Question

The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based

upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing

customers. The greater the payout to retiring and withdrawing customer, the more revenue or

clients he would need to start and ―investment relationship‖ with Madoff. The Ponzi scheme was

named after Charles Ponzi who in the early 20th Century, saw a way to profit from international

reply coupons. International reply coupons were a guarantee of return postage in response to an

international letter. Charles Ponzi determined that he could make money, legally, by swapping

out these coupons for more expensive postage stamps in countries where the stamps were of

higher value. While making a significant profit with this system, Ponzi got the idea of enticing

investors to provide him more capital to trade coupons for higher priced postage stamps. His

promise to investors was a 50% profit in a few days.

Touted as a financial wizard and the ‗Warren Buffet‘ of his day, Ponzi lived outside Boston, he

had a fairly opulent life bringing in as much as $250,000/day. Part of Ponzi‘s success came from

is personal charisma and ability to convince even well-aware investors. The promised payout

was supported by the new investors anxious to take advantage of these robust returns because he

appeared to create an image of power, trust, and responsibility. In July of 1920, the Boston Post

ran an article exposing the scheme and soon after, regulators raided his offices and charging him with mail fraud knowing that his fabricated investment reports were mailed to his clients. The

foundational operating principle of a Ponzi scheme is that you must constantly attract new

investors to pay the old investors the ‗gains‘ they were promised. Most Ponzi schemes self-

destruct fairly quickly as the ability to keep attracting new investors d Q 2. After reading this case study, what did you learn? How does a Ponzi scheme really work?

Q 3. Do you think Bernard Madoff engaged in creating a Ponzi scheme because of greed or

did he employ it as a short term strategy and just caught up in a process he could not

reverse?

Q 4. In a narrative format, discuss the key facts and critical issues presented in the case.​

Answer 1

Answer:

not. got the answer. I have to think