Bernard Madoff Arrested for Ponzi Fraud Scheme
What are some of the interesting statements made about the arrest of Bernard Madoff.
- Bernard Madoff founder of Bernard L. Madoff Investment Securities
- Arrested by the FBI
- Charged with criminal securities fraud
- May become the biggest financial story of the year
- A former chairman of the Nasdaq stock market
- Charged with a $50 billion securities fraud
Who else is hiding corruption, fraud and mismanagement? Is googles sucess story based upon fact or computerized fiction?
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December 11th, 2008 at 6:34 pm
A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (”profits”) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi. A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.
A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) an ever-increasing flow of money from investors in order to keep the scheme going.
The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. Ponzi’s original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors’ money to support payments to earlier investors and Ponzi’s personal wealth. Today’s schemes are often considerably more sophisticated than Ponzi’s, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté.