Ponzi schemes

Reference the Madoff 10 Years Later: Ep. 1 | Madoff Behind Bards (Links to an external site.) (Links to an external site.) video.

A Ponzi scheme occurs when a fraudster uses deposits of new investors to pay off previous investors; no real investing is happening. A Ponzi scheme will collapse if new clients don’t invest, or their investments are too small to fund a decent return to previous investors.

Ponzi schemes are based on trust and greed. The fraudster develops trust by building a relationship with the investors. The fraudster usually gains trust through their actions, their professional, social, or religious affiliations, and personal references. Fraudsters exploit the greed of their investors, who see a chance to obtain higher returns than usual. Because the investors trust the fraudster, they do not perform their normal due diligence.

In March 2009, Madoff pled guilty to 11 federal crimes and acknowledged turning his broker-dealer business into a substantial Ponzi scheme that defrauded investors out of billions. Federal investigators believe that the fraud began as early as the 1980s and the whole thing was possibly never legitimate. The fraud totaled almost $65. On June 29, 2009, Madoff was sentenced to the maximum 150 years. In 2021, he died in prison.

Madoff was once the chair of NASDAQ and often spoke about the securities industry on CNBC. Madoff took advantage of his connections in the investment community and made it seem like it was an honor to invest with him. A Ponzi scheme can only