Did you see that Gary Gensler was named crypto’s most influential person of the year by Decrypt?
I mean, it’s a fair point. He has made several headlines this year (albeit for the wrong reasons).
Indeed, the SEC has been at the forefront of the assault on crypto and DeFi more broadly.
Perhaps one of the most hypocritical things for me about the SECs stance is that the agency doesn’t exactly have the best track record when it comes to fighting serious financial fraud. In fact, the biggest Ponzi scheme ever happened under their watch. Not only that, but this widespread fraud went unchecked even though the SEC received numerous whistleblower reports and testimonies.
Not to knock the SEC only though. This scheme was so pervasive that it managed to fool some of the smartest and richest people in the world. Celebrities, Charities, hedge funds, endowments. You name it!
This was a pyramid scheme of epic proportions – conducted almost exclusively with fiat currency on wall street…
Funny how that works! 😏
Anyways, in my video today, I take a look back at this fraud and explain exactly how it managed to proliferate. How it tricked so many supposedly “clever” people and pulled the wool over the eyes of the regulators.
This was honestly a fascinating video to research, so I hope you guys enjoy it!
⛓️ 🔗 Useful Links 🔗 ⛓️
► $65 billion fraud: https://www.reuters.com/article/us-ma…
► DiPascali fakes records: https://money.cnn.com/2013/12/03/news…
► Wiesel Foundation scammed: https://www.nytimes.com/2009/02/27/bu…
► How Madoff’s scheme worked: https://internationalbanker.com/histo…
► Markopolos the whistleblower: https://www.ekathimerini.com/economy/…
► Makopolos SEC warning: https://www.sec.gov/news/studies/2009…
► Ponzi victims: https://online.wsj.com/public/resourc…
► JPM ignores warnings: https://www.reuters.com/article/us-ma…
🏞️ Setting The Scene 🏞️
In short, a Ponzi scheme is a fraudulent investment scheme which pays out existing investors with funds collected from new investors. Bitconnect was one of the largest Ponzi schemes that has plagued crypto. However, that pales in comparison to the $65 billion Ponzi which Bernie Madoff pulled off on Wall Street Even crazier, no one knows how long this giant Ponzi was in action for. Madoff has said 1987 and 1992, however, others think it might have kicked off way back in the 1960s. This is a story of criminal behaviour deep within the financial system that devastated the lives of thousands of victims, resulting in suicides, bankruptcies and home losses.
💸 How The Ponzi Worked? 💸
Madoff’s scheme essentially involved creating an account which his investment firm used to collect funds from clients. He then used that same money to pay out the clients that wanted to sell their holdings. However, no actual trading took place. Instead, returns were simply made up. All that was sustainable as long as withdrawal requests could be covered by fund deposits. That state of play existed for decades until the 2008 financial crisis rolled around. That saw investors trying to withdraw $7 billion and meant that Madoff couldn’t cover the volume of withdrawal requests. The Ponzi scheme then collapsed.
⚠️ Warning Signs ⚠️
Back in 1999, a guy called Markopolos worked as a quant at Rampart Investment Management. His boss discovered that a top client was thinking about moving his funds to Madoff – who was consistently producing returns of 1% to 2% per month. So, Markopolos was tasked with replicating Madoff’s amazing returns. That task sent Markopolos down a rabbit hole and led to him uncovering dozens of warning flags. This included the suspicious structure of the fund and the secrecy surrounding it. He also reverse engineered some of Madoff’s trades and discovered that one of those stated trades would have required Madoff to buy more options on the Chicago Board Options Exchange than actually existed. That evidence was presented to the SEC numerous times and yet nothing was done about it.
🛬 Under The Radar 🛬
How did Madoff run this $65 billion Ponzi scheme for so long without being detected? Well, some of the biggest companies and businessmen in the world had invested in the fund. That included the New York Mets, HSBC holdings, Royal Bank of Scotland and more. With such high profile names, it was easy for people to assume that everyone else had done their due diligence. Madoff also had a stellar reputation in finance, I mean he was on the Board of Directors at NASDAQ, held a position on the board of governors of the National Association of Securities Dealers and other famous financial institutions. Madoff also mixed in philanthropist circles and rubbed shoulders with the rich and famous. That made him seem the most unlikely of criminals. Bernie also was adept at creating fake trading records that would pass muster at first glance. That was made even more passable by his reputation and the fact that the gains reported were entirely plausible for any given year. Now, there are many more reasons that Madoff got away with this Ponzi for so long and I cover them all in the vid!
📜 Disclaimer 📜
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.