| A Ponzi scheme is a fraud that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit. |
It is named after Charles Ponzi, who simply applied the concept to the arbitrage of International Reply Coupons.
|Ponzi's scheme eventually brought down six banks. His investors were practically wiped out, receiving less than 30 cents on the dollar. Investors lost about 20 million in 1920 dollars (225 million in 2011 dollars); as a comparison, Bernie Madoff's similar scheme that collapsed in 2008 cost his investors about 10 billion dollars, 40 times the losses of Charles Ponzi's scheme.|
|Investigators tried to trace Ponzi's convoluted accounts to figure out how much money he had taken and where it had gone. They never managed to untangle it and could conclude only that millions had gone through his hands. Ponzi spent the last years of his life in poverty, working occasionally as a translator. He died in a charity hospital in Rio de Janeiro, on January 18, 1949.|