back to Boston in response to a newspaper ad for a merchandise broker who needed a clerk (Darby, 1998) where he met and married Rose Gnecco in February of 1918. Shortly after, Ponzi hit upon a scheme that allowed him to get rich using a loophole in the ‘International Postal Reply Coupons’ system.

The Original Ponzi Scheme

Since postal and exchange rates fluctuated, there was an opportunity for arbitrage – one simply had to purchase postal reply coupons at a lower price in another country, send them back to America to swap them out for local stamps of a higher value, and sell these stamps, making it possible to earn a substantial profit. This was perfectly legal and seemed like a clever way of gaming the system, and thus, Ponzi started his new business, the Securities Exchange Company. He would then go on to sell this idea to thousands of people. Ponzi claimed to have an elaborate network of representatives throughout Europe who were in charge of making bulk purchases of coupons and in turn, he would help people turn their coupon purchases into large profits. However, his claims were false, yet his alluring ability enabled him to sell this scheme to thousands and skimming funds for himself, allowing him to quickly climb the ranks to build the life of luxury that he had always dreamed of.

According to Dunn (2004), Ponzi’s genius lay in psychology and not finance. Ponzi understood that the way to get people to buy into his scheme was not to push too aggressively, but rather approach them systematically and strategically. He carefully cultivated his image as a man on the verge of huge fortunes, but one that was humble enough not to discuss his wealth in public – unless pressed. He tactically placed himself in specific situations such as neighborhood cafes and boccie games to come in contact with investors, often gifting them with generous amounts of good cigars and then rushing to meet his next ‘client’. After his victims were well primed, Ponzi would then introduce his scheme promising them 50 percent interest in 90 days.

Gradually, he personally recruited and trained agents to pitch his business to other potential investors, guaranteeing them ten percent commissions for every secured deal. Many of these agents then enlisted the help of “subagents” to gather the numbers. Soon, the first round of investors received their promised profits and word began to spread that Charles Ponzi was a ‘financial wizard’ (Dunn, 20004). Consequently, many clients chose to reinvest their profits, relieving Ponzi of actually having to make good on his promises.

However, an investigation was called to uncover the secret behind his scheme. Eventually, Charles Ponzi’s publicity agent released a report about the truth behind the Securities Exchange Company, which escalated the situation. In August 1920, Ponzi served a 14-year prison term and was charged with 86 counts of mail fraud and owed investors an estimated sum of $7 million.

Behind Ponzi – A Profile of the Con Artists and Their Victims

Research has shown that victims who fall prey to Ponzi schemes, firstly, share a deep sense of greed, yearning for the benefits of great power and wealth immediately (Frankel, 2012). Therefore, this group of people fell for Ponzi’s scheme due to their desire for an effective way to climb the social ladder. Secondly, these victims display signs of gullibility, falling prey to offers that are too good to be true. Additionally, this group tends to be drawn by hope, emotion, or fancy, which fits Ponzi’s modus operandi as well as his ability to portray a charming, steadfast sort of character (Frankel, 2008). Lastly, these victims tend to feel great pressure to retain or improve their social status. The promise of exclusivity combined with the possibility of making profits quickly drew in many potential investors. With more of their social circle being involved in the scheme, many victims also began to feel the need to invest more into it as well, just to one-up their peers. These factors hence placed thousands of people in this unique position, rendering them vulnerable to falling prey to Ponzi’s scheme.

On the other hand, a con artist’s personality includes not only the capacity to be able to commit a crime, lots of charm, and surprisingly, striking similarities with honest people, but it also often includes overwhelming ambitions and unrealistic dreams. This was especially clear in the case of Charles Ponzi, due to the years of brainwashing about the royal blood in his veins and dreams of grandeur fed by his mother during his childhood. Moreover, research has shown that con artists tend to exhibit narcissistic characteristics which manifests itself in a lack of empathy for their victims (Frankel, 2012). This was obvious in the case of Charles Ponzi as upon release he said:

“Even if they never got anything for it, it was cheap at that price. Without malice aforethought I have given them the best show that was ever staged in their territory since the landing of the Pilgrims!... It was easily worth fifteen million bucks to watch me put the thing over!” (Darby, 1998)

In Ponzi’s scheme, there was an evident display of these traits that allowed him to manipulate his victims. Furthermore, Ponzi often played the hero to the same people whom he was defrauding. During office hours, he would direct women to the front of queues as well as distribute coffee to those waiting (Darby, 1998), hence, planting doubts in those who were suspicious about Ponzi’s ploy, whilst reinforcing the fact that Ponzi was indeed trustworthy amongst the rest. This once again points to Ponzi’s ability to charm the masses into believing his scheme.

