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The Mother of All Ponzi Schemes

December 12, 2008 By Aaron Katsman Leave a Comment

What else could happen in the world of finance. 2008 has certainly been a pretty lousy year and now we have sunk to the lowest of the low, as former Nasdaq stock market chairman Bernard Madoff was arrested on claims that he ran a Ponzi scheme. He purportedly lost tons and tons of money in bad investments and then took fresh principal that was invested with his firm to pay off earlier investors. Losses are estimated to be at least $50 billion. Yes, that’s not a misprint, $50 billion. Yikes.

According to Marketwatch: ” On Wednesday, Madoff told two senior employees that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme,” federal prosecutors said in their statement.

According to a criminal complaint filed on Thursday and cited by the Journal, Madoff “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.”
Madoff also said his business was insolvent, and that it had been for years, estimating losses to be at least $50 billion, prosecutors alleged, again citing the two unidentified employees.
According to the complaint, Madoff told one of his senior employees that clients were seeking about $7 billion in redemptions and that “he was struggling to obtain the liquidity necessary to meet those obligations.” The employees believed the firm had about $17 billion under management.”
How could no one have noticed what was happening. It’s not as if we are talking about a couple of hundred bucks. It’s $50 billion!
Not all maybe lost for investors. My gut tells me that there is a decent amount of money left for recovery. But for investors, this is just another in a long line of cases that have completely shaken investor confidence, and I’m afraid that it’s going to a while before that confidence is restored.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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About Aaron Katsman

Aaron Katsman is the President of Lighthouse Capital, financial columnist for the Jerusalem Post and a renowned speaker on investing in Israel.

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