ponzi scheme paper

ponzi scheme paper - Introduction In the last decade...

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Introduction In the last decade financial news has been filled with stories of high profile fraud scandals. Such cases as Enron, WorldCom and Bernie Madoff have stunned the public and left millions in ruins when they saw their investments shrivel up. There have even been instances where victims have been in such despair over losing everything that they resorted to suicide. When fraud occurs, the results can be devastating. Investors lose faith in the financial market. This can have devastating affects not only for those directly involved but for the economy as a whole. In this report will look at one type of fraud in particular, Ponzi Schemes. The subject has made headlines in recent years for the discovery of a multi-billion dollar Ponzi Scheme run by Bernie Madoff. He had managed to continue his scheme for almost two decades without question from investors or regulatory agencies. The following will discuss why Madoff and other schemers have gotten away with fraud and what investors must do in order to protect themselves from unknowingly getting involved. History and Trends of Ponzi Schemes A Ponzi Scheme is one type of investment fraud. The scheme functions by promising high, consistent returns to entice investors, but the money invested in the fund is not actually invested in any sort of bonds or securities. Instead the schemer uses money received from new investors to pay the returns promised to other investors. A Ponzi Scheme will be able to function successfully as long as there are constantly new clients joining and continually adding capital. If there isn’t new money being brought into the fund, then it will inevitably fail because there is no money being made from another source, though in most cases the scheme will stopped by regulators before it gets to this point. In order to hide the fact they have no real investment, those involved in Ponzi Schemes will claim to use sophisticated investment methods that make the returns that a Ponzi Scheme is reporting seem realistic. The name Ponzi Scheme comes from the man who ran the first of its kind in the United States, Charles Ponzi. His scheme began as a legitimate investment opportunity of buying international reply coupons and selling them at a higher price. An international reply coupon can be redeemed for one international postage stamp in any member country. This type of investment is called arbitrage and is based on the notion that if you
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This note was uploaded on 01/23/2012 for the course GEN BUS 304 taught by Professor Timwelnetz during the Spring '09 term at Wisconsin.

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ponzi scheme paper - Introduction In the last decade...

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