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Bernie Madoff Invesment Scandal
Who Is Bernie Madoff?
Bernard Lawrence "Bernie" Madoff is an American financier who executed the

largest Ponzi scheme in history, defrauding thousands of investors out of tens of
billions of dollars over the course of at least 17 years, and possibly longer. He was
also a pioneer in electronic trading and chairman of Nasdaq in the early 1990s.
Despite claiming to generate large, steady returns through an investing strategy

called split-strike conversion, which is an actual trading strategy, Madoff simply
deposited client funds into a single bank account that he used to pay existing
clients who wanted to cash out. He funded redemptions by attracting new
investors and their capital, but was unable to maintain the fraud when the market
turned sharply lower in late 2008. He confessed to his sons—who worked at his
firm but, he claims, were not aware of the scheme—on Dec. 10, 2008. They
turned him in to the authorities the next day. The fund's last statements indicated
it had $64.8 billion in client assets.
In 2009, at age 71, Madoff pleaded guilty to 11 federal felony counts, including
securities fraud, wire fraud, mail fraud, perjury, and money laundering. The Ponzi
scheme became a potent symbol of the culture of greed and dishonesty that, to
critics, pervaded Wall Street in the run-up to the financial crisis. Madoff was
sentenced to 150 years in prison and ordered to forfeit $170 million in assets, but
no other prominent Wall Street figures faced legal ramifications in the wake of the
crisis.
What Is A Ponzi Scheme?
Understanding Bernie Madoff
Bernie Madoff was born in Queens, New York, on April 29, 1938, and began dating
his future wife, Ruth (née Alpern), when both were in their early teens. Speaking
by phone from prison, Madoff told journalist Steve Fishman that his father, who
had run a sporting goods store, went out of business due to steel shortages during
the Korean War: "You watch that happen and you see your father, who you idolize,
build a big business and then lose everything." Fishman says that Madoff was
determined to achieve the "lasting success" his father hadn't, "whatever it took,"
but Madoff's career had its ups and downs.
Key Takeaways
 Bernie Madoff's Ponzi scheme, which likely ran for decades, defrauded
thousands of investors out of tens of billions of dollars.
 Investors put their trust in Madoff because he created a front of

respectability, his returns where high but not outlandish, and he claimed to
use a legitimate strategy.
 In 2009 Madoff was sentenced to 150 years in prison and forced to forfeit
$170 billion.
 As of December 2018, the Madoff Victims Fund had distributed more than
$2.7 billion to 37,011 victimized investors in the U.S. and around the world.
Bernie Madoff's Ponzi Scheme
It is not certain exactly when Madoff's Ponzi scheme began. He testified in court
that it started in 1991, but his account manager, Frank DiPascali, who had been
working at the firm since 1975, said the fraud had been occurring "for as long as I
remember."
Even less clear is why Madoff carried out the scheme at all. "I had more than
enough money to support any of my lifestyle and my family's lifestyle. I didn't
need to do this for that," he told Fishman, adding, "I don't know why." The
legitimate wings of the business were extremely lucrative, and Madoff could have
earned the Wall Street elites' respect solely as a market maker and electronic
trading pioneer.
Madoff repeatedly suggested to Fishman that he was not entirely to blame for the
fraud. "I just allowed myself to be talked into something and that's my fault," he
said, without making it clear who talked him into it. "I thought I could extricate
myself after a period of time. I thought it would be a very short period of time, but
I just couldn't."
How Madoff Got Away with It for So Long

Madoff's apparently ultra-high returns persuaded clients to look the other way. In
fact, he simply deposited their funds in an account at Chase Manhattan Bank—
which merged to become JPMorgan Chase & Co. in 2000—and let them sit. The
bank, according to one estimate, may have made as much as $483 million from
those deposits, so it, too, was not inclined to inquire.
When clients wished to redeem their investments, Madoff funded the payouts
with new capital, which he attracted through a reputation for unbelievable returns
and grooming his victims by earning their trust. Madoff also cultivated an image of
exclusivity, often initially turning clients away. This model allowed roughly half of
Madoff's investors to cash out at a profit. These investors have been required to
pay into a victims' fund to compensate defrauded investors who lost money.
Madoff created a front of respectability and generosity, wooing investors through

his charitable work. He also defrauded a number of nonprofits, and some had
their funds nearly wiped out, including the Elie Wiesel Foundation for Peace and
the global women's charity Hadassah. He used his friendship with J. Ezra Merkin,
an officer at Manhattan's Fifth Avenue Synagogue, to approach congregants. By
various accounts, Madoff swindled between $1 billion and $2 billion from its
members.
The Securities and Exchange Commission Investigation
The SEC had been investigating Madoff and his securities firm on and off since
1999—a fact that frustrated many after he was finally prosecuted, since it was felt
that the biggest damage could have been prevented if the initial investigations
had been rigorous enough.
Financial analyst Harry Markopolos was one of the earliest whistleblowers. In

