Ponzi Scheme

Bernie Madoff brought new meaning to this term by defrauding investors out of $50 billion. A Ponzi scheme is a scam which promises investors high returns – in Madoff’s case, as much as 12%-15% - with little risk. Effectively, though, Peter is robbed to pay Paul as no investments made and early investors are paid out of the money put in by those who join later. Eventually the scheme collapses when the wave of investors dries up and there’s not enough money to go around. However, in Madoff’s case, his scheme might have gone undetected had his fund not faced a whooping $7 billion in redemptions.