# Detecting a Ponzi Scheme **URL:** \ **Category:** Factual Questions\ **Created:** [December 13, 2010, 4:19pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991 "2010-12-13T16:19:51Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 13, 2010, 4:19pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/1 "2010-12-13T16:19:51Z")
The Madoff thing is in the news again. Everyone says it was fairly obvious something was not kosher with Madoff. I presume this to be the case. \*\*Has anyone detected another major Ponzi scheme using statistical analysis? Why not? \*\* ---
**Author:** ![RealityChuck](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/realitychuck/32/195_2.png) [@RealityChuck](https://boards.straightdope.com/u/RealityChuck)\ **Post date:** [December 13, 2010, 4:22pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/2 "2010-12-13T16:22:30Z")
Because people don’t want to think they’re being conned. People were warning the SEC that Madoff’s profits were not attainable and that something was fishy, but the SEC refused to look into it. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [December 13, 2010, 4:27pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/3 "2010-12-13T16:27:18Z")
> [@RealityChuck](#): > > People were warning the SEC that Madoff’s profits were not attainable and that something was fishy, but the SEC refused to look into it. They didn’t refuse to look into it. There were various SEC investigations into Madoff’s business and associated entities in 1992, 1999, 2000 and 2005, with ongoing investigations at other times. The problem was that their investigations were incompetent and extraordinarily sloppy. ---
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 13, 2010, 4:28pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/4 "2010-12-13T16:28:50Z")
The investigations showed Madoff filed all the required paperwork on time. They never tried to see if he was actually trading. But still, Madoff was detected by some people. ---
**Author:** ![sachertorte](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sachertorte/32/3727_2.png) [@sachertorte](https://boards.straightdope.com/u/sachertorte)\ **Post date:** [December 13, 2010, 4:30pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/5 "2010-12-13T16:30:21Z")
When the Madoff thing went down, there was an article in the Boston Globe about a local guy who kept pointing out that something wasn’t right about the numbers. The article also mentioned that many investors gave Madoff money _because they thought he was cheating_. In other words, many knew something wasn’t legitimate, but they thought he was insider trading or something like that. ---
**Author:** ![Saint\_Cad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/saint_cad/32/18907_2.png) [@Saint\_Cad](https://boards.straightdope.com/u/Saint_Cad)\ **Post date:** [December 13, 2010, 5:19pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/6 "2010-12-13T17:19:47Z")
> [@sachertorte](#): > > When the Madoff thing went down, there was an article in the Boston Globe about a local guy who kept pointing out that something wasn’t right about the numbers. The article also mentioned that many investors gave Madoff money _because they thought he was cheating_. In other words, many knew something wasn’t legitimate, but they thought he was insider trading or something like that. Also, the thinking is that if you are in on the ground floor, you make great returns as long as you pull your money out quickly. Is there a moral reason for not taking advantage of a Ponzi sceme as an investor? These people didn’t think so. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [December 13, 2010, 5:34pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/7 "2010-12-13T17:34:36Z")
There was a column in the Times yesterday by a guy from Hollywood who had money with Madoff, and who told his friends that the returns were so regular that he wouldn’t be surprised if it was a Ponzi scheme, but that he’d get out of it before it collapsed. He didn’t. I think the old advice that if it is too good to be true, it is is all you really need. ---
