Last time, I wrote about Bernard Madoff. He was the investor
who pleaded guilty on March 12, 2009 for investor fraud. He committed the
largest investor fraud in history by swindling investors out of an estimate 65
billion dollars. Today, I want to focus on the scheme that was used and how it
works. Also, how the victims of this scheme were affected. Then, we will get
the God U Said It verse to help us get a better understanding on what happened.
The fraudulent investment operation that was used is called
a Ponzi scheme. You may be asking how a Ponzi scheme works. A promoter will
place an advertisement that promises extraordinary returns on an investment.
For example, it may say you can earn 20% on a 30-day contract. The objective is
usually to deceive people who don’t have any in-depth knowledge of finance or
financial jargon. They’ll use words that sound financial and impressive but
they are meaningless such as “High-Yield Investment Programs” or “Hedge Futures
Trading.” Thirty days later, the investor pulls his original investment out
plus the 20% return. This will give the investor the incentive to reinvest
their money plus their returns back into the scheme. Also, they will probably
tell other investors about their high returns. These new investors will also
invest their money. However, the only returns the initial investors are getting
are being paid out of the investments of new investors and not out of profits.
They will send out realistic financial statements showing the investors how
much money they earned. In addition, to minimize withdrawals, the promoter will
offer new plans to investors. Often these plans will require your money to be
frozen for a longer period of time in exchange for higher returns. Usually,
after a period of time, the promoter will vanish, taking all the investment
money minus the payouts with them.
What makes Bernard Madoff’s Ponzi scheme so unique is he
deceived not only 1st time investors but also financial professionals. His
scheme affected Florida retirees, hedge fund managers, international banks,
movie stars, professional athletes, non-profit organizations, charities and
even a Nobel Peace Prize winner. The scheme wiped out pensions, life savings,
trust funds and known foundations to name a few. It’s believed that two people
were so devastated by their loses, it pushed them to commit suicide. It not
only damaged and destroyed the lives of the initial investors; it also affected
the lives of the future generations. Their inheritance was wiped out before
they had a chance to see it. The people using these non-profit organizations
now have to go without help or find an alternative. Charities were forced to
shut down because of the financial lost. Also, the organizations counting on
these charities suffered and fell into financial hardship or in some cases
failed completely. I could go on and on about the devastation that this scheme
caused.
What is the God U Said It Verse for the day? In Proverbs
23:23 the New International Version states: “Buy the truth and do not sell it;
get wisdom, discipline and understanding.” These are powerful and sobering
words. For some of these people if they took hold of this verse, they could
have avoided hardship and pain. I know they didn’t mean for this to happen. My
heart and prayers goes out to these people. For those of you who have
investments or thinking about investing please hear me. Buy the truth means if
you don’t understand your investments or finance, pay someone who does. You may
need to pay an accountant, financial advisor or an attorney to get the truth.
Don’t sell it means do not give up ownership to the truth you gain from them.
People will try to talk you out of the truth and substitute it with lies and
deception. Study for yourself; get wisdom and a better understanding on what’s
going on with your investments. Be disciplined: if it sounds too good to be
true it probably is. Until next time, may God continue to bless you and keep you.
Walt G.
