Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What was Charles Ponzi convicted of?

1. Tax evasion

2. Fraud

3. Insider trading

4. Money laundering

The correct answer is: Fraud

Charles Ponzi was convicted of fraud due to his role in a scheme that promised high returns to investors based on the concept of arbitrage in international postal reply coupons. Ponzi's operation attracted numerous investors, but it became clear that he was generating returns for earlier investors by using the capital of new investors rather than through legitimate business activities. This type of operation is fundamentally deceptive and is classified as fraud because it involves misrepresentation and abuse of trust in order to secure financial gain unlawfully. This historical case gave rise to the term "Ponzi scheme," which describes similar fraudulent investment scams where returns to earlier investors are paid using the contributions from later investors, rather than from profit earned by the operation of a legitimate business.