Here is an example to illustrate the length and build-up of the cost of fraud:
Bernie Madoff's Wall Street investment firm began its Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1980s and that is 30 years of fraud. Concerns about Madoff's business surfaced as early as 1999, when financial analyst, whistleblower (Harry Markopolos), informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver.
So what were the losses? The amount missing from client accounts was almost $65 billion. Estimated actual losses to investors were $18 billion. Federal sentencing guidelines for fraud only go up to $400 million in losses.
How or why did this fraud continue for so long?© BrainMass Inc. brainmass.com July 23, 2018, 4:14 am ad1c9bdddf
Following are some reasons why I think the fraud went on for so long before he was prosecuted:
1. The 'Good Old Boy' network tends to protect wealthy and powerful individuals much like a social club.
2. Investors are hesitant to publicly disclose losses because it may be seen as a personal failure to have invested in the first place. Those people would not like to testify to say that he 'stole my money'.
3. The very concept of a Ponzi scheme uses new investor money to pay old investors. Here is how it can work. An old investor is reminded that his investment is earning 12%, but wouldn't it be better to leave it there to earn even more. The wealthy investor doesn't need a monthly check ...
The solutions explains seven reasons how a Ponzi scheme could continue for 30 years.