By Isaiah W.
Who Is Bernie Madoff?
Bernard Lawrence Madoff, also known as Bernie, was a financial advisor who started Bernard L. Madoff Investment Securities LLC in the early 1960s. As his business grew he promised investors high returns and claimed to use legitimate financial techniques in order to achieve these returns. However, In all actuality, Madoff was running the largest Ponzi scheme in history. But what is a Ponzi scheme?
What Is a Ponzi Scheme?
A Ponzi scheme can be used to describe many different types of fraud, however, Madoff used a very specific scheme, and to great success, I might add. Maddoff shuffled money around from investor to investor, taking money one client invested, taking a cut for himself, and giving what remained to another investor as their “returns” and once he got a new investor he would repeat the process. Scams like this had existed well before Maddoff even dating back to the 1920s, although never one to this magnitude. Madoff was able to swindle customers out of an estimated total of $64.8 billion (Reuters) over his seventeen years plus of scamming, and by the late 80s, he was estimated to be making just upwards of $100 million a year (Investopedia).
How Did it Last So Long?
But how did Madoff manage such large financial fraud for so long without being caught? Well, it not only took several instances of customers and business owners alike to do a whole lot of head-turning but also Madoff's legitimate knack for financial knowledge. Madoff's business scam-free was able to make plenty of profit all on its own, Madoff himself said “I had more than enough money to support any of my lifestyle and my family's lifestyle. I didn't need to do this for that” Investopedia. It was all the money Madoff had made in completely legal ways that made it so hard to detect his scam. He could use the money he made in legitimate business transactions to cover for all of his shady Ponzi scheming practices. Madoff also liked to use his Jewish heritage to target specific investors with similar heritage, such as the Elie Wiesel Foundation, the Women's Zionist Organization of America, Hadassah, and Steven Spielberg's Wunderkinder Foundation(The Wall Street Journal ). Despite how difficult it may be to identify a scam like this, there are still a couple of protocols you can undergo before trusting a new financial advisor.
How Can You Avoid It?
Research. Firstly it is important to do your research. This will help you eliminate the word of mouth factor, don’t just trust a friend's recommendation or personal experience. It may help to ask for printouts of paperwork they must file with the Securities and Exchange Commission.
Appear Skeptical. For smaller firms doing as much as appearing skeptical can be enough to get them to move to different clients, after all, one client isn’t worth ending the whole operation.
Understand Your Investment. It’s important to communicate with your adviser, know where your money is coming from and where it is going. There are plenty of books, and online resources you can use to help you better understand your specific investment. It will also help you to ask your advisor if your investment is registered, (not all investments need to be) if not, ask why.
Take-Aways
All in all, never work with someone without the proper paperwork. Don’t write a check to an advisory unwilling to answer questions. But most importantly trust your gut, if something feels fishy there are plenty more opportunities to find advisors you trust, so don’t feel pressure to pick your first. Stay safe!
Works Cited
“Bernie Madoff.” Wikipedia, Wikimedia Foundation, 19 Apr. 2021, en.wikipedia.org/wiki/Bernie_Madoff#cite_note-101.
Giorgianni, Anthony. “6 Ways to Avoid an Investment Ponzi Scheme.” Investopedia, Investopedia, 12 Feb. 2021, www.investopedia.com/articles/investing/091115/6-ways-avoid-investment-ponzi-scheme.asp.
Graybow, Martha. “Madoff Mysteries Remain as He Nears Guilty Plea.” Reuters, Thomson Reuters, 11 Mar. 2009, www.reuters.com/article/topNews/idUSTRE52A5JK20090311?pageNumber=2&virtualBrandChannel=0&sp=true.
Hayes, Adam. “The Bernie Madoff Story.” Investopedia, Investopedia, 14 Apr. 2021, www.investopedia.com/terms/b/bernard-madoff.asp.
“Madoff's Victims.” Madoff's Victim List - The Wall Street Journal, s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html.
