Two FBI agents arrested Bernard Madoff, the founder of Bernard L. Madoff Investment Securities LLC, at his apartment on charges of security fraud. Prosecutors allege that Madoff ran a big ponzi scheme in the form of a $50 Billion hedge fund. The US attorney’s criminal complaint against Bernanrd Madoff states that he fraudulently estimated investor losses of $50 billion making this ponzi scheme fraud one of the biggest frauds in history.
You may ask what is a ponzi scheme? According to Dictionary.com, a ponzi scheme is defined as:
“A fraudulent investing scam that promises high rates of return at little risk to investors. The scheme generates return by acquiring new investors. The Ponzi scam is named after Charles Ponzi, a clerk in Boston, who first orchestrated such a scheme in 1919.
Although a Ponzi scheme is similar to a pyramid scheme in that both are based on new investors’ funds to pay the earlier backers, they differ in that the Ponzi mastermind signs up new investors, who are used to attract potential investors, rather than the hierarchical pyramid setup whereby all the investors do the recruiting. Eventually, there isn’t enough returns to go around and the schemes unravel.”
Bernard Madoff now faces a maximum penalty of $5 million and up to 20 years in a federal prison. The SEC has also filed civil charges against him. Scott Friestad is the SEC’s deputy enforcer and he calls this a stunning fraud. He was quoted by Yahoo News – “We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors.”
For more on this developing story, go to this Yahoo News article for complete updates.