Bernard Madoff, the founder of Madoff Investment Securities and former chairman of the NASDAQ, was arrested yesterday on charges that he ran a giant $50 Billion Ponzi scheme. Madoff had amazed Wall Street for years by providing stellar returns to his investors, no matter what the overall market was doing. From 1994 to 2007, his portfolio only recorded 5 down months.
The authorities still aren’t exactly sure how long the scheme was going on. However, most people believe the fraud began when Madoff tried to cover up investment losses by paying old investors with money from new investors. The scheme finally collapsed when numerous investors began seeking redemptions due to the poor economy.
One of the most interesting things I heard about this story is that some of Madoff’s “smart money” investors knew his returns couldn’t be legit. The returns were just too high and consistent to be real. These investors assumed Madoff’s incredible outperformance was due to insider trading. Yet, they still invested their money with him. Never in their wildest dreams did they expected to hear that they were investing in a Ponzi scheme.
There’s an important lesson to learn from this story. Be extremely careful trusting others with your finances. Whether it’s a cold-calling stock broker or your family financial advisor, nobody is going to care as much about your money as you do. That’s why I’m a huge advocate of handling your own finances and investments. Take the time to educate yourself about these topics and you’ll never have to worry that some crook Madoff with your money.
you’re “right on the money” with the moral of the Madoff Story — excellent conclusion.
Good point. The 10 to 12 percent positive return year after year should have raised some concerns for investors.