Ponzi Scheme

Describe a Ponzi scheme. Find several examples of other Ponzi schemes that have occurred in recent years.

In December 2008, one of the largest Ponzi scheme surfaced when Mark and Andrew Madoff reported the works of their father, Bernard Madoff to the federal authorities. A Ponzi scheme is an investing scam that promises high rates of return with little risk to investors. The operator generates returns for older investors by gaining new investors. Bernard was arrested on December 11, 2008 and charged with securities fraud. He pled guilty to 11 counts and was sentenced to 150 years in federal prison-the maximum possible prison sentence. A reported $17.3 billion was invested into the scam by Bernie’s clients and only about $2.48 billion have been returned to these victims as of September 2012.

Many times in a Ponzi scheme the offender targets people they do not know personally but not Madoff. He had family, friends, employees and even charities and non-profit organizations as investors. “He tapped local money pulled in from country clubs and charity dinners, where investors sought him out to casually plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting” (Colesanti, 2012). “Levy invested $100,000” for Dell’Orefice, who felt honored to be a part of the “exclusive fund” (Lewis, 2010). Sheryl Weinstein, who was a friend of Madoffs for nearly 24 years, lost her entire savings to Madoff’s Ponzi scheme. “The charitable foundation of philanthropist Carl Shapiro had invested about 45 percent of its assets ($345 million) in Madoff's fund” (Auerbach, 2009). It is “estimated that Madoff's scam cost Jewish philanthropies at least $600 million, and

According to Investopedia.com, “A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.” Charles Ponzi was a businessman in the early 1900s. His scheme was promising his client’s 50% return within six months. When in fact, Charles Ponzi was using later investors’ money to give back to the early investors. This financial scheme has been repeated several times since then but in smalls ways changed. The most famous in recent news is Bernie Madoff. Bernie Madoff was a hedge fund investor. As a very famous hedge fund investor, Bernie Madoff was entrusted with individuals’ entire savings (cbsnews). In return, Madoff “cooked” his books and almost always had a positive return. Only in one month out of the year did Bernie Madoff record a down month. According to a 60 minute episode, this is equivalent to a hitter in baseball hitting, .960 (cbsnews). In the end Bernie Madoff lost almost all of his investor’s life savings. So this is another case of the Ponzi except at a bigger scale. These examples prove that although one could be wealthy, they always want

A Ponzi scheme involves the wooing of potential investors through "too good to be true" promises of returns on their investment. A skilled conman named Charles Ponzi is who the scheme is named after, and the Ponzi scheme entails the investors being repaid from the investments of new investors until old investors attempt to withdraw all their money at once and new investors can't funnel money into the scheme fast enough. The scheme then falls under its own weight.

Ponzi faked is death and sneaked on to a ship as a dish washer. He eventually told someone who he was and was captured several months later in Galveston Texas. Ponzi served 9 years in prison and was deported to Italy October 7 1934 with only $70 in his pocket.

Ponzi schemes are based on fraudulent investment managements. So essentially investors invest money to a "portfolio” and then promised a very high return (usually with little to no risk), and then when those investors want their money back they are paid back with the new funds contributed by the latest investors. The person usually in charge of the Ponzi scheme is in control of the entire operation, with no extra levels or middle men. These “managers” simply transfer funds from one client to another and never actually make any real investments. The investor is not aware of

Bernie Madoff used a Ponzi scheme which lures investors by guaranteeing astronomical returns using unorthodox “investment strategies” with the hopes that, both the investor base will grow exponentially and the returns will not be called upon sparingly (Yang, 2014). For Madoff, the unsustainability of the Ponzi scheme began to unravel when Madoff presented $200-$300 million albeit, his clients” request for $7 billion in returns (Yang, 2014). Therefore, it is logical to suspect that Madoff’s financial figures both documented and reported were compromised; an observation alluded to by a Madoff associate, Mr. DiPascali, who according sources, admitted to manipulating the returns of several clients, jiggering them up or down -- phantom gains added

Ponzi schemes are named after Charles Ponzi who started the pyramid formation with an investment of stamps. There have been many Ponzi schemers and Bernard Madoff is one of the Ponzi schemers who created the biggest scandal in the world.

