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NARRATOR: When you hear the term "Ponzi Scheme"
you think about pie-in-the-sky promises
that sound too good to be true.
And for a long time, that was the case.
In the 1920s, Charles Ponzi committed a fraud so brazen
historians named the practice after him.
Here's how it worked:
Ponzi lured people in
with the promise he would double their investment in 90 days.
When it came time to pay out,
he did so with money he was raising from new clients.
Once he was no longer able to raise additional funds,
however, the whole operation fell apart.
Flash forward to 2008.
Bernie Madoff, a trusted Wall Street entrepreneur,
was running a successful stock trading business
that served a host of well-known firms.
But hidden alongside his legitimate dealings,
Madoff was running a scheme that mirrored Ponzi's.
Madoff collected funds from clients
and instead of investing them as advertised,
paid out returns with money he was raising
from new customers.
While taking a cut along the way.
There was, however,
a key difference between Bernie Madoff and Charles Ponzi:
subtlety.
A charismatic and intelligent figure
with a squeaky-clean record,
Madoff promised reasonable returns
that didn't raise red flags.
People saw no reason to doubt him.
The scheme ran for decades without exposure,
until the financial collapse of 2008.
Hit by the crisis, clients began to withdraw their cash
to cover losses from other failing investments.
Madoff was unable to secure
the new funds he needed to pay them.
On the brink of being exposed, Madoff confessed to his family,
and was turned in to federal authorities by his sons.
He was sentenced to 150 years for his crimes.
It was the biggest financial fraud by an individual
in U.S. history.