Madoff's "Ponzi Scheme"

It just unthinkable and unbelievable as well, a list of the rich and famous people in Hollywood, like Steven Spielberg and other well known actors and actress, Larry King of CNN, and several financial institutions like UBS of Switzerland could be deceived in a Ponzi Scheme like in Madoff's mouse trap, which actually had been happening from time to time since long time ago.

The fact is that Madoff never put all the investors' money in either NASDAQ of NYSE, instead he just deposit them in The Chase Manhattan Bank. The high rate of interest paid by Madoff's firm "Bernard Investment Securities LLC" is just a trick to attract more investors, where actually it just impossible illusion to have an average profit 0.4% over the LIBOR. In 2009 Madoff, a Jewish descendant, born in Queens, NY, in 1938, sent to jail for life. The message is clear, do not be greedy buddy!!! and watch out your step !!!

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected 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. While the system eventually will collapse under its own weight, the recent example of Bernie Madoff powerfully illustrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for log periods: Madoff's variant of the Ponzi Scheme stands as the largest financial investor fraud in history committed by a single person. Prosecutors estimate losses at Madoff's hand totalling $64.8 billion.

The scheme is named after Charles Ponzi,^[1] who became notorious for using the technique in early 1920. He had emigrated from Italy to the United States in 1903. Ponzi did not invent the scheme (Charles Dickens' 1857 novel Little Dorrit described such a scheme decades before Ponzi was born, for example), but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth.( Wikipedia)