A Ponzi scheme is an investment in which promises of high profits are made. The people involved promote fictitious investments. These investments never see the market and are pocketed. It is very important that you understand these types of investments to protect all your assets.

The people that try these types of schemes will promise that you will make very high profits and urge you to sink everything you have into their "investments".

The Ponzi scheme first stepped out when a man by the name Charles Ponzi performed the scheme. He promised his clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons (IRC) in other countries and redeeming them at face value in the United States as a form of arbitrage.

Charles Ponzi used many aliases such as Charles Ponei, Charles P. Bianchi, Carl and Carlo.

He had an idea to sell advertising in a large business listing to be sent to various businesses. Ponzi was unable to sell this idea to businesses, and his company failed.

A short while later he recieved a letter from a company in Spain. They were intrested in his listing. Inside the letter was a postal reply coupon. The purpose of this coupon was to allow someone in one country to send it to a correspondent in another country, who could use it to pay the postage of reply.

IRCs were priced at the cost of postage in the country of purchase, but could be exchanged for stamps to cover the cost of postage in the country where redeemed; if these values differed, there was potential for profit.

He started his own company, the "Securities Exchange Company", to promote the scheme.

By July of 1920 Ponzi had made millions off this scheme.

The Postgrew suspicious of Ponzi and started a series of articles on Ponzi's great investment opportunity. They hired a man named Clarence Barron a financial analyst who published Barron's financial papers.

Barron discovered that although his investments were making great returns, Ponzi and his company made no investments in this opportunity.

Barron found that in order for this opportunity to make money and stay affloat that there had to be 160,000,000 postal reply coupons in circulation when in fact there were only about 27,000.

The United States Postal Service stated that these coupons were not being bought here at home nor abroad.

If they had been redeemed the purchase would far exceed the potential profits and would exceed all gross profits. So in other words the if coupons were purchased there would be no profit and all involved would go bust.

On August 10th federal agents raided the Securities Exchange Company and shut it down. There was no large stock of postal reply coupons. Two days later Ponzi himself was arrested with a federal indictment.

Ponzi spent time in jail after attempts to flee the country. He was released in 1937.

Later after his release he had a stroke and died in a charity hospital in Rio De Janeiro. He lost everything and died in poverty.