The Ladies' Deposit: Created by Women for Ripping Off Women

Illustration for article titled The Ladies' Deposit: Created by Women for Ripping Off Women

Although the 2008 exposure of the financial misdeeds of Bernie Madoff allowed Ponzi scheme to enter the day to day vernacular, these schemes are not at all a new creation. Ponzi schemes pay off initial investors using money from new investors, relying on a constant cycle of recruitment in order to prevent the ruse from disintegrating.


One early scheme, the Ladies' Deposit, succeeded in Boston during the late 19th Century. Created by Sarah Howe, a former fortune-teller, the Ladies' Deposit sought out small investments from single and wealthy women, promising a high rate of return under the guise of a charitable organization before toppling.

Illustration for article titled The Ladies' Deposit: Created by Women for Ripping Off Women

From fortune teller to financial vanguard
Widowed at the age of 24, Sarah Howe moved from Nashville, to her birthplace of New England where she worked as a clairvoyant and performed odd jobs. Howe often took on positions for which she lacked qualifications, including working as a physician, and spent multiple stints in a Boston-area sanitarium.

In April of 1879, the fifty-three-year-old Sarah Howe conceived an ingenious idea. She created a banking fund called the Ladies' Deposit, a fund that would become one of America's first successful Ponzi schemes.

A charitable organization
Sarah Howe advertised the Ladies Deposit as a charitable organization - a safe financial haven for women and only women. New members must be referred by other members, further ingraining the sorority theme of Howe's scheme, and wealthy female benefactors often set up accounts to benefit needy women in the Boston area.

Howe promised that deposits would earn 8% in interest a month, a phenomenal rate of earning. When compounded, this extremely high interest rate allows for a doubling of the initial deposit in just nine months.


Howe gathered money from over 1200 women in the Boston area. At its height, the Ladies' Deposit held over half a million dollars from local women, roughly $11 million in 2012.

Illustration for article titled The Ladies' Deposit: Created by Women for Ripping Off Women

Clever regulations
Howe cleverly instituted a rule in the Ladies Deposit allowing members to only withdraw their interest earnings. She claimed to use this rule in order to keep women from spending their money frivolously and prevent them from using the interest to survive.

This rule prevented Howe from becoming victim to large withdrawals, while allowing her to fund her scheme by using initial deposits from new members to pay for the interest payments of several others.


Sarah Howe never invested a dollar deposited into the Ladies' Deposit - she simply used money deposited by new members to make interest payments due to members with old accounts. As long as women lined up to join the Ladies' Deposit (one month saw 300 women join), Howe's investment plan could continue without problem.

A run on the bank
In September of 1880, the Boston Daily Advertiser initiated an investigation into the Ladies' Deposit, leading to the destruction of Howe's plan in only three weeks. The inquiry exposed the fragile nature of the Ladies' Deposit, scaring many investors.


The attacks from the Advertiser led to a run on the Ladies' Deposit, with Howe paying out $80,000 to furious members who wanted their money back. Boston authorities soon went after Howe, with Howe's finances in such disarray that she could not make her $500 bail. Howe spent 3 years in prison for creating and sustaining the Ladies' Deposit.

When released in 1884, Howe began to solicit more investors in a similar scheme. In a short time Howe raised another $50,000 before disappearing into retirement - not bad for a 19th Century woman entering her sixties.


Top image from the AP. The newspaper image is from the April 15, 1887 edition of The Day, while the painting is George Kilburne's "A young woman at a piano" (1880). Sources linked within the article.


Joel Rubin

So why in the hell do we call it a "Ponzi Scheme", if Ponzi didn't pull his off until 20 years later?