Charles Ponzi (AKA Charles Ponei, AKA Charles P. Bianchi) was far from the first to invent this kind of scheme. He just put his name on it. He was an Italian immigrant who stumbled upon the International Postal Reply Coupon, a now defunct system of international postage. The price of IPRC stamps varied from nation to nation, and Ponzi convinced investors that he was buying the stamps cheaply in Italy, in huge bulk, and selling them for a profit in America. He promised a 400% return on investments and seemed to be making good on that promise. People actually paid him to take their money. Ponzi went, in 1919, from a penniless ex-con to a millionaire. In July of 1920 alone he made $420,000 - $5 million in 2019.
Then in August of 1920 the Boston Post asked the U.S. Post Office how many IPRC’s Ponzi had actually exchanged and found out the number was zero. He was using new investments to pay off old investors, and pocketing a substantial profit. By September of 1920 Ponzi was in jail. The vast majority of his investors lost everything. A team of accountants searched valiantly for months but were never able to reconstruct where all the money had disappeared to. After serving his sentence and being deported,. Ponzi told an Italian reporter not to feel sorry for his victims, “Even if they never got anything for it, it was cheap at that price,” he said. “It was easily worth fifteen million bucks to watch me put the thing over.” Evidently, darn few noticed. As a 16 year old high school student Tom Petters leased an office in downtown St. Cloud, Minnesota, out of which he sold stereo equipment to college students. When his father found out about the venture the budding entrepreneur was pulled up by his short hairs and forced to close it all down. But Tom was just starting slow.
In 1988 he formed The Petters Group World Wide (“Partnership Defined”), which eventually became a self described $2.3 billion investment group, with 3,200 employees. In June of 2002 Tom and Ted Deikel bought the name and inventory “Fingerhut”, which marketed overpriced novelty sunglasses and other items, from Federated Department Stores. A year later he bought eBid.com. Two years later he shelled out $246 million for Polaroid. They used own the "instant picture" business. In October 2006 he joined with Whitebox Advisors to buy Sun Country Airlines. In February 2007 he bought the marketing company Juice Media World Wide, and in November he became sole owner of Sun Country. In 2008 his acquisitions accelerated. He bought EducAsian in January, the magazine conglomerate Metropolitan Media Group in July and the charter airline Southwest Aviation and Enable Holdings, Inc., both in August.
During the summer of 2008, the moral pressure on insiders became so great that Ms. Deanna Coleman, vice president of operations for Petters Co., contacted the Security and Exchange Commission and the Federal Bureau of Investigation . And in September of 2008 the F.B.I. raided John’s home and offices, and those of Mr. Robert Dean White, Petters Group's Chief Financial Officer.Tom’s entire house of cards folded like…well, like a house of cards. Just a month prior to his personal Goetterdaemerung, Tom explained to the fawning students of the Carlson School of Management, “You’ve got to figure out how to leverage and move things forward and not backwards. Sometimes sideways and left and not always how you had anticipated.” But evidently Tom did anticipate what was coming because he is heard on one of the tapes the F.B.I. made with Ms. Coleman help, admitting he cheated on his taxes, and used an employee to create false documents to fool investors, but that he “didn’t know what choice” he had. I guess, in his mind, honesty was not a viable choice.The Feds alleged that for ten years Tom has been showing investors purchase orders to prove he was selling merchandise to Walmart. But when one investor finally checked with Walmart, the Arkansas firm said the P.O. numbers were fake and they had never bought anything from any of Tom’s many, many companies. This revelation led to a full Federal audit of PGW which showed $1.9 billion in the “in” drawer and $3.5 billion in bills in the “out” drawer. And since the Feds lack the creative accounting of Wall Street types, owing more than you own equals bankruptcy. Ah, if they only had the imagination of Tom Petters or Charles Ponzi or Donald Trump, they would know that being in debt was just another opportunity.
On 8 October, 2008, the following story appeared in the Minneapolis Star Tribune newspaper, written by Dan Browning., "...Coleman, 42, of Wayzata...pleaded guilty to a single charge of conspiracy to commit mail fraud. Her guilty plea was one of three Wednesday. Robert Dean White, 67, of Excelsior, and Michael Catain, 52, of Shorewood, also admitted to their roles in the scheme, which involved the creation of false bank statements and other documents that were used to trick investors into funding what they called a giant Ponzi scheme...White has agreed to help prosecutors with the case and could receive a reduced sentence if he provides substantial assistance....Allan Caplan, (Ms. Coleman's) attorney, said Coleman realizes that means she "will be penniless" for the rest of her life..."She wanted to bring it to a screeching halt,"
According to Wikipedia - Petters is incarcerated at the United States Penitentiary at Leavenworth Kansas. He will be eligible for parole on 25 April, 2052, when he would be 95 years old. I guess he did not cooperate very much at all.
William Cohan, the one time Wall Street investment banker and author, wrote a 2009 best selling book, entitled "House of Cards: How Wall Street's Gamblers Broke Capitalism." But, in truth, the story has been told before, a million times, and not just on Wall Street, or even Minneapolis. Honoré de Balzac actually put the reality of capitalism down on paper well over a hundred years ago, when he wrote, "The secret of a great fortune made without apparent cause is soon forgotten., if the crime is committed in a respectable way."
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