To understand the mechanics of a Ponzi Scheme, click below:
What was the biggest Ponzi Scheme of recent times?
On June 29, 2009, Bernard Lawrence Madoff was sentenced to 150 years’ imprisonment in US federal prison.
Operating the largest Ponzi scheme ever, which resulted in the defrauding of the clients of Madoff Securities by a total of between USD10bn and USD17bn – there’s still some doubt as to the exact amount – over 20, maybe even 30, years.
What had happened, though it may seem hard to believe, is that he had taken money from investors, including professional fund of funds (FOF) managers, investment managers from pension funds and the like, pretended to make profitable investments using stocks and derivatives, while all the time enriching himself and his family, and paid out “profits” to investors using money received from later investors. This is the classic model of a Ponzi scheme - and it is, of course, fraudulent.
Unfortunately Bernie Madoff is not going to be the last of his type – there will be others, perhaps they're doing it now – and it’s up to future fund managers and supervisors to put two and two together.
So we need to learn.
To find out more, check out this ebook, by anonymous trader, based in Japan, who tracked Bernie M through his career tells the story of Madoff, how he got away with it for so long, and what the lessons are.