Final answer:
Madoff's fraud was a Ponzi scheme where he paid returns to earlier investors using new investors' funds, without earning actual profits. It collapsed during the 2008 financial crisis when he couldn't fulfill withdrawal demands.
Step-by-step explanation:
Bernard Madoff's fraud consisted of a Ponzi scheme, which is a fraudulent investment scam promising high rates of return with little risk to investors. To carry out this fraudulent scheme, Madoff collected money from investors, purporting to invest it according to a unique strategy. Instead of actually investing the funds, he paid returns to earlier investors with the new funds from newer investors. This created the appearance of a profitable business while in reality, no actual profit was being made. The scheme unraveled during the 2008 financial crisis when Madoff was unable to satisfy withdrawal requests from his clients.