A1: Ponzi schemes often start with the perpetrator offering a deal that seems too good to be true: a high return investment with very little risk. The original investors then become impressed when consistent returns appear as promised.
A2: Madoff set up his portfolios to look like he was matching the returns of the S&P 500. This strategy prevented him from needing to pay too much to existing investors, but it still made his purported holdings appeal to new targets. And he remained under the radar by doing everything he could to keep his scheme low key. He targeted specific, elite groups of investors, keeping his victims close and the SEC off his back. He also stayed off the grid by keeping his paperwork up to date and consistent.
A3: A Ponzi scheme is a type of investment Fraud that promises investors exorbitant interest if they loan their money. As more investors participate, the money contributed by later investors is paid to the initial investors, purportedly as the promised interest on their loans. A Ponzi scheme works in its initial stages but inevitably collapses as more investors participate.
A4: With Congress now probing the Bernard Madoff case, some claim the SEC missed the risk because of under staffing. Even if that’s an issue, one SEC enforcement officer using basic risk-management skills, asking probing questions, searching for clear answers, and exercising timely follow up could have helped in detecting this fraud before it grew to such a staggering size.
A5: He only offers this tip to his closest friends, but he's willing to make an exception for you. He says if you get in on this opportunity now, you'll be an early investor in the next big thing. Not only that, it's fail-safe and will return your investment in no time. If you're skeptical, why not ask your friends at the party -- they invested last month and have already seen returns.