Can Better Financial Regulation Prevent Investors from Being Defrauded?
New Horizons in Money and Finance series
Chapter 4: Bernard Madoff and the ‘mother of all Ponzi schemes’
History’s largest Ponzi scheme illustrates the ability of a Ponzi scheme, for an extended period, to deceive both individual and institutional investors and escape regulatory detection. There are some question marks about the scale of the losses and the time span of the operation. According to the trustee, Irving Picard, seeking to recoup money for the over 13 000 listed account holders in the Madoff fraud, about $36 billion went into the scheme, with $18 billion paid out before the collapse3 and $18 billion missing (Sarna, 2010, p. 147). If promised returns are included, based on the detailed monthly statements and balances that Madoff sent to clients, along with details of securities and transactions, the losses totalled $64.8 billion. In fact, while transactions were listed on the statements, the trustee handling the liquidation (Irving Picard) could find no evidence that any securities had been bought for clients in the final 13 years of the scheme’s operation. A matter overlooked in other accounts is that these figures demonstrate how difficult it is to measure the ‘scale’ of a Ponzi scheme, and some of these intricacies have emerged in the Madoff litigation (Strumpf, 2013).
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