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 has been the subject of numerous articles, books, movies, and an ABC biopic miniseries. 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.
He started his company, Bernard L. He soon persuaded family friends and others to invest with him. Madoff had a chip on his shoulder and felt constantly reminded that he was not part of the Wall Street in-crowd. Success finally came when he and his brother Peter began to build electronic trading capabilities—"artificial intelligence" in Madoff's words—that attracted massive order flow and boosted the business by providing insights into market activity.
He would become chair of the Nasdaq in , and also served in and It is not certain exactly when Madoff's Ponzi scheme began. He testified in court that it started in , but his account manager, Frank DiPascali, who had been working at the firm since , 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 didn't need to do this for that," he told Fishman, adding, "I don't know why. Madoff repeatedly suggested to Fishman that he was not entirely to blame for the fraud.
I thought it would be a very short period of time, but I just couldn't. Madoff's relationships with these men go back to the s and s, and his scheme netted them hundreds of millions of dollars each. He has indicated that the Big Four and others—a number of feeder funds pumped client funds to him, some all but outsourcing their management of clients' assets—must have suspected the returns he produced or at least should have.
Madoff's apparently ultra-high returns persuaded clients to look the other way. 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. Madoff's plausibility to investors was based on several factors:. The SEC had been investigating Madoff and his securities firm on and off since —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 , he calculated in the space of an afternoon that Madoff had to be lying. He filed his first SEC complaint against Madoff in , but the regulator ignored him. In this case, there is no SEC reward payment due to 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.
Using what he called a "Mosaic Method," Markopolos noted a number of irregularities. The bottom line, concluded by Markopolos, was that "the investors that pony up the money don't know that BM [Bernie Madoff] is managing their money.
It was not until —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. We strive for accuracy and fairness. If you see something that doesn't look right, contact us! Subscribe to the Biography newsletter to receive stories about the people who shaped our world and the stories that shaped their lives.
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The Securities and Exchange Commission filed separate civil charges against Madoff. We will fight to get through this unfortunate set of events. A shaken Madoff stared at the ground as reporters peppered him with questions. Authorities, citing a document filed by Madoff with the U. Those clients may have included other funds that in turn had many investors.
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