Charles Ponzi is famous for inventing the Ponzi Scheme, which is a form of investment fraud where early investors are paid “profits” out of the capital paid in by later investors. Charles Ponzi was not the first person to employ such a scheme to defraud would-be investors, nor was he the last, but he did it so spectacularly that they named the scheme after him. In theory, Ponzi’s investors were putting their money into International Return Coupons, a kind of stamp that worked all over the world. He would make money by buying the Coupons in countries where the Coupons were cheap and selling them in countries where the Coupons were more expensive.

Ponzi promised investors a return of 50 percent in 45 days or 100 percent in 90. They could leave their money longer and most did. His Boston-based Securities Exchange Company had offices from Maine to New Jersey. Beginning with eight investors and $1600 in January of 1920, Ponzi was raking in almost $1 million per day by July. He raised about $20 million in seven months and attracted lots of attention. The federal government charged him with 86 counts of mail fraud and by Nov. 1 he was on his way to prison for five years.

When he got out of federal prison, the Commonwealth of Massachusetts brought its own set of charges. After three trials, in which Ponzi served as his own attorney, the state finally won and sentenced the “common and notorious thief” to eight to nine years. Out on bail pending his appeal, Ponzi fled to Jacksonville, Fla. and changed his name to Charles Borelli.

In Jacksonville, Ponzi started a new scam. Late in 1925, he bought 100 acres of swamp land in Columbia County at a cost of $16 per acre and subdivided each acre into 23 building lots which he advertised nationally for sale at $10 per lot. He called his company the Charpon Land Syndicate and advertised the lots as being near Jacksonville.

Ponzi also took in money from investors, promising a 200 percent return in 60 days. That was twice the return he had offered in Massachusetts.

Ponzi quickly abandoned his alias and by early 1926 he was back in court, this time in Duval County. He was sentenced to a year at hard labor. His attempt to flee under a new alias was thwarted when he bragged about his real identity to his shipmates. He was arrested in New Orleans and sent back to Florida and then to Massachusetts and then finally deported to Italy.

Since the beginnings of stock markets and investing there have been hordes of swindlers and con artists ready to separate you from your money. Almost all of these scams have in common a promise of great returns with no risk. If anyone promises you that sort of a deal, walk away. Without risk, there can be no reward. In the end, as an investor, risk is your friend. It is the risk that leads to the returns. You cannot separate the two.

Scott A. Grant is President of Standfast Asset Management in Ponte Vedra Beach. He welcomes your comments or questions at scottg@standfastic.com.