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The most famous recent example of a Ponzi scheme is the investment fraud engineered by Bernard Madoff. Madoff defrauded thousands of investors of tens of billions of dollars.
Madoff’s fraud was a Ponzi scheme because it depended upon the constant recruitment of new investors. In the fraud, Madoff would take money that was invested by new investors and use it to pay off older investors. The older investors got good returns on their investments, which made it seem as if Madoff’s fund was a good place in which to invest. The problem was that there was no actual investment being done by the firm. Therefore there were no actual earnings to be paid out. If new investors stopped putting their money into the scheme it would collapse.
Madoff’s fraud fell apart with the onset of the financial crisis of 2008. Because of the scale of the fraud, Madoff was eventually sentenced to 150 years in prison and $170 billion of restitution.
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