**Author:** ![Sailboat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sailboat/32/461_2.png) [@Sailboat](https://boards.straightdope.com/u/Sailboat)\ **Post date:** [December 13, 2010, 6:12pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/8 "2010-12-13T18:12:46Z")
> [@Voyager](#): > > There was a column in the Times yesterday by a guy from Hollywood who had money with Madoff, and who told his friends that the returns were so regular that he wouldn’t be surprised if it was a Ponzi scheme Yes, Madoff paid regular fixed amounts and told everyone his business was based on taking advantage of fluctuations in market volatility. It should be _instantly obvious_ that something is wrong when someone claims that gambling on rapid fluctuations in volatility is producing a fixed, steady rate of return. Finding out there’s something very wrong requires no more investigation than listening to Madoff talk. The rest is simple footwork. ---
**Author:** ![FasterThanMeerkats](https://avatars.discourse-cdn.com/v4/letter/f/278dde/32.png) [@FasterThanMeerkats](https://boards.straightdope.com/u/FasterThanMeerkats)\ **Post date:** [December 13, 2010, 6:41pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/9 "2010-12-13T18:41:50Z")
> [@Paul\_in\_Qatar](#): > > \*\*Has anyone detected another major Ponzi scheme using statistical analysis? Why not? \*\* Because there’s no money in it!! :D:D:D As folks have noted, investors in a ponzi scheme have zero incentive for it to be found out and collapse. If you’re on the outside, no one’s going to give you a huge reward for doing so (a few outliers excepted if you crack a big one and then land a book deal). And apparently if you work as an SEC watchdog then you get paid either way, so why make life hard on yourself? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [December 13, 2010, 7:09pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/10 "2010-12-13T19:09:29Z")
> [@Sailboat](#): > > Yes, Madoff paid regular fixed amounts and told everyone his business was based on taking advantage of fluctuations in market volatility. > > It should be _instantly obvious_ that something is wrong when someone claims that gambling on rapid fluctuations in volatility is producing a fixed, steady rate of return. Finding out there’s something very wrong requires no more investigation than listening to Madoff talk. The rest is simple footwork. The guy from Boston already mentioned did a sophisticated analysis proving the scheme was bogus. This guy knew it without doing the analysis - but stayed in out of greed, and the conviction that he could get out in time and leave it to the suckers to take the hit. So the problem is not detecting the scheme, but convincing regulators that there is a scheme before it gets too big. That doesn’t go just for illegal schemes - hardly anyone here in Silicon Valley doesn’t have a story about losing a ton of virtual money by not selling stock or cashing in options before the bubble burst. ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [December 13, 2010, 8:01pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/11 "2010-12-13T20:01:09Z")
Nothing seems to sting like losing illusory wealth that you didn’t work for. ---
**Author:** ![Gary\_Robson](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gary_robson/32/3448_2.png) [@Gary\_Robson](https://boards.straightdope.com/u/Gary_Robson)\ **Post date:** [December 14, 2010, 5:08pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/12 "2010-12-14T17:08:00Z")
> [@Hypno-Toad](#): > > Nothing seems to sting like losing illusory wealth that you didn’t work for. [mod note] This is GQ. If you want to take overgeneralized potshots at entrepreneurs, please do it in a different forum. No warning issued. [/mod note] ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [December 14, 2010, 5:46pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/13 "2010-12-14T17:46:51Z")
Harry Markopolis was the chap who figured out Madoff’s scheme. He wrote several letters to the SEC, but was ignored. We now know that if the SEC lawyers had bothered to check out Madoff’s claims (hundreds of trades/day) and compare them with the actual records, they would have exposed him as a fraud. Now comes the interesting part: many of Madoff’s investors were actual “feeder” funds-that is, mutual funds to sent their client’s money to Madoof-and raked off a few perecnt for themselves. Were not these “experts” actively complicit in fraud ? Or, take his big individual investors-The Shapiro trust (Boston) has agree to pay back $625 million in fraudulent “profits”. I find it hard to belive that Harvard Business School types(who sent their clients funds to Madoff) were so stupid that they could ignore their suspicions about the guy. Look for a ton of indictments in the coming years! ---
