Bernie Madoff's Ponzi Scheme

A Ponzi Scheme is a fraudulent investing scam which promises high returns, with little to no risk to investors. These high returns are generated for older investors, by the investment of new investors to pay their returns. As expected, these Ponzi Schemes start to unravel, and are exposed because eventually there will not be enough investors to pay for the previous investors. The name “Ponzi Scheme” originated from a man named Charles Ponzi in 1919, who is documented as orchestrating the first notorious Ponzi Scheme. Charles Ponzi ran this Ponzi Scheme with the use of postage prices. The Postal Service created international reply coupons, which allowed a sender to pre-purchase postage and include it in their correspondence. The sender would then bring the coupon to the local post office, and exchange the coupon for the stamp. Since the prices of the postage stamps fluctuated he would have sellers send international stamps and he would sell them at a higher price which allowed Charles Ponzi to generate a profit. This technique used by Charles Ponzi was not the Ponzi Scheme, but was him seeking an arbitrage opportunity. Charles Ponzi began to get greedy though.

Madoff was borrowing money, and was having a hard time paying off investors. The Global Financial Crisis of 2008 was the worst financial crisis since the Great Depression, and since the global economy was crashing, many investors were looking to liquidate their assets. Since investors were pulling their money from the scheme, and investors were uncertain about the market, new investors were skeptical about investing with Bernie Madoff. Since money began to fall out of circulation, obligations were unable to be paid. This unveiled Bernie Madoff’s Ponzi Scheme to the Securities and Exchange Commission. With this exposure, Madoff plead guilty to eleven counts of federal felonies, and sentenced to one hundred-fifty years in