Balance sheets depict what a company owns and what it owes.
In this example, the categories have the same meaning, but the cash and investments own are not growing as fast or at all as the Ponzi scheme purports. Cash is depleted to pay for the promised returns to clients.
In order to keep going, the Ponzi scheme must attract new client deposits to artificially prop up the investments section of the balance sheet so that the new cash can be used to pay the returns from the investments to earlier investors. In reality, however, the own section of the balance sheet is going down, and therefore the worth is also going down, eventually slipping into negative territory.
The result is a constant need for cash, which puts pressure on the firm to attract greater and greater investments at an increasingly rapid rate to pay out those investors seeking redemptions. The revised edition of their classic Financial Intelligence will be published in February. Karen Berman and Joe Knight.
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5 Years Ago Bernie Madoff Was Sentenced to 150 Years In Prison – Here's How His Scheme Worked
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