The Collapse Of Bernie Madoff's Ponzi Scheme

A Ponzi scheme is a type of investing scheme that is a scam in the sense that it promises good returns or high yields to investors with very little risk. However, not all investors will receive their money back because a Ponzi scheme works like ‘pyramid’ as it involves a redistribution of money from a large pool of new investors to old investors in the scheme, and once the money received from new investors is not enough to sustain and pay back the promised yields to old investors and enough for the coordinator to reap the benefits, the scheme will collapse. Ponzi schemes can continue for many years and the chances of it collapsing is enhanced during low economic activity or crashes in the market. The word ‘Ponzi’ originates from Charles Ponzi, who in the 1880s was the coordinator of one of these schemes. Charles was not the first to coordinate a scheme like this, but ran one of the longest

Bernie Madoff was a Ponzi schemer that did not offer excessive returns, but promised duration and consistency and had a good reputation which resulted in him attracting many investors. Bernie Madoff was caught in December 2008. He was accused for money laundering and theft and sentenced to 150 years in prison. Madoff had the capability of getting away with this scheme for over a decade because of his reputation. He was considered an ‘expert’ when it came to investing and was a member of the “National Association of Securities and Dealers” while also being involved in the development of the NASDAQ stock market. [Yang, 2014]. Madoff’s scheme started to fall through when investors who were encouraged to continue investing in order to keep the scheme running, requested their money back. This caused the scheme to collapse as Madoff had less than 3% of the requested