Bernie Madoff Ponzi Scheme

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Bernie Madoff Ponzi Scheme

Communications II
Formal Report

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Table of Contents
Cover Page…………………………………………………………………………………..page 1 Title Page…………………………………………………………………………………….page 2 Introduction………………………………………………………………………………..page 4 What is a Ponzi Scheme?.................................................................page 5

Origine of the name Ponzi Scheme……………………………………..page 6 How did he do it?.........................................................................page 7-8 How did he get caught?.............................................................page 9-10 Who did it affect?.....................................................................page 11-12 Conclusion…………………………………………………………………………………page 13 Recommendation………………………………………………………………………page 14 Bibliography/Sources…………………………………………………………………page 15

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Introduction

Can you trust anybody with your money? Only 5 years ago, the largest, longest and most widespread financial scheme in history, took place: The Bernie Madoff Scandal. Bernie Madoff was found guilty for robbing his investors of billions of dollars. He didn't just con fat-cat billionaires and celebrities (such as Kevin Bacon and Steven Spielberg); individual investors, banks and even charities lost money in the scheme. In this report I will be bringing you on an adventure to dig up the truth of what really happened back in 2008. We will determine how Bernie and his accomplices achieved their goal, learn how people suffered from this scandal and discover how Mr. Madoff’s scheme came crumbling down before his very own eyes.

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What is a Ponzi Scheme?
A Ponzi scheme is a deceitful investment operation that pays returns to its investors from their own cash or the money paid by future investors, instead of from profit attained by the individual or organization running the operation. The Ponzi scheme typically entices new investors by providing higher returns than alternative investments, in the form of short-term returns that are either abnormally high or remarkably consistent. Prolongation of the high returns requires an ever-increasing flow of cash from new investors to keep the theme going. This type of system is destined to collapse. The earnings, if any, are less than the payments to investors, therefore causing the scheme to unravel. Usually, the scheme is interrupted by legal authorities before it collapses. . As more investors get involved, the chances of the scheme coming back to the eye of authorities will increase. If the Ponzi scheme is not caught by the authority, it eventually falls apart on its own. Reasons for falling apart:

1. The scammer will vanish, taking with him all the money invested money that remains. 2. When the investment begins to slow down, the scammer will start having trouble to repaying his investors. This will cause a panic within the investors as they will all ask for their return back at the same time, causing the scheme to crash. 3. External market forces, such as a sharp decline in the economy cause many investors to withdraw part, or all of their funds. 1920 police mugshot of Charles Ponzi, the namesake of the scheme The term Ponzi originates from 1920. It is named after a man named Charles Ponzi. Charles was born in Parma, Italy and arrived in Boston in 1903. Ponzi earn his place in the history books by being a scammer who paid out returns with other investors’ money. He reportedly made $250,000 a day. In 1920, his scheme came crumbling down when an investigation of his returns set off a run on his company. His investors got scared and withdrew their money all at the same time, causing the company to crash. Ponzi was then arrested, owing an estimate of $7 million and spent 14 years in prison.

Here’s an example to better understand how a Ponzi...
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