**Author:** ![Xema](https://avatars.discourse-cdn.com/v4/letter/x/9de053/32.png) [@Xema](https://boards.straightdope.com/u/Xema)\ **Post date:** [December 14, 2010, 6:00pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/14 "2010-12-14T18:00:46Z")
[quote=“Gary “Wombat” Robson, post:12, topic:563991”] This is GQ. If you want to take overgeneralized potshots at entrepreneurs, please do it in a different forum. [/QUOTE] Hard to see how HypnoToad’s post was specific to entrepreneurs. ---
**Author:** ![Markxxx](https://avatars.discourse-cdn.com/v4/letter/m/5daacb/32.png) [@Markxxx](https://boards.straightdope.com/u/Markxxx)\ **Post date:** [December 14, 2010, 7:14pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/15 "2010-12-14T19:14:50Z")
The easiest way to find out is to go up to the head guy and talk to him. If he puts both thumbs up and says “ayyy” a lot, or if he can start a juke box by hitting it with his fist, it’s a ponzi scheme Ooops wait a minute, that’s a FOZI scheme… 😃 ---
**Author:** ![Manduck](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manduck/32/256_2.png) [@Manduck](https://boards.straightdope.com/u/Manduck)\ **Post date:** [December 14, 2010, 7:28pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/16 "2010-12-14T19:28:12Z")
[quote=“Gary “Wombat” Robson, post:12, topic:563991”] [mod note] This is GQ. If you want to take overgeneralized potshots at entrepreneurs, please do it in a different forum. No warning issued. [/mod note] [/QUOTE] What entrepeneurs? I don’t think you know what the word means. ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [December 14, 2010, 8:03pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/17 "2010-12-14T20:03:33Z")
[quote=“gary “wombat” robson, post:12, topic:563991”] [mod note] this is gq. If you want to take overgeneralized potshots at entrepreneurs, please do it in a different forum. No warning issued. [/mod note] [/quote] ok. ?? ---
**Author:** ![Derleth](https://avatars.discourse-cdn.com/v4/letter/d/b9e5f3/32.png) [@Derleth](https://boards.straightdope.com/u/Derleth)\ **Post date:** [December 14, 2010, 8:49pm UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/18 "2010-12-14T20:49:27Z")
[quote=“Gary “Wombat” Robson, post:12, topic:563991”] [mod note] This is GQ. If you want to take overgeneralized potshots at entrepreneurs, please do it in a different forum. No warning issued. [/mod note] [/QUOTE] There are few things in American business life utterly different from investors, and entrepreneurs are one of them. Entrepreneurs are, _by definition_, not sitting around waiting for investments to grow; they are, in the initial stages, working overtime and beyond for a paycheck that’s more promise than reality to get their new business off the ground. They may well be slimy sometimes, but they’re the kind of slime that’s up at dawn and asleep well after sundown working hard at being the most successful slime they can possibly be. **Hypno-Toad** was smearing investors, a class which includes every single person who keeps money in an interest-bearing bank account, owns a government bond, or has ever held onto a coin in the vague hope that one day it will be “worth something”. ---
**Author:** ![medstar](https://avatars.discourse-cdn.com/v4/letter/m/f07891/32.png) [@medstar](https://boards.straightdope.com/u/medstar)\ **Post date:** [December 15, 2010, 1:19am UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/19 "2010-12-15T01:19:07Z")
> [@sachertorte](#): > > When the Madoff thing went down, there was an article in the Boston Globe about a local guy who kept pointing out that something wasn’t right about the numbers. The article also mentioned that many investors gave Madoff money _because they thought he was cheating_. In other words, many knew something wasn’t legitimate, but they thought he was insider trading or something like that. There’s a quote from one of Madoff’s customers that said, “We all knew that Bernie was cheating someone–we just didn’t think that he was cheating us”. Nice, guys, real nice. ---
**Author:** ![Musicat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/musicat/32/20189_2.png) [@Musicat](https://boards.straightdope.com/u/Musicat)\ **Post date:** [December 15, 2010, 1:25am UTC](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991/20 "2010-12-15T01:25:51Z")
> [@Markxxx](#): > > Ooops wait a minute, that’s a FOZI scheme… 😃 No, a [Fozi](http://en.wikipedia.org/wiki/Fozzie_Bear') scheme is when you play piano, have big floppy brown ears, and a sidekick named Kermit. Perhaps you are thinking about a [Fonzi]([Fonzie - Wikipedia](http://en.wikipedia.org/wiki/Fonzie)") scheme, Ay?.. [Next page](https://boards.straightdope.com/t/detecting-a-ponzi-scheme/563991.md?page=2)