“In a Ponzi scheme, not all investors lose. The first investors gain much. Those who manage to get out in time retain their investments and some of their gains.”
TAMAR FRANKEL, a law professor at Boston University, on the Madoff scandal.
A ponzi scheme has also been called a pyramid scheme. In fact the first item I see when Googling the words ponzi scheme are “pyramid scheme.” The most prevalent that I am familiar with are the multi-level marketing businesses. Those entering at the top floor convince their friends to buy in to the sales plan. They buy “sales kits” that are filled with product. Those friends then sell their friends to buy in to the sales plan. This process goes on and on. Each person receives a commission for everyone in his network that sells participation. The problem is that there is very little selling of product outside of the group who keep buying into the sales plan. Eventually these schemes run out of friends. Those people at or near the bottom earn relatively little but those at the top of the pyramid have “earned” significant commissions.
It has been suggested that Bernard Madoff really did not hold investments that earned 10-12% per year. I personally do not believe that those kinds of earning are possible on a continuing basis. Mr. Madoff is accused of paying his clients that return from new money that was invested in his firm. The scheme worked well as long as redemptions were low and more investors were added to the list of clients. Declining stock values brought a wave of redemptions that his company was unable to fulfill. The SIPC and the Securities and Exchange Commission obviously did not monitor the Madoff investment company. This will likely cost the government significant money.
“There’s a sucker born every minute” is an expression that was attributed to P. T. Barnum. Whether he did way those words I do not know. ‘A fool and his money are soon parted ‘is an idiom from an unknown source that is probably the definition of someone that falls for a ponzi scheme.
On Language 