How to make money with Ponzi Scheme

I thought of giving this post a title of "The Biggest Ponzi Scheme ever" but ended up with "How to make money with Ponzi Scheme".

What is Ponzi Scheme

First of all, Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.

Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.

Make money with a giant Ponzi Scheme

Bernard Madoff, a trading veteran of Wall Street for almost half a century, was on Thursday arrested by federal agents a day after telling two senior staff that his wealth advisory business was "a giant Ponzi scheme", according to a report in The Wall Street Journal.

Filing a civil complaint, the Securities and Exchange Commission said it was an ongoing $50bn (€37.5bn) fraud, and urged a judge to seize the firm and its assets. More at Veteran Wall Street broker arrested over ‘giant ponzi scheme’ ...

Madoff - The master of Ponzi Scheme

Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud Thursday in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion.

Madoff, 70, of New York, was charged with one count of securities fraud, according to a statement from the Acting U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation.

The Securities and Exchange Commission filed a complaint in federal court in Manhattan seeking an asset freeze and the appointment of a receiver for the firm run by Madoff. More at Madoff arrested in alleged Ponzi scheme ...

U.S Government running the biggest Ponzi Scheme

The U.S. Treasury has not been able to keep up with the monetary demands from the Fed which lead them to request the authority to print their own debt. In what has to be considered a ridiculous run up in the national debt of late, this move just compounds the potential problems. This is leading some people to question the validity of U.S. sovereign debt. Is the U.S. government running the biggest ponzi scheme in history? It sure seems like it. More at U.S. Debt Offerings: The Biggest Ponzi Scheme In History? ...

The biggest Ponzi Scheme in history

Hedge funds, already heading for their worst year on record, may lose at least $10 billion from investing with a New York firm that founder Bernard L. Madoff called “a giant Ponzi scheme.”

The biggest loser may be Walter Noel’s Fairfield Greenwich Group, whose $7.3 billion Fairfield Sentry Ltd. invested with Madoff’s eponymous firm, three people familiar with the matter said. Another client was Kingate Management Ltd., whose $2.8 billion Kingate Global Fund Ltd. invested with Madoff, they said.

Investors, ranging from hedge funds that depend on outside managers to wealthy individuals, entrusted their money with the 70-year-old Madoff, who told employees before his arrest yesterday that his firm was “one big lie” and may have cost clients as much as $50 billion. His confession comes with hedge fund assets poised to fall as low as $1.1 trillion by Jan. 1 from $1.9 trillion in June, reflecting market losses and customer redemptions, analysts at Morgan Stanley estimate.

“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 U.S. Securities and Exchange Commission’s New York office, who is now a partner at Gibson Dunn & Crutcher LLP. More at Bloomberg - Madoff ‘Big Lie’ Hits Fairfield Sentry, Kingate Funds ...

Ponzi Scheme in India

Ponzi schemes are not new for India’s financial sector. The country’s first mutual fund scheme — US64 managed by UTI — which ran into a crisis in
mid-2000 was seen as being operated like a Ponzi scheme. So is the employees pension scheme.

The Indian mutual fund industry, which has made considerable progress over the past four years, appears to have improvised on this as the recent experience of fixed maturity plans (FMP) show. Mutual fund houses were almost running a quasi-Ponzi schemes through FMPs, whereby investors of the older FMP schemes were being repaid with the money invested by the investors in new schemes, as a fund manager admitted. It was this practice that the market regulator Securities and Exchange Board of India (SEBI) wanted to put an end to, when it revised rules to ensure that close-ended schemes cannot have assets with a maturity beyond that of the scheme. More at SEBI's measures in MFs could lead to orderly growth of FMPs ...

UPDATES:
* Mar 11, 2009 - Bernard Madoff To Plead Guilty
* Dec 12, 2008 - Bernard Madoff sure made lots of money

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