1999, he calculated in the space of an afternoon that Madoff had to be lying. He
filed his first SEC complaint against Madoff in 2000, but the regulator ignored him.
In a scathing 2005 letter to the Securities and Exchange Commission (SEC),

Markopolos wrote, "Madoff Securities is the world's largest Ponzi Scheme. In this
case there is no SEC reward payment due the whistle-blower so basically I'm
turning this case in because it's the right thing to do."
Many felt that Madoff's worst damage could have been prevented if the SEC had
been more rigorous in its initial investigations.
The bottom line, concluded Markopolos, was that "the investors that pony up the
money don't know that BM [Bernie Madoff] is managing their money."
Markopolos also learned Madoff was applying for huge loans from European
banks (seemingly unnecessary if Madoff's returns were as high as he said).
It was not until 2005—shortly after Madoff nearly went belly-up due to a wave of
redemptions—that the regulator asked Madoff for documentation on his trading
accounts. He made up a six-page list, the SEC drafted letters to two of the firms
listed but didn't send them, and that was that. "The lie was simply too large to fit
into the agency's limited imagination," writes Diana Henriques, author of the book
"The Wizard of Lies: Bernie Madoff and the Death of Trust," which documents the
episode.
Bernie Madoff Confession and Sentencing
In November 2008, Bernard L. Madoff Investment Securities LLC reported year-to-

date returns of 5.6%; the S&P 500 had dropped 39% percent over the same
period. As the selling continued, Madoff became unable to keep up with a cascade
of client redemption requests and, on Dec. 10, according to the account he gave
Fishman, Madoff confessed to his sons Mark and Andy, who worked at their
father's firm. "The afternoon I told them all, they immediately left, they went to a
lawyer, the lawyer said, 'You gotta turn your father in,' they went, did that, and
then I never saw them again." Bernie Madoff was arrested Dec. 11, 2008.
Madoff has insisted he acted alone, though several of his colleagues were sent to
prison. His elder son Mark Madoff committed suicide exactly two years after his
father's fraud was exposed. Several of Madoff's investors also killed themselves.
Andy Madoff died of cancer in 2014.
Madoff was sentenced to 150 years in prison and forced to forfeit $170 billion in
2009. His three homes and yacht were auctioned off by the U.S. Marshals. He
resides at the Butner Federal Correctional Institution in North Carolina, where he
is prisoner No. 61727-054.
Aftermath of the Bernie Madoff Ponzi Scheme

The paper trail of victims' claims displays the complexity and sheer size of
Madoff's betrayal of investors. According to documents, Madoff's scam ran more
than five decades, beginning in the 1960s. His final account statements, which
include millions of pages of fake trades and shady accounting, show that the firm
had $47 billion in "profit."
While Madoff pleaded guilty in 2009 and will spend the rest of his life in prison,
thousands of investors lost their life savings, and multiple tales detail the
harrowing sense of loss victims endured.
Investors victimized by Madoff have been helped by Irving Picard, a New York
lawyer overseeing the liquidation of Madoff's firm in bankruptcy court. Picard has
sued those who profited from the Ponzi scheme; by December 2018 he had
recovered $13.3 billion.
In addition, a Madoff Victim Fund (MVF) was created in 2013 to help compensate
those Madoff defrauded, but the Department of Justice didn't start paying out any
of the roughly $4 billion in the fund until late 2017. Richard Breeden, a former SEC
chairman who is overseeing the fund, noted that thousands of the claims were
from "indirect investors"—meaning people who put money into funds that
Madoff had invested in during his scheme.
Since they were not direct victims, Breeden and his team had to sift through
thousands and thousands of claims, only to reject many of them. Breeden said he
based most of his decisions on one simple rule: Did the person in question put
more money into Madoff's funds than they took out? Breeden estimated that the
number of "feeder" investors was north of 11,000 individuals.
In a November 2018 update for the Madoff Victim Fund, Breeden wrote, "We
have now paid over 27,300 victims an aggregate recovery of 56.65% of their
losses, with thousands more set to recover the same amount in the future." With
the completion of a third distribution of funds in December 2018, in excess of $2.7
billion had been distributed to 37,011 Madoff victims in the U.S. and around the
world. Breeden noted that the fund expected to make "at least one more
significant distribution in 2019" and hoped to resolve all open claims.

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Bernie Madoff Invesment Scandal

Who Is Bernie Madoff?

Bernard Lawrence "Bernie" Madoff is an American financier who executed the

Despite claiming to generate large, steady returns through an investing strategy

What Is A Ponzi Scheme?

Understanding Bernie Madoff

 Investors put their trust in Madoff because he created a front of

Bernie Madoff's Ponzi Scheme

How Madoff Got Away with It for So Long

Madoff created a front of respectability and generosity, wooing investors through

The Securities and Exchange Commission Investigation

Financial analyst Harry Markopolos was one of the earliest whistleblowers. In

In a scathing 2005 letter to the Securities and Exchange Commission (SEC),

Bernie Madoff Confession and Sentencing

In November 2008, Bernard L. Madoff Investment Securities LLC reported year-to-

Aftermath of the Bernie Madoff Ponzi Scheme

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