Bernard Madoff Ponzi Scheme – Former NASDAQ chairman Bernard Madoff ran his $50 billion hedge fund as a Ponzi scheme, paying investors fake returns from other investors money.
The Bernard Madoff Ponzi scheme unraveled Thursday when the FBI arrested the stock market legend at his Manhattan apartment and charged him with a single count of securities fraud.
Investors, ranging from hedge funds to wealthy individuals, entrusted their money with the 70-year-old Madoff. Madoff told senior employees of his firm on Wednesday that “it’s all just one big lie” and that it was “basically, a giant Ponzi scheme,” with estimated investor losses of about $50 billion, according to the U.S. Attorney’s criminal complaint against him.
“There is no innocent explanation,” Madoff said, according to the criminal complaint. He told the agents that it was all his fault, and that he “paid investors with money that wasn’t there,” according to the complaint.
“If the losses were $50 billion or even half that amount, it would be the biggest Ponzi scheme in history,” said Mark Schonfeld, the former head of the SEC’s New York office.
When markets are rising, schemes like this can be hard to detect “because the money’s flowing in,” said Schonfeld. “But when the market declines, people want their money back, and the whole thing collapses.”
“We are going to see a ripple effect of substantial amounts of money going to individuals and philanthropies that just went up in smoke,” former SEC Chairman Arthur Levitt said today. “I doubt that investors will get pennies back as a result.”
Bernard Madoff faces up to 20 years in prison and a fine of up to $5 million. The SEC has also fied a civil case against him. He was released after posting a $10 million bond secured by his Manhattan apartment.
And that’s the latest news on the Bernard Madoff Ponzi scheme.