Ponzi scheme

William H. McMasters: The Man who Exposed the Ponzi Scheme

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By Ken Zurski

William H. McMasters was all ears.

In 1920, when an Italian immigrant and dreamer named Charles Ponzi walked into the Boston publicist’s office to promote his business, McMasters listened.

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Charles Ponzi

Ponzi was using investments to buy postal coupons internationally and reselling them for profit in the U.S. It was totally legal and ingenious.

Ponzi needed to recruit more investors and McMasters was just the person to do it. “I was not averse to having a millionaire as a client,” McMasters later remarked.

McMasters immediately set up an interview at The Boston Post, which was an instant boon for Ponzi. Everyone wanted in. Everyone that is, except McMasters.

The numbers didn’t add up.

the_lockport_legend.pngPonzi was recruiting new investors, but far too many. The amount of postal coupons was limited so the promised return was higher than the take. Ponzi knew this, but didn’t tell. McMasters went back to the Post.

The editors were interested in exposing Ponzi, but leery of the process. They didn’t want to get sued. So McMasters wrote an article titled “Declares Ponzi is Now Hopelessly Insolvent.” In it, he explained that Ponzi had invested none of his own money or personally bought any of the stamps.

He used investor money to pay returns, but didn’t know when to stop. Now there were too many investors, too much money owed, and not enough printed stamps to guarantee payouts.

On August 2nd , The Post ran the article and prominently  displayed it on the front page.

Image result for Declares Ponzi is Now Hopelessly Insolvent.

The next day,  the Ponzi scheme was over.

In the end, McMasters found only complacency in his role. While most investors angrily demanded their money back, there were a select few for whom Ponzi’s charm was too persuasive.

They still thought they were getting rich.

Eventually, they blamed McMasters, not Ponzi,  for their predicament.

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William H. McMasters