The Man who Broke the Bank at Monte Carlo – Charles De Ville Wells – perpetrated several frauds during his career. His biggest scam was to set up a phony bank in Paris in 1911 offering an abnormally high rate of interest – one per cent per day! Attracted by such a generous offer, hundreds – perhaps thousands – of French citizens invested large sums of money. Before long, Wells had accumulated a sum worth about £3.3 million in today’s value.
The trick was that the first clients were being paid out of the money submitted by later customers. Naturally, such a scheme cannot continue indefinitely as the bank would soon run out of new clients, and some of the later ‘investors’ were certain to lose their money.
This type of fraud has come to be known as a Ponzi scheme. It’s named after Charles Ponzi, who set up a similar scam in the United States in 1920 – nine years after Wells’ operation. Ponzi offered clients 50% profit within 45 days or 100% profit within 90 days. In fact Ponzi’s scheme was so similar to the one established by Wells that I began to wonder whether Ponzi had copied Wells’ idea.
But was there any way that Ponzi could have known about a bank fraud committed almost ten years earlier on the other side of the Atlantic? With the help of an extremely useful website – Chronicling America – I discovered that Wells’ bank swindle seems to have been barely mentioned in the American press at the time, although an account did appear in the New York Times in early 1912 when Wells was arrested for the scam in question. Ponzi could have read about Wells, but we will probably never know whether he did so.
In fact, Wikipedia states that a similar fraud had been perpetrated by one William W. Miller as long ago as 1899. Perhaps it was Miller who inspired both Wells and Ponzi!