Stunning Swindle Costs Investors $50 Billion
The biggest swindle ever blamed on a single individual unraveled last night when Bernard Madoff was arrested by police. His $50 billion scam will cost rich investors all over the world and may financially ruin many of those that invested in the Madoff’s scheme.
For several years, Madoff has been running a Ponzi scheme, where returns abnormally high returns are paid to older investors from the money from new investors.
The FBI claims that three senior employees of Mr Madoff’s investment firm turned up at his apartment on Wednesday to ask questions about the company’s solvency. Two of them are believed to be his sons, Andrew and Mark, who have worked for their father for two decades.
Mr Madoff told them that he was “finished”, that he had “absolutely nothing”, and that “it’s all just one big lie”. He said the investment arm of his firm was “basically a giant Ponzi scheme”, and that it had been insolvent for years.
A Ponzi scheme, named after the swindler Charles Ponzi, is a fraudulent investment operation that pays abnormally high returns to investors out of money put into the scheme by subsequent investors, rather than from real profits generated by share trading.
The FBI complaint states that Mr Madoff told his sons that he believed the losses from his scheme could exceed $50 billion. If that is the case, his fraud would be far greater than past Ponzi schemes and easily the greatest swindle blamed on a single individual.
The swindle was discovered as many of the people involved tried to get their money out. Because there is no money to get out, people start asking questions, and the scheme eventually unravels. In this tight economy, the U.S. may see more investors pulling out of such funds. Whether or not there are more $50-billion bombshells out there is a question only time can answer, as all of these scams eventually collapse.