On July 24, 2009, convicted Ponzi schemer and formerly wealthy investment counselor Bernard (Bernie) Madoff arrived by prison bus at the federal correctional institution in Butner, North Carolina, to begin serving a 150-year sentence.i The 71-year-old Madoff had been convicted only days earlier of multiple fraud and securities violations stemming from a scheme in which he exploited thousands of clients who had entrusted him with their money for over 20 years. Among his victims were very wealthy people from places as diverse as New York City and Palm Beach, Florida.ii
Some estimates put losses to investors as high as $65 billion dollars—money that seemed to evaporate into thin air and that investigators struggled to recover. By the time Madoff went to prison, only about $1.2 billion had been found and insurance payments of around $500,000 had been made to investors.iii Madoff’s scheme has been called “the largest investor fraud ever committed by a single person.”iv
In fact, Madoff may not have invested any of his clients’ money, instead paying off redemptions from his fund with money from new clients. The false account statements that Madoff issued to “investors” showed their accounts rapidly growing in value—outpacing the investment results of even the most savvy investment managers. The stock market downturn of 2008, however, led to a record number of redemption requests—and when Madoff was unable to meet them, the game was up.
Born Bernard Lawrence Madoff on April 29, 1938, in Queens, New York, Madoff began his adult life as a plumber; he also worked as a lifeguard and a landscaper. He soon went to college, graduating from New York’s Hofstra University in 1960 with a degree in political science. A year later, he dropped out of Brooklyn Law School to become a stockbroker, eventually rising through the financial ranks to serve as a chairman of the NASDAQ stock exchange. In 1960, Madoff founded his own firm, Bernard L. Madoff Investment Securities, LLC. He served as chairman of that company until his arrest on December 11, 2008.
Doubts about Madoff preceded his arrest by at least ten years, as his firm had faced a number of investigations by the SEC, some of which had apparently been dropped by the SEC for lack of money. At the time of this writing, only one other person—Madoff’s longtime accountant, David Friehling—has been charged in connection with the fraud, although authorities suspect that others must have been involved. Madoff refused to cooperate in the investigation, claiming that he was the only person with knowledge of the scam. Federal prosecutors reached a settlement with Madoff’s wife under which she abandoned claims to $85 million in assets that the couple had owned, leaving her with $2.5 million in cash. The couple’s sons, Mark and Andrew, both of whom had worked with their father, denied claims of any wrongdoing.
During the sentencing stage of the proceedings against him, Madoff apologized to his victims, saying, “I have left a legacy of shame … to my family and my grandchildren. This is something I will live with for the rest of my life. I’m sorry.”v
i Zachery Kouwe, “Madoff Arrives at Federal Prison in North Carolina,” New York Times, July 14, 2009, http:/
ii Michael Moore, “Bernie Madoff,” The 2009 TIME 100, http:/
iii The Ticker, Washington Post, July 14, 2009; and Elizabeth Dwoskin, “Bernie Madoff’s Accountant Charged, Pleads Not Guilty,” The Village Voice, July 17, 2009, http://blogs.villagevoice.com/runninscared/archive…(accessed July 21, 2009).
iv “Topic: Bernard Madoff,” New York Post (various dates), http:/
v “Transcript of Madoff’s Sentencing Statement,” New York Post, June 29, 2009, http://www.nypost.com/seven/06292009/news/regional…(accessed August 12, 2009).
- Do you think that Madoff originally set out to build a Ponzi scheme? If not, how might the scheme have evolved?
- Why haven’t more people been arrested in the Madoff scandal?
- How would you compare Madoff to other white-collar criminals? What do they have in common?
- Do you think that Madoff is truly sorry for his crimes—or merely for the fact that he got caught? How can we know?