GPMT - Don't Get Duped By These 'Sucker Yields'
2024-05-01 07:00:00 ET
Summary
- Bernie Madoff's Ponzi scheme is a cautionary tale about "sucker yields" and unrealistic returns in investment opportunities.
- Financial analyst Harry Markopolos was able to identify Madoff's fraud through mathematical modeling and the suspicious consistency of his returns.
- Investors should be skeptical of promises of high returns and thoroughly investigate investment opportunities to avoid falling victim to Ponzi schemes or unsustainable yields.
It’s been 15 and a half years since federal authorities took Bernie Madoff into custody.
For those who need a reminder, Madoff was the toast of the Wall Street town for quite some time. It’s not an exaggeration to say the man was revered before his fall.
North American Securities Administrators Association ( (NASAA)) describes how :
“For decades, Madoff investors received consistent and steady annual returns through elaborate, fabricated account statements and other documentation that were provided to investors to convince them that their money had been placed in actual investments. The investments ‘appeared’ legitimate, especially to people receiving payments. But in reality, there were no actual investments and no actual returns. Madoff paid the initial investors ‘returns’ with money provided him by a steady flow of new investors.
“In 2008, as the global economy began to decline, large numbers of Madoff investors needed money and began asking to cash in their investments. That’s when Madoff’s Ponzi scheme burst – he did not have enough money to cover his investors’ requests and new money was hard to be found in the economic downturn.”
It shocked almost the entire financial world when the news broke in December 2008. How could someone as trusted as Bernie Madoff do such a thing? And how did nobody see it for so long?...
Don't Get Duped By These 'Sucker Yields'