The Ponzi Scheme of Bernard Madoff

Many people have heard of Ponzi schemes, but most people do not know what a Ponzi scheme actually is. A Ponzi scheme is an investing operation in which the fund pays its investors with their own money or with money invested by other investors. All the money paid back to investors is money that was contributed to begin with. None of the money that is paid to investors comes from actual profits.

Berhard Madoff managed to pull of his Ponzi scheme for two decades. I personally find it extremely difficult to believe that someone could pull off a scheme of that magnitude for that length of a time without anyone picking up on it. Even Madoff himself could not believe that the SEC did not catch him. Madoff’s scheme was not uncovered until Madoff revealed that his entire asset management arm was “just one big lie.” Although it is hard to believe that a scheme like this could work, their were certain factors that helped him last as long as he did.

One reason Madoff was able to pull the wool over so many people’s eyes was that his reputation in the business world was top notch. He helped found NASDAQ stock exchange and served as its chair for a term. Because of these things people trusted that Madoff was knowledgeable about the business world. Also, beyond his stellar reputation, Madoff was extremely smart in the way that he ran his scheme. Madoff was able to get his investors their money promptly whenever they requested it. This helped build the trust of his investors. Although he could have reported outrageous profits like some Ponzi schemes, he chose to show moderate profits that were occurring at a consistent rate. This well execute plan help pad Madoff’s wallet for two decades.

That “one big lie” was used by Madoff to take an estimated $65 billion from his investors. It’s incredible to realize that he was able to make all of that money simply by tricking people. This is just another example of how you can’t be too careful when you are investing your money.