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 How does this Ponzi Scheme work ? The person who runs a Ponzi offers their first investor high returns on their investment they then find new investors and give that new money to the original investors; so it’s like they continue pumping in new money and dumping it to older investors all the while of pocketing their own cut until there’s no more new investors then the scam dries up. In other words they rob one person to pay another person. Paul Charles Ponzi was the first person to run the scheme hence it being called the Ponzi Scheme.
But wait we are not talking about Ponzi here, In Madoff’s case - Investors would give their money to invest and Madoff gives them a healthy return but the return does not come from actual investments, he simply gives back a small portion of their initial investment instead. Eventually the money dries up so the stock needs to be replenished. Madoff then moves on to the next investor and so the scam grows larger. How did it look ? The investor has money invested in Madoff’s firm and gets a good return.
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