What did Madoff do?
I have been asked this question many times over and each time I explain it, I think to myself, how did he get away with it for so long?
Madoff sold himself as an excellent investor, giving excellent return for clients, which then helped enlist further investors into his securities business. But what Madoff was actually doing was performing a very elaborate Ponzi scheme. This is where clients give an investor a large amount of money to invest for them and each month or year payout a percentage back to the client as their dividend as the investment matures. But this dividend is actually money gained from other clients investments. It is very similar to a pyramid scheme. This works for so long until the money dries up and clients wish to cash in their investments. This is what happened in Madoff’s case. When the credit crunch hit, clients wanted to cash in their investments, leaving the restriction of cash being unavailable to pay the dividend to clients.
It is estimated that the actual net fraud to be $10 – $17 Billion.
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