Investor's wiki

Bernie Madoff

Bernie Madoff

Bernard Lawrence "Bernie" Madoff was an American agent who executed the largest Ponzi scheme ever, defrauding great many investors out of a huge number of dollars throughout the span of something like 17 years, perhaps longer.

He was likewise a trailblazer in electronic trading and chair of the Nasdaq in the mid 1990s. He kicked the bucket in jail at age 82 on April 14, 2021, while carrying out a 150-year punishment for money laundering, securities fraud, and several different lawful offenses.

Early Life and Education

Bernie Madoff was brought into the world in Brooklyn, New York, on April 29, 1938, to Ralph and Sylvia Madoff. His dad filled in as a handyman before entering the financial industry with his better half. They established Gibraltar Securities, which was at last forced to close by the SEC.

Bernie earned a four year college education in political science from Hofstra University in 1960 and momentarily went to law school at Brooklyn Law School. While in college, Bernie married his high-school sweetheart, Ruth (n\u00e9e Alpern), with whom he later established Bernard L. Madoff Investment Securities LLC in 1960.

From the get go, he traded penny stocks with $5,000 he earned introducing sprinklers and working as a lifeguard. He before long convinced family friends and others to invest with him. When the "Kennedy Slide" flash crash trimmed 20% off the market in 1962, Madoff's wagers soured and his father by marriage needed to bail him out.

Eminent Accomplishments

Madoff harbored a lot of emotional baggage and felt that he was not part of the Wall Street in-swarm. In a meeting with journalist Steve Fishman, Madoff exhorted, "We were a small firm, we weren't a member of the New York Stock Exchange. It was hard to miss."

According to Madoff, he started to become famous as a sketchy market maker. "I was entirely glad to take the morsels," he told Fishman, giving the case of a client who wanted to sell eight bonds; a bigger firm would scorn that sort of order, yet Madoff's would complete it.

Achievement at last came when he and his sibling Peter started to build electronic trading capacities โ€” "man-made reasoning" as would be natural for Madoff โ€” that attracted enormous order flow and supported the business by giving experiences into market activity. "I had this large number of major banks coming down, engaging me," Madoff told Fishman. "It was a head trip."

He and four other Wall Street backbones handled half of the New York Stock Exchange order flow โ€” controversially, he paid for quite a bit of it โ€” and by the late 1980s, Madoff was making nearby $100 million every year.

Madoff would become chair of the Nasdaq in 1990, and furthermore served in 1991 and 1993.

Outrages and Crime

Sooner or later, Madoff attracted investors by claiming to create large, consistent returns through an investing strategy called split-strike conversion, a genuine trading strategy. Nonetheless, Madoff 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 yet couldn't keep up with the fraud when the market turned pointedly lower in late 2008.

On Dec. 10, 2008, he confessed his bad behavior to his children โ€” who worked at his firm. The next day, they surrendered him to the specialists. Bernie stayed inflexible that his children didn't know about his scheme.

The fund's last statements indicated it had $64.8 billion in client assets.

The Players

It isn't certain when Madoff's Ponzi scheme started. He affirmed in court that it began in the mid 1990s, however his account manager, Frank DiPascali, who had been working at the firm starting around 1975, said the fraud had been happening "however long I remember."

Even less clear is the reason Madoff carried out the scheme by any means. "I had a sizable amount of money to support any of my lifestyle and my family's lifestyle. I didn't have to do this for that," he told Fishman, adding, "I don't have the foggiest idea why." The genuine wings of the business were very lucrative, and Madoff could have earned the Wall Street elites' respect exclusively as a market maker and electronic trading pioneer.

Madoff over and again suggested to Fishman that he was not altogether to fault for the fraud. "I just permitted myself to be talked into something and that is my shortcoming," he said, without clarifying who talked him into it. "I figured I could remove myself after a period of time. I figured it would be an extremely short period of time, yet I just couldn't."

The purported Big Four โ€” Carl Shapiro, Jeffry Picower, Stanley Chais, and Norm Levy โ€” definitely stand out for their long and profitable inclusion with Bernard L. Madoff Investment Securities LLC. Madoff's associations with these men return to the 1960s and 1970s, and his scheme got them hundreds of millions of dollars each.

"Everyone was greedy, everyone wanted to continue and I just obliged it," Madoff told Fishman. He indicated that the Big Four and others (several feeder funds siphoned client funds to him, some everything except outsourcing their management of clients' assets) must have thought the returns he delivered or if nothing else ought to have. "How might you make 15 or 18% when everybody is getting less cash?" Madoff said.

The Scheme

Madoff's apparently super high returns convinced clients to take no notice. In fact, he just deposited their funds in an account at Chase Manhattan Bank โ€” which merged to become JPMorgan Chase and Co. in 2000 โ€” and let them sit. The bank, according to one estimate, may have made as much as $435 million in after-tax profit from those deposits.