Using Strain Theory to Explain Ponzi

Strain theory deals with the idea of the American Dream. This is the dream where one is able to ‘make it’ and achieve abundant wealth and independence through their lives in the United States. Merton stated that for many, their primary goal was to achieve the American Dream and that the overriding goal was success, with money as a metric of it (Messner, 2004). The American Dream seemed especially prevalent in Charles Ponzi’s life. Prior to his decision to move to America, his uncle had repeatedly told Ponzi that “in the United States, the streets are actually paved with gold” (Lichtenstein, 2005). This led him to believe that by migrating to America, he would easily be able to find the fame and fortune that he was searching for his entire life.

Strain theory asserts that a disjunction between societal goals and one’s ability to achieve them produces crime. When individuals subscribe to the goal of the American Dream but experience difficulties in achieving it as they do not have legitimate means to, they experience strain, which refers to stress on institutional norms, which then lose their legitimacy and regulatory power in the eyes of these individuals (Robinson & Rogers, 2018). When Charles Ponzi first stepped foot on American shores, he was not met with the gold-lined streets his uncle told him about, but was in fact poor and had to wait and bus tables as well as paint signs in order to survive -- reality was far from his expectations. The contrast was stark enough that Pomzi landed into trouble multiple times while desperately trying to close the gap. The strain that Ponzi experienced was further fuelled by his lifelong dreams of acquiring mass amounts of wealth, resulting in Ponzi leaping at the first opportunity to climb the ranks quickly, even if it meant that it was through illegitimate means.

At this juncture, it is crucial to note that while strain theory seemingly only involves those of a lower socio-economic class, it also applies to those of upper and middle economic status. Merton (1938) suggests that corruption, vice, fraud, and crime “becomes increasingly common when the emphasis on the culturally induced success goal becomes divorced from a coordinated institutional emphasis”. His strain theory, hence, can be easily applied to include white-collar crimes as seen from Ponzi’s inability to stop his scheme despite accumulating a large amount of wealth. Since the pursuit of the American Dream or monetary success is never-ending, the wealthy will always seek more, explaining why even the rich commit crimes of deviance.


Charles Ponzi has become synonymous with his infamous Ponzi scheme. He was able to rope thousands of investors into his scheme due to his ability to carefully prime them before approaching, turning on his charm and portraying himself as a generous gentleman. These traits lent credibility and trustworthiness to him as a business owner. Additionally, growing up, Ponzi had an unhealthy relationship with wealth and status which later resulted in an obsession with chasing the American Dream. He experienced strain due to the stark difference between the realities of his life and that of his expectations. Hence, a combination of these unique factors led to a life of deviance and the rise of Charles Ponzi the con artist.

In recent years, we have witnessed a resurgence in the number of Ponzi, with cases involving Bernard Madoff and Allen Stanford. Personally, I think it would be interesting to examine how the Internet affords potential con artists easy avenues to reach out to a wide range of people that they might otherwise have no access to. This is especially true since Ponzi schemes tend to play on the innate human nature to want more in one’s life. Con artists take advantage of human greed and present potential investors with deals that seem too good to be true, yet charm them into believing otherwise. Therefore, perhaps even as Ponzi schemes evolve and change with the times, the profile of victims who fall for such ploys will always remain the same.


    1. Biography. (2019, June 18). Charles Ponzi. Retrieved from
    2. Darby, M. (1998, December). In Ponzi We Trust. Retrieved from
    3. Dunn, D. H. (2004). Ponzi: The incredible true story of the king of financial cons. New York: Broadway Books.
    4. Frankel, T. (2008). Trust and honesty: America's business culture at a crossroads. New York: Oxford University Press.
    5. Frankel, T. (2012). A Profile of the Con Artists and their Victims. The Ponzi Scheme Puzzle. doi: 10.1093/acprof:osobl/9780199926619.003.0005
    6. Lichtenstein, A. (2005, March 13). A sympathetic look at the original Ponzi scheme. Chicago Tribune. Retrieved from
    7. Merton, R. K. (1938). Social Structure and Anomie. American Sociological Review, 3(5), 672. doi: 10.2307/2084686
    8. Messner, S. F. (2004). An Institutional-Anomie Theory of Crime: Continuities and Elaborations in the Study of Social Structure and Anomie. Kölner Zeitschrift Für Soziologie Und Sozialpsychologie Sonderhefte Soziologie Der Kriminalität, 93–109. doi: 10.1007/978-3-322-80474-7_4
    9. Robinson, M., & Rogers, J. (2018). Applying Contextual Anomie and Strain Theory to Recent Acts of Corporate Deviance. Journal of Theoretical & Philosophical Criminology, 10, 71–92.
    10. Trex, E. (2008, December 23). Who was Ponzi -- what the heck was his scheme? Retrieved from
    11. Zuckoff, M. (2006). Ponzis Scheme: The True Story of a Financial Legend. Random House.
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