Madoff is the ultimate example of a ponzi scheme done well.
1. The "mark" trades his dollars for something he/she thinks is of value, in Madoff's case it was a balance in the Madoff fund.
2. The fund increases the "balance" for the marks, making them think their money is actually increasing in value. This discourages people from wanting their money back. Meanwhile the actual dollars is squirrelled away to some series of numbered accounts.
3. The ponzi scheme is only exposed when there's a run, which happened to Madoff in 2008 during the financial crisis.
1. The "mark" trades his dollars for something he/she thinks is of value, in Madoff's case it was a balance in the Madoff fund.
2. The fund increases the "balance" for the marks, making them think their money is actually increasing in value. This discourages people from wanting their money back. Meanwhile the actual dollars is squirrelled away to some series of numbered accounts.
3. The ponzi scheme is only exposed when there's a run, which happened to Madoff in 2008 during the financial crisis.