My understanding is the latter money went to pay the returns on the money that the original investors put in. He never really invested the money in anything that earned a interest rate anywhere near what he was paying out. In effect, most of the missing money was probably paid out to investors, as well as finance his fancy lifestyle and that of his family and associates.
If he is paying out returns of 10% for ten years to you and not really investing, at the end of ten years he was returned all your money. Most of these people were probably living off their returns and some of their principal. If after that period of time, the same person requests some or all of his principal, he would have to take from someone else to meet the redemption. Considering this happening hundreds or thousands of times, that is where the money went.
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