In the world of financial fraud a Ponzi scheme #2678

In the world of financial fraud, a “ Ponzi scheme” is famous. Here is the story behind how the
scam got its name. Charles Ponzi started the Security Exchange Company on December 26,
1919. He thought he had discovered a way to purchase American stamps in a foreign country at
significantly lower amounts than they were worth in the United States. He claimed his idea was
so successful that anyone who gave money to his company would be repaid their original loan
plus 50 percent interest within 90 days. Friends and family quickly offered their money to Ponzi
and they were handsomely rewarded, being repaid their original loan and the 50 percent
interest within just 45 days. Thanks to an article in The New York Times, word spread quickly
about Ponzi’s business, attracting thousands of people seeking a similar payback. He might
have had a successful business had his idea actually worked. The problem, however, was that it
didn’t. The 50 percent interest paid to early investors did not come from the profits of a
successful underlying business idea (which didn’t even exist) but instead was obtained
fraudulently from funds contributed by later lenders. Eventually, the Ponzi scheme collapsed on
August 10, 1920, after an auditor examined his accounting records.Required:1. Assume that on
December 27, 1919, Ponzi’s first three lenders provided his company with $ 5,000 each. Use
the basic accounting equation to show the effects of these transactions on December 27,
1919.2. If the first two lenders are repaid their original loan amounts plus the 50 percent interest
promised to them, how much cash is left in Ponzi’s business to repay the third lender? Given
what you discovered, how was it possible for Ponzi’s company to remain in “business” for over
eight months?3. Who was harmed by Ponzi’s scheme?View Solution:
In the world of financial fraud a Ponzi scheme

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