History of the Ponzi Scheme Essay

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History of the Ponzi Scheme
Is named after con man Charles Ponzi, a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.(SEC, 2013) . Typically Ponzi Schemes entice investors with ensuring higher returns rather than alternative investments, in the form of short-term returns that are either abnormally high or remarkably consistent. Top broker, Bernie Madoff, was found guilty of this scheme, which will further be discussed below
The essential elements of a Ponzi scheme.
These types of schemes are better understood by using an example, for instance say you collect $100 from each investor and promise you will double it in a month. But, you do not invest their money, you instead pay them with funds from a larger successive rounds of investors. In the first round, the schemer takes $100 each from the first two investors. Because the scammer pockets the 200$, he needs to find 400$ ̶ four new investors in the second round to pay returns promised. In the third round, he owes $800, so he has to find eight new investors. As the scheme multiples it ultimately requires an unsustainably gigantic pool of investors to keep it afloat. By the 9th round, the schemer will need to find a new group of 1024 investors and by the 17th round he/she will have to come up with 250,000 investors.
Background on Madoff’s scheme.

In 2008 Bernard L. Madoff, former Nasdaq Stock Market chairman was arrested back…