DEFINITION of 'Mini Madoff'

Mini Madoff is a slang term for con men accused of committing financial Ponzi-scheme type crimes similar to those of Bernard (Bernie) Madoff. Mini Madoffs tend to orchestrate Ponzi or pyramid schemes that are similar in nature to Bernie Madoff's, but are smaller in size and notoriety. Bernie Madoff is a famous fraudster who ran an organization called Investment Securities LLC, which was a front for his Ponzi scheme. As opposed to investing his clients' money, he stole it. In order to create the appearance of successful investments, Bernie fabricated investment statements and used money from new investors to pay "returns" to older investors. He was arrested in December of 2008 and sentenced to 150 years in prison.

BREAKING DOWN 'Mini Madoff'

Mini Madoff is a slang term for a person who has committed or been accused of committing a Ponzi-esque financial crime. Often times in Ponzi schemes, investors are promised unusually high returns in oddly short amounts of time. This is a red flag that a supposed investment opportunity may be a fraud. When new people "invest" their money into the scheme, their money is used to pay off older investors under the guise of "returns." Continuing streams of new investors are needed to continue these fake return streams to older investors. The cycle of illegitimate returns can continue until the pool of investors fails to grow. With all schemes of this nature, eventually the infusion of new money dries up and the hoax unravels. The hallmark of a Ponzi or pyramid scheme is that the returns given out to investors or participants aren't from actual investing or product sales, but are dependent upon new entrants into the scheme. The payments to older investors or participants are mostly or entirely dependent upon the pool of investors or participants continuing to grow since the streams of money from new entrants flow up the pyramid to older entrants.

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