At the point when clients wished to redeem their investments, Madoff funded the payouts with new capital, which he attracted through a reputation for mind blowing returns and prepping his casualties by earning their trust. Madoff additionally developed an image of eliteness, frequently initially dismissing clients. This model permitted generally half of Madoff's investors to cash out at a profit. These investors have been required to pay into a casualties' fund to compensate defrauded investors who lost money.

Madoff made a front of respectability and generosity, charming investors through his charitable work. He likewise defrauded a number of nonprofits, and some had their funds almost cleared out, including the Elie Wiesel Foundation for Peace and the global ladies' charity Hadassah. He utilized his friendship with J. Ezra Merkin, an officer at Manhattan's Fifth Avenue Synagogue, to approach congregants. By different accounts, Madoff cheated $2.4 billion from its members.

Madoff's believability to investors depended on several factors:

  1. His principal, public portfolio appeared to stick to safe investments in blue-chip stocks.
  2. His returns were high (10 to 20% per annum), consistent, and not stunning. As the Wall Street Journal reported in a now-renowned meeting with Madoff, from 1992: "[Madoff] demands the returns were really not a big deal, given that the Standard and Poor's 500-stock index created an average annual return of 16.3% between November 1982 and November 1992. 'I wouldn't believe assuming anyone felt that matching the S&P north of 10 years was anything outstanding,' he says."
  3. He professed to utilize a collar strategy, otherwise called a split-strike conversion. A collar is an approach to limiting risk, by which the underlying shares are protected by the purchase of an out-of-the-money put option.

The Investigation

The SEC had been investigating Madoff and his securities firm now and again beginning around 1992 โ€” a fact that disappointed numerous after he was at long last prosecuted since it was felt that the biggest damage could have been prevented assuming the initial investigations had been sufficiently thorough.

Financial analyst Harry Markopolos was one of the earliest whistleblowers. In 1999, he calculated in about an afternoon that Madoff must lie. He documented his most memorable SEC complaint against Madoff in May 2000, however the regulator ignored him.

In a searing 2005 letter to the Securities and Exchange Commission (SEC), Markopolos stated, "Madoff Securities is the world's largest Ponzi Scheme. In this case, there is no SEC reward payment due to the informant so essentially I'm turning this case in light of the fact that it's the right thing to do."

Many felt that Madoff's most horrendously terrible damage could have been prevented if the SEC had been more thorough in its initial investigations.

Utilizing what he called "Mosaic Theory," Markopolos noticed several inconsistencies. Madoff's firm professed to bring in money even when the S&P was falling, which had neither rhyme nor reason, in light of what Madoff asserted he was investing in. The biggest red flag of all, in the most natural sounding way for Markopolos, was that Madoff Securities was earning "undisclosed commissions" rather than the standard hedge fund fee (1% of the total plus 20% of the profits).

The main concern, concluded by Markopolos, was that "the investors that pony up the money don't realize that BM Bernie Madoff is dealing with their money." Markopolos likewise learned Madoff was applying for gigantic loans from European banks (apparently superfluous assuming Madoff's returns were basically as high as he said).
It was only after 2005 โ€” shortly after Madoff almost kicked the bucket due to a wave of redemptions โ€” 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 however didn't send them, and that was that. "The falsehood was essentially too large to squeeze into the agency's limited creative mind," composes Diana Henriques, writer of the book "The Wizard of Lies: Bernie Madoff and the Death of Trust**,"** which records the episode.

The SEC was excoriated in 2008 following the disclosure of Madoff's fraud and their sluggish response to act on it.

The Punishment

In November 2008, Bernard L. Madoff Investment Securities LLC reported year-to-date returns of 5.6% during a similar period when the S&P 500 dropped 39%. As the selling continued, Madoff became incapable to keep up with a cascade of client redemption requests. Along these lines, on Dec. 10, according to the account he gave Fishman, Madoff confessed to his children Mark and Andy, who worked at their dad's firm. "The afternoon I let them know all, they promptly left, they went to a lawyer, the lawyer said, 'You must hand your dad over,' they went, did that, and afterward I at absolutely no point ever saw them in the future." Bernie Madoff was captured on Dec. 11, 2008.

Madoff demanded he acted alone, however several of his colleagues were shipped off jail. His elder child Mark Madoff committed suicide exactly two years after his dad's fraud was uncovered. Several of Madoff's investors likewise committed suicide. Andy Madoff passed on from disease at age 48 out of 2014.

Madoff was condemned to 150 years in jail and forced to relinquish $170 billion out of 2009. His three homes and four boats were sold by the U.S. Marshals. On Feb. 5, 2020, Madoff's lawyers requested that Madoff be delivered right on time from jail claiming that he was experiencing a terminal kidney disease that might kill him in 18 months or less.

