Wall Street fund as Ponzi scam

Bernard Madoff–a major Wall Street money manager, former president of NASDAQ, and a pioneer of online investing–has confessed that his investment company is nothing but a colossal Ponzi scheme and that all of its $50 billion is gone. Many prominent Jewish charities and formerly rich socialites have lost everything. From $50 billion at stake after Wall St broker Bernard Madoff is arrested over ‘world’s biggest swindle’ :

The FBI claims that three senior employees of Mr Madoff’s investment firm turned up at his apartment on Wednesday to ask questions about the company’s solvency. Two of them are believed to be his sons, Andrew and Mark, who have worked for their father for two decades.

Mr Madoff told them that he was “finished”, that he had “absolutely nothing”, and that “it’s all just one big lie”. He said the investment arm of his firm was “basically a giant Ponzi scheme”, and that it had been insolvent for years.

A Ponzi scheme, named after the swindler Charles Ponzi, is a fraudulent investment operation that pays abnormally high returns to investors out of money put into the scheme by subsequent investors, rather than from real profits generated by share trading.

The FBI complaint states that Mr Madoff told his sons that he believed the losses from his scheme could exceed $50 billion. If that is the case, his fraud would be far greater than past Ponzi schemes and easily the greatest swindle blamed on a single individual.

For the fallout see this. For the impact on charities see this.

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  • Peter Leavitt

    The best of financial advisors that manage client funds use reputable brokers as custodians of the funds. For example, I use an advisor that specializes in value stock investing. The funds involved are located in a TDAmeritrade brokerage account which the advisor is authorised to move around but can’t take a dime from.

    Investors who hand their funds over to any individual or small group are well known to be naive by knowledgeable people in finance. The wealthy people involved in this scandal were remarkably stupid.

  • Carl Vehse

    Ponzi Scam?!? What… like Social Security.

  • Don S

    LOL! Exactly, Carl. But when the government does it, it is a necessary social welfare program.

  • Michael the little boot

    Anyone else find it funny this guy’s name is Madoff? As in “Made off with everyone’s money”!

  • Michael the little boot

    Hey, Carl and Don: are you two not going to collect social security when you retire?

  • Carl Vehse

    With my 401K becoming more like 0.00401K , retirement won’t be happening in the near future. And by the time I do retire, the SS will be handing out less money that I got as a kid from the tooth fairy.

  • WebMonk

    Nobody here is going to be collecting any significant amount from SS unless they’re planning on retiring within the next 5-10 years. The options are to trim SS WAY back, jack taxes through the roof, go for bankruptcy, or start printing mega-bucks. It’ll be some combination.

    Assuming there won’t be a US bankruptcy, then there will be higher inflation, higher taxes, and lowered SS benefits. I have yet to talk to anyone who is under 40 and believes they will get anything more than a pittance from SS. And I’ve never talked with anyone who was still working who was using funds from SS as a significant part of their retirement planning.

  • Michael the little boot

    Yeah, I’m young, so I probably won’t be able to retire. I was trying to ask the question to Carl and Don without assuming their ages. If they’re close to my age (I remember Don saying he was not), then they’re in the same boat.

    I just know my dad, who is retired, likes to complain about social security a lot…while he collects it.

  • Don S

    Michael: I will be 50 on my next birthday. I am not counting on collecting any SS benefits, but if some are still available, I will take what I can get, to hopefully recoup a small percentage of the money I have put into the system over the years. At that point, you and my kids will be paying me. 🙂

    Webmonk has it right. After seeing the way the government is handling the current downturn, I would bet that, for the most part, the government will handle the funding shortfall by printing more money. It will ultimately accept high inflation as the most politically palatable option, as opposed to eliminating benefits or jacking up taxes sufficiently enough to fund the system legitimately. A side benefit of this is that hyper-inflation will erode seniors’ own retirement savings sufficiently that they will be much more reliant on SS benefits, thus making them good, needy political constituents, primed to vote for the party that promises them the most goodies.

  • Michael the little boot


    If I’ve got the cash, I’ll pay for you, pal! 😉

    This crisis is definitely giving the powers-that-be an opportunity to grab more power. What you suggest is probable, given they’re only interested in telling us about goodies to keep us eating out of their hands. I’m not holding my breath for any of them to make things better for us. I’m holding my breath one or more of us will, though. That’s my Pollyanna side for you!

  • Don S

    Thanks, Michael. And I hope you are right. There are some great young kids coming up in the next generation, as well as in your’s, and the leadership of some of those young people may surprise us all. I know that my generation seems to be letting us down, that’s for sure.