Charles Ponzi’s Swampland Scandal
Charles Ponzi, the infamous con man whose surname is the namesake for the Ponzi scheme, was one of the first notable con men in U.S. history to swindle people looking for their slice of the American Dream. Swampland in Florida, a figure of speech derived from this famous 1925 scam, now refers to real estate scams in which a seller misrepresents unusable land as developable property.
Charles Ponzi’s Profile
Ponzi, an Italian immigrant, gained fame in 1920 as the owner of the Boston investment company that claimed to pay out 400% in profit to investors in a complicated postage business. Inherently, Ponzi recruited people in Italy to buy postal reply coupon vouchers in bulk from companies with weak economies, and he would then redeem the voucher in the U.S. for postage stamps to earn a profit. He called his company the Securities Exchange Company, but the transactions were anything but secure. Looking to boost his business, Ponzi started seeking out investors and promised returns of 50% in 45 days or 100% in 90 days. These claims sounded too good to be true — because they were. He would use the money from new clients to pay existing investors while pocketing significant sums for himself.
Per Mental Floss, “The Boston Post launched an investigation into Ponzi and revealed that in order for his business to be functional, he would need to be moving 160 million vouchers across world borders. There were only 27,000 postal reply coupons in circulation at the time.”
Ponzi collected an estimated $20 million from thousands of “investors” before the company crashed, which left investors penniless, brought down six banks, and ended with Ponzi in federal prison. He was released after serving more than three years and faced state charges before being found guilty. He was sentenced to an additional seven to nine years in a Massachusetts prison. However, Ponzi jumped bail and fled to Jacksonville, where he would begin his next villainous venture: real estate scams.
Ponzi’s Swampland Scam
In September 1925, Ponzi set up a real estate business, Charpon Land Syndicate to sell “prime Florida property.” In reality, Ponzi purchased 100 acres of swampland east of Jacksonville for $16 an acre, or about $250 an acre today. He then subdivided each acre into 23 plots, advertised it as prime Florida land, and sold each plot for $10.
Less than six months after founding his fraudulent property company, Ponzi was indicted for violating Florida’s trust and securities law. Ponzi might have gotten away with it too, if it wasn’t for his ego. Being a well-known criminal in the U.S. by the time he started the scam in the Sunshine State, Ponzi’s shell company Charpon wasn’t clever enough to throw law enforcement off his tracks.
He was found guilty and sentenced to a year of hard labor in the Florida State Prison. Soon after, he was freed on a $1,500 appeal bond, and he tried to return to his homeland by boarding a freighter that was bound for Italy. The ship made one last American port call in New Orleans, and at that stop, Ponzi was captured and eventually extradited to Massachusetts to serve out his prison term there. After being released from prison in 1934, he was deported to Italy, though he later emigrated to Brazil. In 1949, a penniless Ponzi died in the charity ward of a Rio de Janeiro hospital.
As it turns out, crime doesn’t pay — at least, not in the long run.
Most Common Real Estate Scams
While you don’t have to worry about Ponzi coming back from the grave and conducting more real estate scams (we hope), you’re still responsible for protecting your clients’ interests and should be aware of common real estate scams and schemes. Here are the five most common real estate scams to keep an eye out for:
1. Escrow wire fraud: Scammers claiming to work with your client’s title or escrow company will reach out to them with instructions on where to wire their escrow funds. Fraudsters will go to great lengths to enact this ruse, even setting up fake websites that appear similar to the title or lending company your client is working with, making their request seem like the real deal.
2. Loan flipping: Loan flipping occurs when a predatory lender persuades a homeowner to refinance their mortgage repeatedly, often borrowing more money each time.
3. Foreclosure relief: Homeowners who fall on hard times and get behind on their mortgage payments can become desperate to save their homes. Scammers will swoop in with offers of foreclosure relief to capitalize on homeowners’ vulnerability. In reality, they’re just collecting a large upfront fee with no real intentions of helping the homeowner.
4. Rental scams: Scammers post fake property rental ads on Craigslist or social media using photos from other listings to lure in unsuspecting renters. Fraudsters, who have no connection to the property or its owner, will ask for an upfront payment to let your clients see the property (or hold the money as a “deposit”).
5. Moving scams: Your client has found a new place to call home, and now they have to find a way to move all of their belongings. They might fill out a form for a moving company estimate, outlining all their items, and receive an estimate for $4,000 to ship them from their current home to their new one. Once this is done, the “company” will raise the estimate and corner your client into paying more to give their belongings back.