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    Ponzi Scheme

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    sekhar564
    1) A Ponzi scheme is a fraudulent investment operation that pays returns to investors from money paid by new investors rather than actual profits. 2) Bernard Madoff operated the largest Ponzi scheme in history, defrauding thousands of investors of $18 billion through his wealth management business. 3) Madoff pled guilty in 2009 to operating this Ponzi scheme as early as the 1980s and was sentenced to 150 years in prison.

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    Ponzi Scheme

    Uploaded by

    sekhar564
    296 views9 pages
    1) A Ponzi scheme is a fraudulent investment operation that pays returns to investors from money paid by new investors rather than actual profits. 2) Bernard Madoff operated the largest Ponzi scheme in history, defrauding thousands of investors of $18 billion through his wealth management business. 3) Madoff pled guilty in 2009 to operating this Ponzi scheme as early as the 1980s and was sentenced to 150 years in prison.

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    1) A Ponzi scheme is a fraudulent investment operation that pays returns to investors from money paid by new investors rather than actual profits. 2) Bernard Madoff operated the largest Ponzi scheme in history, defrauding thousands of investors of $18 billion through his wealth management business. 3) Madoff pled guilty in 2009 to operating this Ponzi scheme as early as the 1980s and was sentenced to 150 years in prison.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    296 views9 pages

    Ponzi Scheme

    Uploaded by

    sekhar564
    1) A Ponzi scheme is a fraudulent investment operation that pays returns to investors from money paid by new investors rather than actual profits. 2) Bernard Madoff operated the largest Ponzi scheme in history, defrauding thousands of investors of $18 billion through his wealth management business. 3) Madoff pled guilty in 2009 to operating this Ponzi scheme as early as the 1980s and was sentenced to 150 years in prison.

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    of 9

    PONZI SCHEME

    &
    MADOFF INVESTMENT
    SCANDAL
    Introduction
    A Ponzi scheme is a fraudulent investment

    operation that pays returns to separate investors


    from their own money or money paid by
    subsequent investors, rather than from any actual
    profit earned.

     The Ponzi scheme usually entices new investors by offering return
    other investments cannot guarantee, in the form of short-term
    returns that are either abnormally high or unusually consistent.
    The perpetuation of the returns that a Ponzi scheme advertises
    and pays requires an ever-increasing flow of money from
    investors to keep the scheme going.
     The system is destined to collapse because the earnings, if any, are
    less than the payments.

     The scheme is named after Charles Ponzi, who became
    notorious for using the technique in early 1920. He
    had emigrated from Italy to the United States in
    1903.
     Ponzi did not invent the scheme, but his operation took
    in so much money that it was the first to become
    known throughout the United States.
     His original scheme was in theory based on arbitraging
    international reply coupons for postage stamps, but
    soon diverted investors' money to support payments to
    earlier investors and Ponzi's personal wealth.

    The Ultimate Unraveling of a Ponzi
    Scheme
    The catch is that at some point one of these things will happen:

     The promoter will vanish, taking all the remaining investment money
    with him/her.
     The scheme will collapse under its own weight as investment slows and
    the promoter starts having problems paying out the promised
    returns. Such liquidity crises often trigger panics, as more people
    start asking for their money, similar to a bank run.
     The scheme is exposed because the promoter fails to validate the
    claims when asked to do so by legal authorities.
     External market forces, such as a sharp decline in the economy will
    cause many investors to withdraw part or all of their funds not due
    (at least initially) to loss of confidence in the investments, but simply
    due to underlying market fundamentals.
    Madoff investment scandal
     Bernard Lawrence “Bernie” Madoff, 1938 is an
    American convict, who was a financier, and Chairman of
    the NASDAQ stock exchange. He is the admitted operator
    of the Ponzi scheme that might be "the largest investment
    fraud in Wall Street history".
     In March 2009, Madoff pled guilty to 11 felonies and
    admitted to turning his wealth management business into
    a massive Ponzi scheme that defrauded thousands of
    investors of billions of dollars
     Madoff said he began the Ponzi scheme in the early 1990s.
    However, federal investigators believe the fraud began as
    early as the 1980s, and the investment operation may
    never have been legitimate. The amount missing from client
    accounts, including fabricated gains, was $64.8 billion. The
    court appointed trustee estimated actual losses to investors
    of $18 billion.
     On June 29, 2009, he was sentenced to 150 years in prison with
    restitution of $170 billion. According to the original federal
    charges, Madoff said that his firm had "liabilities of
    approximately US$50 billion." Prosecutors estimated the size of
    the fraud to be $64.8 billion, based on the amounts in the
    accounts of Madoff's 4,800 clients as of November 30, 2008.
    Ignoring opportunity costs and taxes paid on fictitious profits,
    less than half of Madoff's direct investors lost money.
     Investigators have determined others were involved in the
    scheme. The U.S. Securities and Exchange Commission
    (SEC) has also come under fire for not investigating
    Madoff more thoroughly; questions about his firm had
    been raised as early as 1999. Madoff's business, in the
    process of liquidation, was one of the top market makers
    on Wall Street and in 2008, the sixth-largest.

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