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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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01:20:45,137 --> 01:20:46,928
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?

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    (1) Madoff's name has no y in it (2) things that are good are often limited and as a result exclusive, so claiming (falsely) something is exclusive tricks stupid or careless people into thinking it is good (3) for investments in particular, if there are fewer investors it's more credible that each one must put in more
    – dave_thompson_085
    Commented Oct 9, 2020 at 4:43
  • Did this really happen in real life? If not, movies.stackexchange.com may be a better place for this question. Note that "unimportant trivia" may be off-topic there.
    – Flux
    Commented Oct 9, 2020 at 4:46
  • @dave_thompson_085 , thank for the comment. (1) fixed (2) so if I was a billionaire and some well known investor offered me a chance to join their exclusive fund, using only that information should I know that it is a scam? Or is there a good reason why it might be exclusive? (3) what would be the reason for wanting fewer investors?
    – HanMah
    Commented Oct 9, 2020 at 4:48
  • @Flux I apologize if this is off topic, I wasn't sure where to post. I don't know if that is a real scene or not, but when I see the movie trope "enhance and rotate the image" I know that that is false. So, as money savvy people, when seeing the scene in "The Wizard of Lies", can you call that out as false, or is there some realism behind it?
    – HanMah
    Commented Oct 9, 2020 at 4:51
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    This is really a question for the Psychology site, or perhaps Sales & Marketing (if there is one). It's observed that lots of people react more favorably when things are presented as "exclusive" than when they're available to just anyone.
    – jamesqf
    Commented Oct 10, 2020 at 15:58

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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.

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  • thanks for the answer. From how I understand your answer you are saying that making an exclusive fund doesn't make sense investment wise and the investor should have seen the demand for a $250 million minimum as a red flag since there is no reason why such a minimum would be required
    – HanMah
    Commented Oct 11, 2020 at 9:12
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    The "minimum investment" isn't as big a red flag as the "exclusive opportunity" aspect is. Most funds do have some sort of minimum investment amount specified - see investopedia.com/terms/m/minimum_investment.asp - as per-client costs may outweigh per-client profits otherwise. $250million would an extraordinary amount to specify as a minimum though. "Exclusive opportunity" on the other hand, makes little financial sense - money is fungible and if both investors A and B have capital, there's very little reason to offer A "exclusive access" but not B other than as a marketing trick.
    – timday
    Commented Oct 11, 2020 at 17:16

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