I actually find it really impressive that he was able to pull of such a big scheme for so long. I wonder if it would have been easier, with his knowledge and experience, to run the company how it was actually supposed to be run. I think this just shows that people will do just about any thing for money which is actually really sad. I never had heard about scams such as this one, so it was very informative and I will ensure to be cautious if I use an advisor in the future.
ReplyDeleteAshley Anderson - Such an interesting topic! How did you hear about this event? Personally, I have never heard of Bernie Madoff's involvement in a Ponzi scheme. You did a very good job transitioning between who Bernie is himself, to the fraud he was involved in - not to mention wrapping your post up with how we can avoid scams like these. It's crazy to think how manipulate certain investors can be in the real world. It's so important to watch out for scams like these, to prevent yourself from falling into their "money trap". Overall, I thought your post itself was very insightful and I gained a lot of tips on how to avoid fraud/scams like this example.
ReplyDeleteWow this is crazy! Such an interesting topic! You did a great job breaking the whole thing down and explaining the individual parts. Scams are such a scary part of the real world, and this was a super intricate one so it makes sense that it was able to go on for so long. My grandma was almost scammed recently through a much simpler scam so I have been extra aware of the threats recently. You have to be very cautious to make sure no one takes advantage of you. I loved how your post provided a lot of tips on how to avoid fraud/scams. Great work, Isaiah!
ReplyDeleteLooking a bit more into this subject myself, I found that the primary reason his Ponzi scheme got busted was because he revealed to his two sons. Seeing as this scheme was also revealed on the cusp on the Great Recession, it'd be interesting to also analyze how the reveal of this Ponzi scheme affected the economy in 2008/2009. I enjoyed reading this blog post.
ReplyDeleteOMG, this is crazy how someone could pull this off for so long and get aways with it. Scams are such a scary part of this world and they happen all the time. It is definitely scary to think that someone is playing around with you and your money to make ten times more. How did you find out about this scam? Did you read about it somewhere or did you already know about it? It was a very well written articles and I could tell that you put a lot of time and effort into it.
ReplyDeleteI think it was interesting to learn how someone could scam people for such a long time. It makes you more critical of who you’re giving your money to. Personally, if I was going to get an investor I would do lots of research and probably ask friends or family members for a reliable company. I think it would be interesting to see how victims of the Ponzi scheme are living today and how much money each of them lost. Overall, I enjoyed reading your article and it gave great insight into the Ponzi scheme which I knew little about before reading.
ReplyDeleteThis was an amazing topic! You did awesome with the wording and how you split this topic into many different paragraphs, which really helps the reader see whats going on better. I personally hat scams and they are a huge waste of my time and can be very aggravating. I really enjoyed the read!
ReplyDeleteAlthough what he did was obviously very bad I find it very impressive that he got away with that for so long. You have to have some skill to even think about that yet alone lie to hundreds of people for 17 years without people catching on. I really liked reading this because I never knew this big of a ponzi scheme existed. This kinda reminds me about all of the cryptocurrency's in a way. On tiktok a lot of people or investors that many people look to for advise have been caught promoting some cryptocurrency's that they know arn't good buys but they are only promoting it because they were privately getting paid to say that. So basically was making money off their followers that would buy but then the followers lost a lot of money. Overall this was a very good blog, good topic, organization, and everything else.
ReplyDeleteI loved the way you organized this blog, it was so interesting to read and learn about something that I had never even heard of. From experiences with other family members, I know how dangerous Ponzi Schemes can be and I hope people learn from your blog in order to understand that they need to do their research about companies and find out if they can trust them or not. In your opinion, how many companies do you currently think are using a Ponzi scheme to scam their customers? One of my biggest financial fears is losing my money from a scam, so to know if I should really pay attention to all companies would help a lot. Even though I'm not very familiar with the Bernie Maddoff Ponzi scheme, the way you wrote about it was very informative and educational, nice job!