The Ponzi scheme today is seen as fraudulent investment operation. It all starts with a central operator who promises investors incredible returns that cannot be found in the market today, convincing the investor that they use secret trading techniques that work. Early investors are eventually given the promised returns which are paid for with the investment of later investors. In reality there is no actual business and no profit produced, the whole operation consist of only invested money minus a cut for the man or women running the scam. Early investors who are unaware of the scam are very satisfied with their returns and encourage friends and family to invest with the Ponzi operator, the word spreads like wildfire. It is for that reason that the scammer does not need to advertise. In the case of Charlie Ponzi, he was able to promise investors at the time a shocking return of 50 percent in only 90 days. He told these investors that

Allen Stanford’s Ponzi scheme is considered to be one of the top grossing Ponzi schemes that have been at the forefront of white collar crime. As stated on the U.S. Securities and Exchange Commission website, “a Ponzi scheme is an investment fraud that involves the payment of purported returns to earlier investors by the contribution of new investors that promises to generate high returns with little or no risk” (Sec.gov). These schemes take advantage of people who put their faith in the offender out of trust or any other personal reason and in the case of Allen Stanford it is no different.

Ponzi fooled thousands of investors, he promised huge earnings on international reply coupons, which could be acquired in one country and used for postage stamps in another country. The income would be the difference in price between the two countries. He converted a millionaire in a few months, but the scam took him down. Some parties started to investigate the accounts because there weren 't enough international coupons for his investment strategy to function. Actually, Ponzi was paying his investors with newer investors ' money, staying with a huge quantity. In a few months, Ponzi acquired $20 million, equivalent to $222 million in current dollar values, and six banks crumbled. On the other hand, Bernie Madoff, a respectable financier, used the famous Ponzi scheme, which attracts investors in by warranting high revenues. As mention before, Ponzi schemes consisted in using money from new investors to pay off the guaranteed returns to the older investors. This makes the investment look valid and profitable, even that was not generating any profit. In Madoff 's case, things began to complicate after clients demanded a total of $7 billion back in returns. Unfortunately for Bernie, he did not have enough money to give back to his investors. According to CNNMoney, he only made $20 billion, even though he cheated investors out of $65 billion.

The premise of a Ponzi scheme is more smoke and mirrors. Investors are made to believe they are receiving a return on their investments when in actuality their return is just a new investment from a new investor. This is just a vicious cycle of money coming in, money going out. Eventually, a Ponzi scheme will run out of new investors leaving those waiting for an unfunded

This cohort believes there is nothing wrong with investments especially if you are investing in the rights things. The bible says, “For where your treasure is, there your heart will be also” (Matthew 6:19-21). Notwithstanding, everyone should guard themselves against illegal and unethical Ponzi Schemes. Not to sound so spiritual, but in this cohort opinion, the first thing to do to ensure that Ponzi schemes like Bernard Madoff do not happen in the future is the pray, considering even the best can be tricked just as so many professionals before. Ponzi schemes are illegal and unethical and will bring hurt, pain, and anguish especially for those who are last to participate.

This paper introduces Bernard L. Madoff a fraudster who orchestrated a multi-billion dollar Ponzi scheme. The paper discusses elements that make up a Ponzi scheme and explains what a Ponzi scheme is. The paper goes on to introduce some of the victim’s and examines some reasons why someone might fall victim to a Ponzi scheme. The paper describes the three elements making up the fraud triangle and how they relate to the fraud and the fraudster. This paper covers Bernard Madoff’s background and history and how he committed the fraud analyzing the fraud triangle. The paper describes ways to correct the issue, accounting principles violated, and recommendations for a fix. Finally, the paper looks at internal and external controls violated and ends with a conclusion.