Everyone acted surprised when Bernie Madoff's hedge fund was exposed as a Ponzi scheme. The evidence now suggests that many of Madoff's supposed victims were really co-conspirators. They weren't victims, they were crooks.
When you invest money in a Ponzi scheme, you reap a return on your investment from subsequent investors. If you invest $1,000,000 in a Ponzi scheme, you'll earn a 10% return on your investment only if people invest after you. Old money cheats new money.
If you know that you are earning a profit on your investment because you've invested in a Ponzi scheme, you are a crook. In this Tech Ticker report, Madoff investors admit that they invested with him because they assumed he was cheating:
Moreover, as far back as 1999, the word on the Wall Street was that Madoff's hedge fund was a Ponzi scheme:
Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.
"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.
Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.
Granted, not everyone knew that Madoff was running a Ponzi scheme, but several did. Many hedge funds invested with Madoff. How could a hedge fund manager not know that Madoff was running a scam?
Madoff is not the only person involved with his fund who needs to go to prison. Investors who profited from Madoff over the years should join him. The SEC needs to investigate the investors.
