Bernie Madoff Ponzi Scheme

Bernie Madoff is an American financier who executed the largest Ponzi Scheme in history. He duped thousands of investors out of tens of billions of dollars over the course of at least seventeen years. But what exactly is a Ponzi Scheme, and how did Madoff execute his so successfully over an extended period of time?

A Ponzi Scheme is a form of fraud that lures investors and pays profits to earlier investors, using the funds from later investors. Victims of this scheme are lead to believe that their profits are coming from product sales or honest means, all while not knowing that it actually comes from other investors. Madoff would claim to generate large returns through a legitimate trading strategy called split-strike conversion, but actually deposited client funds into one bank account that he used to pay more recent clients. He was able to fund all this by continuing to attract new investors and their capital. His extremely high returns were enough to persuade clients away from suspicion. When clients wanted to redeem their investments, he funded the payouts with new capital, generated through his reputation for these mega returns. In turn, Madoff gained the trust of many victims. 

Madoff would also portray an image of exclusivity, often turning away many clients. In addition, he put up a facade of generosity, doing charitable work to impress investors. Eventually, he was unable to keep the fraud up when the market hit a downturn in 2008. He confessed to his sons, who worked at his firm but were, according to him, unaware of the Ponzi Scheme, and they ended up turning him over to the authorities. In 2009, Madoff would plead guilty to eleven federal felonies. He was sentenced to 150 years in prison. Overall, the Ponzi Scheme became a symbol of the greed and dishonesty that was commonplace on Wall Street. 

Sources:

https://www.investopedia.com/terms/b/bernard-madoff.asp