Game Sold Not Told: Madoff’s $65 Billion Ponzi Scheme
BY JAMES “BIRD” GUESS
Wall Street investor conman, Bernie Madoff, made off with billions of investor’s money and on December 10, 2008, he confessed to orchestrating an estimated $65 billion “ponzi scheme,” that is considered the largest act of investor fraud ever by a single person. On March 12, 2009, Madoff appeared in court and pled guilty to 11 felonies. He faces a maximum sentence of 150 years in prison, and will also have to pay mandatory restitution and fines estimated at $170 billion.
After prosecutors froze Madoff’s accounts and seized his business and personal assets, they accounted for only $830 million. Prosecutors are expected to investigate members of Madoff’s family as well. Former investors who contributed to Madoff’s investment funds, who profited and cashed out, may be asked to return some of their “false profits” to remaining investors in order to make them whole.
Despite the billions in losses, fines, and public outrage, Madoff did not implicate any other person who may have known or helped him pull off this sophisticated scam, instead he went out solo. What!! Are you telling me one man pulled off the largest investment scam in history by himself? Yeah right!
Federal investigators definitely have their work cut out for them, but I would not be surprised if some of them profited from it and knew the music would stop playing sooner or later. Beginning in 1992, The Securities and Exchange Commission (SEC) responsible for regulating the stock market and investment products, investigated Madoff’s firm eight times over 16 years, and his firm was cleared or paid small fines each time.
In 2005, financial analyst Harry Markopolos sent a detailed 17-page report to the SEC, accusing Madoff’s firm of operating The World’s Largest Fraudulent Hedge Fund. He even sent his report to the Wall Street Journal but editors declined to run the story. So lets not rule out that Madoff was aware of Markopolos’ report and could have compensated SEC investigators and editors of the Wall Street Journal to perpetuate his ponzi scheme.
What is a Ponzi scheme? It’s a scam named after Italian immigrant Charles Ponzi who in 1920 promised people 50% returns on their money in 45 days, and 100% returns in 90 days. The scheme operates by taking beginning investor’s money and using new investor’s money to pay off the beginning investors. For example, lets say I promised you that if you invested $100 with me, I would return $200 back in 30 days (100% profit).
Now all I ask is that you encourage more people to invest with me. Well, after you told your friend, he comes in one week later with his $100, and I will now use his $100 and the $100 you originally gave me to pay you the $200 I promised you in the beginning. Got it? I will encourage your friend to advertise for me as well and when new investors come in, I will use their money to pay him. Everything works so long as new cash continues to flow in, but eventually the music stops playing and the people who invested last will lose.
I can only imagine how the victims of Madoff’s ponzi scheme feel. So when it comes to your money, I strongly encourage you to always ask questions and continue reading and studying business, and finance so that no one can financially take advantage of you.
