Wednesday, December 14, 2011

Madoff & Ponzi Schemes: A Moral Isssue

In a Ponzi scheme, such as that perpetrated by Bernie Madoff, are those investors who withdrew profit before it collapsed obligated to return them to a pool in which the greater number of losers could draw on? Is the claim on any money recovered by the bankruptcy trustee to be prorated to the the owners of false balance sheets at the time the scheme collapsed?

After all, the winners were largely chosen at random so Madoff could point to them to cast luster on his fraud. The "winner" investors did not earn anything and the so-called positive balances were actually other peoples' incoming money.

Regardless of the eventual legal rulings, this is a deep moral problem. What do you think?

The legal issues are described by Diana Henrique in "A Lasting Shadow," in the NYT, Dec. 11, 2011.

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