When did the Ponzi scheme start?

I said to a friend this week that I’m working on a fictional new book about a Ponzi scheme. She turned to me and said “you know that he wasn’t the person who created the Ponzi scheme?”  Intrigued, I made the mistake of asking “what?” and suddenly you go down a rabbit hole.

Who created the first Ponzi scheme?

Let’s begin by getting back to basics and stuff you probably already know: what is a Ponzi scheme?

A Ponzi scheme is a scam that pays out huge returns to new investors by using the money of early investors. There are no actual profits or investments that create wealth. It's just a waterfall of money or a House of Cards if you prefer. It’s a sham, scam.

Why is it called Ponzi?

It's called a Ponzi scheme because it was named after Charles Ponzi, an Italian con artist who ran a large-scale investment fraud in the 1920s. But he was not the first because, as my friend pointed out, Adele Spitzeder came before him.

Who was Adele Spitzeder?

Adele Spitzeder was an actress with the stage name Adele Vio, but she was also a shyster, hustler and con artist. She opened a bank in 1869 and was known as being the wealthiest woman in Bavaria at that time. The thing is that she had no qualifications or capablilites to run a bank and soon the authorities closed it down and took her to court.

The thing is, when the bank was closed, a lot of people had invested in the belief that she could be trusted. 32,000 people lost 38 million gulden (a Bavarian currency of the 19th century), the equivalent of almost €500 million today, and caused a wave of suicides.

Strangely enough she tried to open another bank after leaving prison in 1876, and lived on the support of some of the people she had hustled until finally leaving earth with a heart attack in 1895.

But it made me think: when did the hustle begin? Who was the first hustler? Who did a Ponzi scheme before Ponzi?

Well, there were many as it seems. Jacob Young, William Abrams, Nancy Clem ran what could be considered the first Ponzi scheme in the USA in the 1860s, as did Sarah Howe who ran the “Ladies' Deposit” scheme which offered 8% monthly interest to women before stealing the funds.

The thing is that this is nothing new. Digging into the vaults of time, I discover there were many Ponzi-like schemes even back in Greek and Roman times.

For example, a prominent scam was to sink your ship to get the insurance. Merchants took out bottomry loans, which were insurance policies written off if the ship sank. Merchants would then deliberately sink their own ships to defraud the lenders.

In the second century another scam involved a man named Glycon who created a fake snake god, Glycon, at Abonoteikhos. He established an “oracle” that provided fraudulent prophecies for money, effectively an ancient confidence trick that exploited people's trust and belief. There was even a guy Marcus Crassus, who would rush to the scene of a fire with a cohort of slaves with water buckets but wouldn’t put out the fire until the owner sold him the house for a bargain price.

These are not Ponzi schemes as such, but it just goes to show that wherever there is money, there will be people who want to hustle, con, scam and steal. It’s human nature.

 

Postscript: this reminds me of the famous old story of bank robber Willie Sutton who was asked: “Why do you rob banks?” and replied “Because that’s where the money is.”