Essay about Madoff Scandal - Ponzi Scheme
In 1899, Brooklyn bookkeeper William Miller deceived investors with more than twenty million dollars in today’s money (Altman, 2009). Miller is considered the first person to successfully use this scheme in the United States (Altman, 2009). However, the scheme is named after another practitioner who promised a fifty percent return on investment within ninety day, Charles Ponzi (Altman, 2009). Even though the scheme is named after Ponzi, the essential elements of the scheme continued in subsequent decades which led to the long-running scheme of Bernard L. Madoff.
“A Ponzi scheme is an investment fraud in which earlier investors are paid returns using money contributed by later investors” (Columbia Electronic …, 2015, p. 1). Unfortunately for new investors, the scheme fails when current funds become inadequate to cover the required payouts of previous investors (Columbia Electronic …, 2015). In other words, it borrows from “Peter” to pay “Paul.” But when “Peter” does not have enough funds to cover the high-yield interest promised to “Paul,” the scheme collapses.
After Ponzi’s conviction in the 1920s for fraudulent investment scheme, there were other practitioners that duplicated the model, such as Earthlink’s co-founder scheme of 600 million dollars in 2003 (Altman, 2009). In addition, Minnesota’s businessman Tom Peters designed a plan to defraud investors out of 3.5 billion dollars (Altman, 2009). Nonetheless, Bernard L. Madoff…