Bernard Lawrence "Bernie" Madoff founder of Bernard L. Madoff Investment Securities LLC, also known for his Ponzi scheme (a hedge fund scheme that was all one BIG LIE) may be the largest investor fraud committed by a single person.
His sales method was to offer his clients a modest return on their investments and his investments was often marketed as "too complicated for outsiders to understand".
So what was his scheme all about? How did he manage to pay out such high yield from his funds - way above market returns? How did many "intelligent" companies/individuals get fooled into this? It's not the housewives-next-door that gets caught in this scheme. Investors includes HSBC, BNP Paribas, RBS, Ascot Partners, etc.
Well, in a nutshell, it works like a pyramid scheme (MLM, Network Marketing or whatever you may want to market it as).
A very simple, yet explains-it-all lesson I learn from my lecturer is this - to look at the cash flow of the company. Where is it getting it's profits (which will later on translate to cash) from? And more importantly, is it sustainable?
Bernie's scheme is such where new investors invest cash into the scheme. Existing investors who wants to draw out cash would be able to do so, but the cash actually comes from the new investors rather than actual profits made by the funds.
In this scheme, it's like a musical chair. Everyone is happy when the music is playing, but once the music stop, the one left without the chair is in the losing end (and it's usually the later investors, while the earlier investors who have already withdrawn from such schemes are safe).
It's really quite sad for I've seen this type of scheme presented to me a couple of times, which I must admit, the returns are really good. The testimonials from the investors of such scheme are so convincing. They are not of older people, but of people my age, who claims to have make it big, driving a Beamer, shopping at KLCC boutiques and all that. But take a more closer look at these schemes, push asides the greed in us for high & fast returns, and you will unravel the wolf behind sheep's clothing.
The main reason why this type of scheme is still around, despite numerous warnings from media, etc is because of human greed. High returns without having to do anything. This young girl came up to me and begin to testify in one of the talks I went to. She began to tell of how she loves to shop, and want to buy branded goods - and because of this scheme, she doesn't have to slave and work, and she can just earn money just like that and can buy whatever goods she wants. I can see why many people will buy that, especially those of my age range. Easy money. No HARD WORK (albeit, no boring 9-5 jobs, sitting behind the office desk). So much time to spend shopping and holidaying and spending money.
Yes, I never dispute the fact that one could make money from such a scheme. Just have to be the pioneers, the top end of the pyramid, extracting money from the bottom end of the pyramid. These schemes are to a certain way legitimate (if it's marketed the right way) but in substance, it is morally wrong.
I have seen and heard, all of this with an open mind, but one should never let greed get in the way of rational. I've seen intelligent friends, some even from accounting backgrounds, who got fooled into such scheme, and got burned in the end.
Sometimes, the money invested and lost can be viewed as "education fees". You learn from your mistakes. And move on. But some, who has poured in their lifelong savings - have literally nothing to live by. Because of the collapse of the Bernie's funds, there were a couple of people who decided to take their life. There was this elderly man who had to go back to work, instead of enjoying his retirement - all because his savings were wiped off overnight.
I really feel very strongly against such schemes but have been keeping mumps about it until recently. I just hope that people would be able to wake up and realize all this and make a wise decision before it's too late.
Remember, money is not the root to all evil. The love of money is.
(1 Timothy 6:10)