Fancy less 'Ponzi'.

Banks are falling prey to the ‘domino effect’; they collapse one after the other in a consecutive manner. Hedge funds owned by private individuals managing various client funds are also getting bad publicity. Hedge funds were mechanisms which promised handsome returns on genuine investments, in a very short span of time. The fall out of one such fund swindling about $50 billion was allegedly engineered by Bernard Madoff. International banks and small time investors from Japan to Switzerland have emerged as potential victims to history’s largest Ponzi scheme.

Well known as the Ponzi in US, many European countries know it as the pyramid scheme. The Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from profit. In order to keep the scheme going, it requires an ever increasing flow of money. Eventually the scheme will collapse because the earnings if any, is less than the payments. It raises a lot of suspicion amongst legal authorities, as the promoter is selling unregistered securities.

Jewish charities and foundations had negative exposure of funds pooled into Madoff’s scheme. It is worth knowing about the “5% payout rule” which is a federal law, requiring foundations to pay out 5% of their funds each year or in reality over a span of time. So Madoff knew this rule well, and for a billion dollars in the foundation's investment, Madoff was on the look out for $50 million dollars, of withdrawals each year.

A madoff fund investor was found dead in his New York office, the CEO of Access International Advisors had invested $ 1.4 billion with Madoff. This was a case of suicide, where heavy losses cannot be compensated by any means.

Stringent rules are broken; scrutiny fails; the risk factor is overseen; mistakes repeated; perceptions altered; laws breached and unwise decisions made in the pursuit of ‘quick money’ and ‘becoming rich overnight’. The ruling American government must ensure such fraudulent activities do not repeat its course while many such Madoff’s don’t shoot up and investors judge their actions thinking in a long term perspective.

A stitch in time surely, saves nine.

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