Be that as it may, Madoff, detainee No. 61727-054, stayed at the Butner Federal Correctional Institution in North Carolina until he passed on April 14, 2021.

The Aftermath

The paper trail of casualties' claims shows the complexity and sheer size of Madoff's double-crossing of investors. According to archives, Madoff's scam ran for over fifty years, beginning during the 1960s. His last account statements, which incorporate huge number of pages of fake trades and obscure accounting, show that the firm had $47 billion in "profit."

While Madoff conceded in 2009 and was condemned to spend the remainder of his life in jail, a great many investors lost their life savings, and different stories detail the frightening feeling of loss casualties endured.

Investors misled by Madoff have been helped by Irving Picard, a New York lawyer managing the liquidation of Madoff's firm in bankruptcy court. Picard has sued the people who profited from the Ponzi scheme; by April 2021, he had recovered almost $14 billion.

Furthermore, a Madoff Victim Fund (MVF) was made in 2013 to assist with compensating those Madoff defrauded, yet the Department of Justice didn't begin paying out any of the generally $4 billion in the fund until late 2017. Richard Breeden, a former SEC chair who is directing the fund, noticed that a great many the claims were from "indirect investors" โ€” importance individuals who put money into funds that Madoff had invested in during his scheme.

Since they were not direct casualties, Breeden and his team needed to filter through a great many claims, just to dismiss a large number of them. Breeden said he put together a large portion of his choices with respect to one simple rule: Did the person being referred to put more money into Madoff's funds than they took out? Breeden estimated that the number of "feeder" investors was north of 11,000 people.

In a September 2021 update for the Madoff Victim Fund, Breeden stated, "MVF is excited to declare another distribution totaling $568,648,065 to 30,539 casualties of the crimes committed at Madoff Securities. Measured by the number of casualties paid, this is our largest distribution yet." With the completion of the seventh distribution of funds in September 2021, roughly $3.762 billion has been distributed to 39,494 Madoff casualties in the U.S. furthermore, around the world. Breeden likewise noticed that they have recovered 81.35% for casualties.

The Bottom Line

In 2009, at age 71, Madoff conceded to 11 federal lawful offense counts, including securities fraud, wire fraud, mail fraud, prevarication, and money laundering. The Ponzi scheme turned into a powerful symbol of the culture of greed and unscrupulousness that, to pundits, plagued Wall Street in the approach the financial crisis. Madoff, the subject of various articles, books, films, and biopic miniseries, was condemned to 150 years in jail and ordered to relinquish $170 billion in assets, however no other conspicuous Wall Street figures confronted legal consequences in the wake of the crisis. In April 2021, Madoff kicked the bucket in a federal correctional facility at age 82.


  • In 2009 Madoff was condemned to 150 years in jail and forced to relinquish $170 billion as restitution.
  • As of September 2021, the Madoff Victims Fund distributed its seventh distribution of more than $568 million.
  • Bernie Madoff's Ponzi scheme, which probably ran for quite a long time, defrauded huge number of investors out of a huge number of dollars.
  • Bernie Madoff was a money manager responsible for perhaps of the largest financial fraud in cutting edge history.
  • Investors put their trust in Madoff in light of the fact that he made a front of respectability, his returns were high yet not extraordinary, and he professed to utilize a genuine strategy.


How Did Madoff Get Caught?

Albeit several individuals cautioned the SEC and different specialists of Bernie Madoff's scheme, it was only after he confessed to his children that he was gotten. In 2008, when Bernie could never again accommodate investors' redemption requests, he admitted his bad behaviors to his children, Mark and Andrew, who then gave their dad to specialists.

The amount Money Did Bernie Madoff Return?

As well as being condemned to jail, Bernie Madoff was ordered to pay back $170 billion of investors' money. Madoff's assets, including real estate, yachts, and jewelry, were seized and sold by the Feds. Separately, The Bernie Madoff Victims Fund, drove by Richard Breeden, has recovered and paid more than $3.7 billion to close to 40,000 casualties as of September 2021.

Who Was Bernie Madoff?

Bernie Madoff was an American lender and former Nasdaq chair who organized the largest Ponzi scheme ever. Bernie guaranteed investors high returns in exchange for their investments. In any case, as opposed to investing, he deposited their money into a bank account and paid, upon request, from existing and new investors' funds. During the 2008 recession, he could never again accommodate redemption requests. His scheme reached a conclusion after his children gave him to specialists. Bernie was convicted of fraud, money laundering, and other related crimes, for which he was condemned to 150 years in federal jail. Bernie Madoff passed on in jail on April 14, 2021, at 82 years old.