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The
Madoff Scandal
Who is
Bernard L. Madoff ?
Bernie Madoff is responsible for the largest Ponzi scheme in history.
He left behind a legacy of deception and financial ruin. Operating under the guise of a successful investment firm, Madoff defrauded thousands of investors out of an estimated $65 billion. His fraudulent scheme, which promised consistent high returns, unraveled in 2008 during the financial crisis, when he could no longer cover investor withdrawals. Arrested in December of that year, Madoff pleaded guilty to 11 federal felonies and was eventually sentenced to 150 years in prison in 2009. He died in Prison aged 82.
How did
a humble bookkeeper
manage to embezzle 65 billion ?
Bernard L. Madoff, a humble bookkeeper, masterminded an elaborate Ponzi scheme that embezzled an estimated $65 billion.
In his early 20's, Madoff became aware that deceiving and lying to people translated to faster profit than diligent, consistent work. He created an illusion of stability and success, attracting clients ranging from individual retirees to major hedge fund managers, who of course were unsuspecting of the fraudster's true intention of one sided profit. His firm, 'Bernard L. Madoff Investment Securities', promised steady, high returns. Instead of legitimate investing, he set up a Ponzi scheme where he used incoming funds from new investors to pay off earlier ones.
For decades, Madoff's fraud went on, greased by falsified records and weak regulatory oversight. By the time Madoff turned 50, he had leveraged his reputation as a trusted Wall Streeter to its highest extent - he even became chairman of NASDAQ!
The Madoff case is still all over
the news !!
Examples of some of the many recent articles:
The Man Who Stole $65 Billion
How did Madoff manage it?
Madoff started out legitimately, matching clients with stocks, before opening a side business where he invested their money himself - here is where he started his Ponzi scheme.
The deceit started when his own father-in-law, Ruth’s dad, recommended clients to him and Madoff realised he’d made a mistake and couldn’t pay them back! Instead of coming clean, Madoff made up a series of fake trades out of embarrassment.
A decade later, he hired bond expert David Kugel, stole his method and paid him off to keep the business going. Madoff knew he had to share the profits with those who knew of his criminal activities to keep the dream alive!
They would read last month's Wall Street Journals and pretend their clients had invested in well performing stocks! He kept the scheme's client list small and insisted they had to invest $1 million dollars to create an air of inclusivity - and the cash flowing.
It All Starts To Fall Apart…
Bernie’s father in law invested more money and clients. When he retired, he put all his businesses money into Bernard L. Madoff Investment Securities. However, this alerted authorities that Bernie’s business was unregistered and hadn’t been checked by them! Bernie panicked and made all of his employees fake the last three years of records to match up with the money he had pretended to have.
The authorities then told Avellino & Bienes, his father-in-law's business, they must close down and withdraw their investors. Bernie suddenly has to pay them back $440 million he doesn’t have! So, he used a borrowed stock from a client to secure a bank loan to pay them back with!
Bernie’s ability to save his business made his status soar rather than highlight his weakness.
Madoff’s Done For
After the investigation scare, Madoff’s reputation was at an all time high through the 90’s, until 2001 when publications started questioning his business. Madoff’s ‘secret business’ had the best returns on Wall Street with a portfolio of almost $7 billion !
Considering his investment advisory business wasn’t meant to exist as it wasn’t registered, these publications questioned if the whole thing was a fraud.
Madoff made his employees work tirelessly to create fake documents for Every. Single. Trade.
The Security and Exchanges Commission began to believe Madoff was using insider information from his clients stocks in his legitimate business to make his own personal trades, investing his clients money after his own to make a profit.
The stocks he claimed to have brought had no counterparty - the person you bought the stocks from- as he had been buying them from himself. Bernie managed to get his employees to assign random European companies to his stock purchases in the hope the SEC wouldn’t bother to check foreign companies. And he was right! They didn’t!
In just two years, Bernie’s business was audited five times. They were on to him.
It All Comes Crashing Down
During the financial crash of 2008, Wall Street was collapsing but somehow Bernard L. Madoff Investment Securities was doing well with many staff members having earned millions.
As the government gave out loans and businesses merged, Madoff continued to make money. Even so, panicked investors wanted out.
Bernie didn’t have enough in the bank: he needed to pay investors $1.5 billion but only had $300 million in the bank.
No one would give him to cover it.
At Christmas, his two sons, who were also employees, questioned their father. He revealed to them and their mother he has been lying and running a Ponzi scheme.
His sons immediately report him to the authorities and obtain lawyers.
When the FBI came knocking, Madoff didn’t protest his innocence.
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