Thursday, December 11, 2008

Bernard Madoff (Bernie Madoff) : Ponzi Scheme Arrest

Bernard Madoff (Bernie Madoff) : Ponzi Scheme Arrest
Bernard Madoff was the head of a multi-billion dollar hedge fund on Wall Street. Today, he was arrested for running a Ponzi Scheme.For financial beginners, I’m going to break this down to the very basics because this arrest is one of the biggest financial frauds in American history, and the ramifications are potentially enormous. People need to be informed.

First Some Info:

A Ponzi scheme is loosely defined as a fraudent investment scheme that involves promising high returns to early investors out of the money paid in by later investors. Basically, in a Ponzi scheme, the business only makes money by suckering more and more investors into pouring money into the fund. This is illegal because investors think they are investing in an underlying business that will generate profits and revenue and lead to long-term returns to the investors. The head of the scheme knows this will never happen.

A Hedge Fund is a private investment fund open to a limited range of investors that is allowed to engaged in a wider range of risky activities than most investment funds (i.e. your 401k, which is heavily regulated). Hedge funds are able to use methods not available to other investments, like short selling (borrowing shares to sell immediately on the open market), derivative contracts, and leverage (borrowing money to buy securities). Using these different methods allows the fund to “hedge” the risk, like a gambler “hedges” his bets by making a variety of bets.

Complicated? Yes, it is. As a matter of fact, very few people outside of Wall Street understand what hedge funds do and how they make money. There are very few regulations governing hedge funds because they are so complex. Also, generally, the Securities and Exchange Commission only lets really rich people invest in hedge funds.

Bernard Madoff, 70, is the founder of Bernard L. Madoff Investment Securities LLC, which has grown into a multi-billion institution since its founding in 1960. Public information on Madoff’s company is available here at its website.

Madoff’s company included a brokerage house and a hedge fund. According to state prosecutors, Madoff admitted to his staff this week that the hedge fund was “basically, a giant Ponzi scheme.” Investors have put in $50 billion into the hedge fund. If the hedge fund is in fact a Ponzi scheme, it has ZERO value. Basically, the vast majority of investors in the fund were just putting money directly into the pockets of Madoff and other early investors. In terms of dollar value, this may be one of the biggest frauds in American history (the Enron fraud was $63 billion).

In court today, state prosecutors charged Madoff with securities fraud. The maximum sentence is 20 years in prison and a fine of up to $5 million. Madoff is currently out on $10 million bail. The Securities and Exchange Commission is filing separate charges.

According to the Wall Street Journal, approximately $2 trillion are currently invested in hedge funds. The hedge fund world is the financial Wild West, with little regulation and very few people with an actual clue as to where the money is really going. Given today’s crisis in the financial markets, frauds like this may shake investors confidence in the hedge fund world. Hedge funds may be another card in the financial house of cards that is collapsing in 2008.


Anonymous,  February 10, 2013 at 2:47 PM  

Way cool! Some very valid points! I appreciate
you writing this article plus the rest of the site is really good.
My site > reputation management

Anonymous,  February 10, 2013 at 3:10 PM  

Eѵeryone loveѕ what уou guys tеnd to be up toо.

Ѕuch сlever worκ and expοѕurе!
Kееp uρ the amazіng ωorks guyѕ
I've added you guys to my personal blogroll.
my web page - bad credit payday loans

Anonymous,  February 10, 2013 at 11:58 PM  

Yes! Finally someone writes about cheap carpeting.
Take a look at my site :: Carpet Thoughts for 2011

Anonymous,  February 11, 2013 at 1:01 AM  

I waѕ eхcited tο finԁ thіѕ ρagе.

I want to tо thanκ you for οnes tіme
for this fantаstіc геad!

! Ι ԁefinitely rеally liked evеrу ρart of іt and i also haνe уou booκ markeԁ to
look аt new thіngs on yοur web sіte.
My web site :: vida vacations

Anonymous,  February 11, 2013 at 2:15 AM  

My famіly members аll the time ѕay that I am killing mу timе here at net, but ӏ
know І am gеtting know-hoω daily by гeaԁing thes pleasant articles.
Also visit my web page ...

Anonymous,  June 4, 2013 at 11:02 PM  

Howdy, i гeaԁ your blog from time to time аnd i own a similar one and i was just curious if you get a
lot of spam feеdbacκ? If so how do you protect аgainst it, аny plugin οr anуthing you can
advisе? I get sο much lately it's driving me mad so any help is very much appreciated.

Feel free to surf to my homepage ... lloyd irvin

Blog Widget by LinkWithin

About This Blog

All of the pictures,messages on this blog have been gathered from the internet, none of the images have been produced or scanned by me neither do I have the copyright on any of these images, The blog in no way intends to infringe on anyone's copyright. I guarantee I would remove the images immediately if it infringes anyones right. For any questions or suggestions please email me.Email :-

Blog Archive

  © 0

Back to TOP