How Bernard “Madoff” With Everyone’s Money
By now, you probably know the story of Bernard Madoff and how he scammed billions from seemingly wise investors. Often called a Ponzi scheme, Madoff essentially borrowed from Peter to pay Paul, making it look like everyone’s portfolios were
gradually increasing with each passing month, regardless of the market. The purpose of this post isn’t to explain Madoff’s business schemes (there will be several links to that below) but rather to explain a Ponzi scheme.
Ponzi schemes (named after Charles Ponzi) are essentially pyramid schemes in which money coming in gets passed forward (or up the pyramid) where a portion is paid out. For those “investing” early on, that’s fine, but for the late comers who don’t have any money coming in behind them (or below them on the pyramid), they will be left with empty pockets and angry fists.
Ponzi schemes are illegal and are often masked as investment vehicles. In other words, the leader (such as Bernard Madoff) isn’t revealing the scheme but rather presenting false returns to the “investors” until the jig is up. For Madoff, the jig was worth about $50 billion.
Read on:
WSJ article describing Bernard Madoff’s practices
Another WSJ article about Madoff
WSJ article about pyramid schemes
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