Posted by Rachel Leigh email
PALM BEACH, FL (WFLX) - The whole town of Palm Beach is buzzing after one of their own is accused of masterminding a multi-billion dollar "Ponzi" Scheme.
Bernard Madoff was known on Island circles as a guy to make good investments with. But, now, he's accused of ripping off not only his rich friends but large companies to the tune of $50 billion.
Some Palm Beachers are putting their jewels and their condos up for sale. The Sinkins of Boynton Beach are out nearly $1 million - their whole life savings.
Joan Sinkin, said, "We are trying to hold it together. We are in a state of shock."
The swindled investors can get some relief though. Tax rules allow investors who fall prey to criminal theft to claim a tax deduction stemming from their losses.
A lot of you are probably wondering, 'What's a Ponzi Scheme?' It's a type of pyramid scheme named after infamous 1920's swindler Charles Ponzi.
Here's how it works: The person running the scheme sets up a so called business and promises investors big returns. Then, the scam artist skims money from the top and uses new people's investments to pay the first set of investors their so-called profits.
That means, for this to work, there needs to be a continual stream of investors, so they can essentially pay each other making it seem like they are making a profit. That is, until the whole thing collapses.
So, what happened when Madoff got arrested? All of those newest investors at the bottom of the pyramid, who had just given their money, lost it all.