ReplyDeleteThis was a really unique and fun blog to read as I've never heard of this event before. I find it astonishing how someone with enough planning and time can really pull off the biggest scheme not only to one person, but to multiple. It could be potentially really frightening knowing that someone has full control over your money, and you to further benefit them without notice. I'm sure scams like these happen on an occurrence and take a heavy toll on some people because they're completely oblivious to the situation. I thought you talking about the prevention and every topic went together well and made this blog enjoyable to read. Great blog!
ReplyDeleteThis was very interesting to read, I can't believe their are people that get away with this kind of stuff! I feel like people are just not very cautious and don't pay attention to detail so people like him are able to get away with stuff which is pretty sad. This is why you definitely need to do some research about a financial advisor that you are considering about before you make any sudden decisions, you need to get familiar with them a bit and do your research because you never know. You did a great job!
ReplyDeleteWith the amount of financial aid programs online you cant help but think that lots of them are embedded with secrets and hidden details that you are not aware of always read your contracts in the smallest thing to cellphone bill to signing up for a premium bank card.
ReplyDeleteAs a person that really enjoys learning about history, I found this blog very interesting. This is a perfect example of why people should research financial advisors before hiring them. Form this, it probably wound be best to develop a friendship with the financial advisor.
ReplyDeleteThis was a good and very different topic to write about. I had never even heard of this guy or the scam that he was running. It’s insane to think that he was making upwards of 100 million a year and no one thought to maybe look into the business he was running. I thought it was a good idea to tie this back to personal finance and at the end go into some detail about how to stay safe and avoid getting caught up in a financial scam. But I would like to know, how did you come across this story?
ReplyDeleteI really like this article because it had a real life story and example of the world's largest financial scam which made is much more interesting to read. I am always curious on how to avoid scams especially because of how common they are these days. I really enjoyed this article as it was both informational and entertaining.
ReplyDeleteVery interesting topic and well explained. I was thinking of Jordan Belfort the whole time I was reading it because he too faced some legal battles. I was wondering if the people were getting returns higher than they put in. To be honest, I wouldn't care if I got profit through investing with him. Yes he gave my money to another investor, but if my return is bigger than what I put in, I wouldn't be mad. I would be investing with the mentality to cash out later in life. I would care though if I was losing my money.
ReplyDeleteI have heard about this scam from some where but I forgot what the scam was about. But one question I have is what happened to Bernie, and did the people get there money back from the scam that Bernie did.
ReplyDeleteI thought it was a very interesting topic, crazy to think that a scam like this was able to go under the radar for that long of a time period. I wounder if as technology gets better and better every day if we will soon not see scam to this large of an effect? Or will the scammers just get smarter along side with the new tech?
ReplyDeleteI was actually listening to this story earlier, on NPR as I was driving home from work. I got home before the story was done, but now I know more about it! The amount of money he made from this before getting caught is astounding. It makes me think about how many other people are doing this and haven’t been caught yet. Overall, nice blog post!
ReplyDeleteI have heard of stuff like this before. One of my favorites was a guy who would "sell" large monuments/buildings to people he met off the street. For example, he would "sell" the golden gate bridge to someone, and, after that person "owned" it, they would end up getting caught setting up a toll booth. Stuff like this always makes me wonder where people get their ideas from. Great article.
ReplyDeleteI had never heard of this before! I feel like the part about not working with people without paper work can be applied to lots of things in addition to finances. People will go through great lengths for money!
ReplyDeleteThis topic is very interesting. Shuffling money around and taking cuts of investors money is smart. I also liked how you discuss how to prevent a ponzi scheme, because I'm sure many people who are being scammed don't even know. Scams like this show how some people don't have regard for others. Thanks for the information I will be cautious if I get a financial advisor in the future.
ReplyDeleteAs a person that really enjoys learning about history, I found this blog very interesting. This is a perfect example of why people should research financial advisors before hiring them. Form this, it probably wound be best to develop a friendship with the financial advisor.
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