The “Ponzi Scheme”, a scheme named after swindler Charles Ponzi, is a situation where earlier investors are paid using the funds given by the money brought by new investors. In a Ponzi scheme, there are very few physical assets or even very few financial investors come on board to invest. The end of a Ponzi scheme begins to manifest itself once the owner cannot keep up with the required payments. For this case, Bernie’s Ponzi scheme come out as one of the infamous deed that could be discussed further.
Bernie’s Ponzi scheme
Bernie Madoff was born on 29th April 1938. Bernie started with a working capital of $5000 this money who got of his savings that he made. Madoff registered Bernard L. Madoff Investment Securities, a brokerage firm, which had $200 worth of assets and had no liabilities. He got an office space, which was given to him by his father in law.
Madoff hired DiPascali and Daniel Bonvenvre who helped him to create a fraudulent record to help him to continue with the trade that never existed. His brokerage firm was very successful and helped him to continue with the fraud business that never really was. Bernie was almost caught in 1970s when his father in law retired and gave his CPA business to his two employees. The two employees Avellino and Bienes later renamed the company and made a lot of profit which they gave to Bernie to invest. In 1992 a client was employed by Avellino and Bienes, the recruited client shared the company’s marketing material with Seattle an investment adviser firm. The firm research on the firm and found out that the company was unregistered investment firm and hence suspected a Ponzi scheme.
Bernie was almost caught again in 1999. Frank Casey of Rampart Investment Management Company wanted to do business with Rene Magon, a wealthy French investment fund manager. Rene had been investing with Bernie. They gave one of the Rampart investment manager who was highly skilled a task to check on the Bernie’s investment before they could invest with Rene. The manger from Rampart Investment studied the materials from Bernie’s investment and proved that mathematically they were fraud.
Bernie’s two main businesses lost huge amount of money in the early 2000s when the economy entered recession. He continued to bank more on his private accounts while on the side pressurizing his workers to look for more investors who could bring more money into the business. Most of his money he was using for his family lavish living, for example after four years, he gave his wife $21 for her shopping spree. His brother Peter bought an expensive weekend home in the Hamptons for his daughter.
The SEC continued to receive complains alleging that Bernie was running a Ponzi scheme and between 2003 and 2004 the SEC decided to investigate on the claims that they were receiving. SEC was surprised to find out that Bernie’s investment firm was not registered and when he was asked he said he had less than 15 clients which was a big lie. Pressure continued and SEC continued to receive complains from people. The clients who invested in Bernie’s investment started withdrawing. Bernie tried to loan huge amount of money from the banks but could not get. 2008 marked the end of Bernie’s investment, the scheme shocked both his two sons and his brother who had no idea that he was running a Ponzi scheme.
The two sons reported their father who was later arrested by the FBI agents and confessed he was involved in a Ponzi scheme which he started in 1991 and he knew one day he will be arrested. Bernie Madoff after pleading guilty was given a jail term of 150 years which is projected will end in the year 2039.
