Why you don\’t want to invest in a Ponzi scheme

The settlement has been struck between the estate of Mr Picower, who died last year, and Irving H Picard, the court-appointed trustee who has been seeking to recover billions from the biggest Ponzi scheme in Wall Street history.

As part of the agreement reached with Mr Picower\’s widow, Barbara, Mr Picard\’s fund will receive $5bn (£3.2bn), while the US Attorney\’s Office in Manhattan will get $2.2bn. Judges will need to approve the deal.

Apart from, you know, losing all your money.

Because even if you\’re one of the early investors, and you receive back more from your \”investment\” than you put in, you\’re, under US law, a beneficiary of the fraud and thus have to pay back whatever it is that you got out.

So even if your timing is right you still cannot win in a Ponzi scheme.

The scale of Mr Madoff\’s fraud has come to symbolise the excesses of a boom in which investors and regulators failed to question how he appeared to be consistently generating such stellar returns.

Grr…..no, Madoff didn\’t generate stellar returns. That isn\’t what he was doing at all. There are hedge funds out there which have generated 50% returns in one year (often to generate -50% the next, this is true) and Madoff never tried to lie his way into reporting success like that.

What Madoff did was report incredibly consistent returns. 1% a month, just about, month after month after month for decades. Entirely unbelievable precisely because they were so consistent, riding several stock market booms and crashes. But not stellar at all: it was the consistency that had people diving in.

1 thought on “Why you don\’t want to invest in a Ponzi scheme”

  1. “not stellar at all: it was the consistency” – hang on, many stars are entirely consistent. “Twinkle, twinkle” comes from the atmosphere, not the star.

Leave a Reply

Your email address will not be published. Required fields are marked *