The economy boomed during the Roaring Twenties and rising incomes gave ordinary Americans access to enticing new conveniences, including washing machines, refrigerators, cars and other luxuries that would have once seemed unattainable.
But for many, that wasn’t enough.
With newly-minted Wall Street millionaires flaunting their mansions and opulent lifestyles in a style akin to the protagonist of F. Scott Fitzgerald’s 1925 novel The Great Gatsby, it was easy for an average Joe to dream big and envision parlaying a few dollars in hard-earned savings into a similarly vast fortune.
That eagerness played right into the hands of the Roaring Twenties’ legions of fast-talking promoters, charlatans and outright swindlers, who enticed the would-be wealthy with scores of seemingly foolproof schemes—from stock in companies that didn’t really exist, to speculation in Florida real estate or California oilfields, to Boston-based conman Charles Ponzi’s promise that investors could make a 50 percent return in 90 days’ time by investing in a bizarre plan to redeem overseas postal coupons.
Boom Times Invite Risk
In some ways, the get-rich-quick schemes were the inevitable by-product of an optimistic era in which anything seemed possible.
“The frontiers of capitalist innovation always attract investment scams, and there were many such frontiers in the 1920s, fed by technological invention—radio, airplanes, telephony, electrification, chemical breakthroughs—and the associated more general economic boom of the era,” explains Edward J. Balleisen, a professor of history and public policy at Duke University and author of the 2017 book Fraud: An American History from Barnum to Madoff. “Those frontiers suggest the potential—and actual example—of great riches, and boom times make credit easier to obtain.”
People wanted to follow the example of heroes such as automobile mogul Henry Ford and aviator Charles Lindbergh, who had dared to dream. “These men were celebrated for their pluck, courage and daring,” says Nate Hendley, author of the 2016 book The Big Con: Great Hoaxes, Frauds, Grifts and Swindles in American History. “Intentionally or not, the message that filtered down to the public was: Be bold. Courage is good. Don’t be timid. In other words—don’t hesitate to invest your cash!”
Prohibition also played a role in making the citizens susceptible, according to Hendley. “It turned street-corner thugs such as Al Capone into millionaires. Average, law-abiding citizens had no problem buying illegal booze from such people. Once citizens had crossed that moral line and started frequenting illegal speakeasies and buying black-market booze, they naturally became more receptive to sleazy but enticing pitches to invest in get-rich-quick schemes.”
The Original Ponzi Scheme
At the same time, many people lacked the financial literacy to understand the difference between investing in a legitimate company and a scheme such as the one operated by Ponzi, an Italian immigrant who claimed to have become a wealthy man through sheer ingenuity and hard work.
“Americans love a rags-to-riches story,” Hendley says. The Boston-based Ponzi told investors that he’d discovered a way to make a fortune by buying Spanish mail coupons and redeeming them for U.S. stamps, to take advantage of the weakness of Spanish currency. In reality, Hendley explains, what Ponzi actually did “was simply take money from new investors and give it to old investors, without actually investing in anything tangible…in other words, he merely recirculated cash.”
Some 40,000 investors entrusted Ponzi with $15 million. But after U.S. postal inspectors started probing his scheme, it collapsed, and Ponzi went to prison. Many of his investors refused to believe they’d been conned and hung on to his worthless certificates.
A Millionaire Oil Baron Who Wasn’t
Though the scam became known as a Ponzi scheme, its namesake wasn’t the only one who perpetrated it. In Chicago, Leo Koretz, an immigrant from Bohemia, made a mint selling shares in supposedly lucrative rice plantations in Arkansas that didn’t actually exist, as well as in a logging company that he claimed owned land with oil beneath it.
“Koretz was an accomplished actor who lived a lie for most of his life, playing the role of millionaire oil baron who was willing to share his success with his relatives and friends,” explains Dean Jobb, a journalism professor at the University of King’s College in Nova Scotia and author of the 2015 book Empire of Deception: The Incredible Story of a Master Swindler Who Seduced a City and Captivated a Nation.
“He operated his grandly named Bayano Syndicate swindle for almost 20 years, far longer than any Ponzi scheme survived until Bernie Madoff’s multi-billion-dollar fraud was exposed a decade ago.”
Koretz promised and delivered high returns, and this attracted more investors and money to keep his pyramid scheme afloat, Jobb says. He also managed to convince many of his investors to reinvest their paper profits in more worthless Bayano stock—in effect, conning them twice.
Florida Land Speculators
Florida, which attracted northerners who were eager to escape the winter weather, also became a paradise for land speculators, who bought properties at cheap prices and sold them for large profits. Some of the speculators never actually went to Florida themselves. Instead, they hired young agents who stood out in the hot sun and convinced buyers to put down a non-refundable down payment on a parcel.
Many of the purchasers couldn’t afford to actually pay off the loans; instead, they were gambling that land prices would rise even more, so that they could resell and walk away with a profit. Eventually, though, the market stalled, prices fell, and many were stuck with properties worth far less than they’d expected.
Sales of Elusive Oil Wells
The growing demand for petroleum to fuel automobiles also led to oil drilling schemes concocted by promoters who mailed out literature and handed out flyers that promised a fabulous return. Some even chartered buses to round up potential investors and drive them out to the oil fields for a look-see.
As described in a Los Angeles Times review of Jules Tygiel’s 1994 book The Great Los Angeles Swindle: Oil, Stocks and Scandal During the Roaring Twenties, one of the most audacious promoters was Courtenay Chauncey “C.C.” Julian, who bought newspaper and radio ads in which he cajoled, “You’ll never make a thin dime just lookin’ on.”
Julian attracted $2 million from 40,000 small investors and actually used it to drill wells and open a chain of gas stations. But after authorities began to suspect him of cooking the books and other improprieties, he sold his collapsing company and avoided a mail fraud indictment by fleeing to Shanghai, where he committed suicide.
Wall Street Scams
Wall Street offered its share of get-rich-quick schemes as well. With stock prices rising, small investors were tantalized by the prospect of bigger returns on their savings than bank accounts would pay in interest. But they had no way of knowing that the market was being manipulated by wealthy investors.
One infamous 1920s scam was the Radio Pool, in which manipulators drove up the price of RCA stock, took their profits, and left other shareholders to watch helplessly as their shares sank. To make matters worse, many small investors were enticed into buying shares of companies on margin—essentially, with loans that they had to repay out of their pockets if the stock price went down.
The proliferation of get-rich-quick scams in the 1920s was so intense that titans of industry began to worry about the con artists and fly-by-night firms’ corrosive effect on the system, even if they were willing to look the other way at the misrepresentations that their own kind sometimes perpetrated.
“Members of the business establishment saw the worst frauds as economic parasitism that gnawed away at the profits of legitimate firms, and potentially undercut broader public confidence in markets, and capitalism, more generally,” Balleisen explains. “At least occasionally, those business leaders fretted about the potential threat posed by Soviet communism.”
That angst led to the rise of private-sector watchdog groups such as the Better Business Bureau, a nationwide organization formed in 1921 that investigated and alerted the public to unscrupulous operators, and increasing aggressiveness by government regulatory agencies.
With the Wall Street crash of 1929, the prosperity that had funded the rise of get-rich-quick schemes vaporized. The money may have dried up, but the allure of easy wealth had become a permanent part of the American psyche.
“The notion that anyone can be a millionaire was strong in the 1920s,” Hendley says, “and never went away.”