Personal Finance & Money Asked by HanMah on January 1, 2021
The movie "The Wizard of Lies" is a movie about Bernie Madoff’s story running his Ponzi scheme. There is a scene where he realizes that he is low on money, so he tries to convince an investor to invest a large sum of money. He says that there is a very high (at least in my perspective) minimum investment.
The scene starts like so:
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01:20:42,759 --> 01:20:45,093
I'm starting a new highly exclusive fund.
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It's gonna have just five investors.
As the scene progresses and he gets an investment of $250 million.
What I don’t understand is, what investment related reason would there be for making an exclusive fund. I would assume that he would be able to raise more money if he allowed anyone to invest. After raising all the money, why would it matter if it comes from 5 people or 500?
From Wikipedia's piece on the Madoff scandal:
Madoff was a "master marketer" who, throughout the 1970s and 1980s, built a reputation as a wealth manager for a highly exclusive clientele. Investors who gained access, typically on word-of-mouth referral, believed that they had entered the inner circle of a money-making genius, and some were wary of removing their money from his fund, in case they could not get back in. In later years, even as Madoff's operation accepted money from various countries through feeder funds, he continued to package it as an exclusive opportunity.
And then later, on his final desperate attempts to raise more money:
Madoff asked others for money in the final weeks before his arrest ... Madoff said he was raising money for a new investment vehicle, between $500 million and $1 billion for exclusive clients, was moving quickly on the venture, and wanted an answer by the following week.
Given the aura of exclusivity he'd cultivated with his clients, it'd make sense he'd try and amplify that aspect even more to increase the appeal to them.
For most sensible people, if someone offers them an "exclusive opportunity" (e.g cold-calling boiler-room operators) that's a pretty big red flag for a scam... or at least it should be; if it isn't, wise up! But for Madoff's clients they were so far down the path of belief that something "even more exclusive" could only be seen as even better, or at least that's what Madoff must have hoped they'd think.
Correct answer by timday on January 1, 2021
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