Ponzi Scheme - 865 Words

Ponzi Scheme Corporate Finance A Ponzi scheme is an illegal business practice in which new investor’s money is used to make payments to earlier investors. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. The returns are repaid out of new investors’ principal, but not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once. Ponzi scheme is named after Charles Ponzi, known as the Father of the Ponzi scheme and the infamous swindler, who paid out returns with other investors†¦show more content†¦He had started his business with a loan of $200, but within months he had two offices in Boston with a staff of dozens of employees processing sales, and he bought a modest mansion for $35,000. Of course, there were no actual profits, Ponzi had not actually bought the IRCs, and he paid early investors with the funds derived from later investors. This only worked well for him because of the rapid payments made to investors. People saw what he could do and they wanted in, so he was selling the IRC’s quickly and convincing people to reinvest their funds, he was able to postpone his financial obligations even longer. By the time the scheme collapsed his income was estimated at $1M per week, and late coming investors were defrauded of between $7 - $15M. The downfall started from some investigative journ alism, this led to the District attorney getting involved and Ponzi being charged. Most of Ponzis gains were seized in an involuntary bankruptcy hearing, and what little remained was spent in his subsequent legal battles. Ponzi’s scheme was exposed by newspaper reports in 1920 and despite his claims of innocence, a federal audit confirmed his operation was bankrupt, owing almost $4 million or more to investors. After investigation, Ponzi was charged with 86 counts of mail fraud and sentenced to five years in federal prison, and while incarcerated on federal charges heShow MoreRelatedPonzi Schemes : A Ponzi Scheme2297 Words   |  10 Pages A â€Å"Ponzi scheme† is defined by the SEC as investment fraud, that incorporates remuneration of professed returns to old investors from funds contributed by new investors. It could be thought of as a systematic process, requiring consistent fraudulent action and deceitfulness. Usually Ponzi schemes are generally short in length, but Madoff’s lasted for almost 30 years. In simpler terms, a Ponzi scheme is built upon the idea of robbing Peter to pay Paul, when in essence no real investment is made (MoafRead MorePonzi Scheme1146 Words   |  5 PagesPonzi Scheme Keller Graduate School Forensics Accounting The Bernie Madoff scam truly made history. Bernie Madoff probably would not have been able to prolong this scam without the continued help of the Accounting Firm of Friehling amp; Horowitz CPAs PC, who at last reported purported to audit financial statements and disclosures of Madoff firm for the last 17 years. Ponzi schemed to help Madoff by trying to go undetected because of Friehling deceiving investors and regulators by declaringRead MoreThe Scheme Of Ponzi Scheme1809 Words   |  8 Pagessugar up the schemes in order to make it look like a real one. Typically, scam makers claim they are savvy or skilled at investing. A Ponzi scheme is one of the common frauds in life. It is a special type of illegal pyramid operation (Wells, 2010). The scheme organizers promise high rates of return with little risk to investors. In many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay the earlier investors and may keep some for themselves. Ponzi scheme is predestinedRead MoreA Report On The Ponzi Scheme1627 Words   |  7 PagesExecutive Summary This report provides a breakdown and assessment of the Ponzi scheme run by American swindler and former stockbroker, investment advisor, and financier Bernard â€Å"Bernie† Madoff. The research draws attention to the biggest fraudulent scheme in U.S. history, emphasizing the use of the so-called Ponzi scheme. Madoff used a variety of techniques that made it difficult to disclose the scam. 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The term Ponzi scheme was developed with the first known con artist in such an attempt, Charles Ponzi, who in 1920 advertised that he could payout a 50% return on investments in only 45 days. As individuals throughout New Jersey and New England began investing, and somet imes mortgaging their house to do so, Ponzi was taking in millions of dollarsRead MoreHistory of the Ponzi Scheme Essay612 Words   |  3 PagesHistory of the Ponzi Scheme Is named after con man Charles Ponzi, a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.(SEC, 2013) . Typically Ponzi Schemes entice investors with ensuring higher returns rather than alternative investments, in the form of short-term returns that are either abnormally high or remarkably consistent. Top broker, Bernie Madoff, was found guilty of this scheme, which will furtherRead MoreMadoff Ponzi Scheme And Whistleblowers1151 Words   |  5 PagesMadoff Ponzi Scheme and Whistleblowers Due diligence is â€Å"A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.† (Oxford Dictionaries). Every investor and self-respecting business should do their homework before trusting any other business with their money. Fairfield Greenwich Group claimed a loss of $7 billion that has â€Å"vaporized† with Bernie Madoff (Blodget, H., April 1, 2009). The Fairfield