Bernard Madoff

Decision Points

Bernard Lawrence "Bernie" Madoff born April 29, 1938) is an incarcerated American former stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in history.

In March 2009, Madoff pleaded guilty to 11 federal crimes and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1980s, and that the investment operation may never have been legitimate. The amount missing from client accounts, including fabricated gains, was almost $65 billion. The court-appointed trustee estimated actual losses to investors of $18 billion. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.

 Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008. The firm was one of the top market maker businesses on Wall Street, which bypassed "specialist" firms by directly executing orders over the counter from retail brokers.

On December 10, 2008, Madoff's sons told authorities that their father had confessed to them that the asset management unit of his firm was a massive Ponzi scheme, and quoted him as describing it as "one big lie." The following day, FBI agents arrested Madoff and charged him with one count of securities fraud. The U.S. Securities and Exchange Commission (SEC) had previously conducted investigations into Madoff's business practices, but did not uncover the massive fraud.

Concerns about Madoff's business surfaced as early as 1999, when financial analyst Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the government, the industry, and the press about the Madoff fraud.

Others also contended it was inconceivable that the growing volume of Madoff accounts could be competently and legitimately serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant.

The Federal Bureau of Investigation complaint says that during the first week of December 2008, Madoff confided to a senior employee, identified by Bloomberg News as one of his sons, that he said he was struggling to meet $7 billion in redemptions. According to the sons, Madoff told Mark Madoff on December 9 that he planned to pay out $173 million in bonuses two months early. Madoff said that “he had recently made profits through business operations, and that now was a good time to distribute it." Mark told Andrew Madoff, and the next morning they asked their father to explain how he could pay bonuses if he was having trouble paying clients. They went to Madoff's apartment, with Ruth Madoff nearby. Madoff told them he was “finished,” that he had “absolutely nothing” left, that his investment fund was “just one big lie” and “a giant Ponzi scheme”. According to their attorney, Madoff's sons then reported their father to federal authorities. On December 11, 2008, he was arrested and charged with securities fraud.

Madoff posted $10 million bail in December 2008 and remained under 24-hour monitoring and house arrest in his Upper East Side penthouse apartment until March 12, 2009, when Judge Denny Chin revoked his bail and remanded him to the Metropolitan Correctional Center. Chin claimed Madoff was a flight risk, because of his age, wealth, and the prospect of spending the rest of his life in prison. Prosecutors filed two asset forfeiture pleadings which include lists of valuable real and personal property as well as financial interests and entities.

Madoff's lawyer, Ira Sorkin, filed an appeal, and prosecutors responded with a notice of opposition. On March 20, 2009, an appellate court denied Madoff's request to be released from jail and returned to home confinement until his June 29, 2009, sentencing. On June 22, 2009, Sorkin hand-delivered a customary pre-sentencing letter to the judge requesting a sentence of 12 years, because of tables cited from the Social Security Administration that his life span is predicted to be 13 years.

On June 26, 2009, Chin ordered Madoff to forfeit $170 million in assets. Prosecutors asked Chin to sentence Madoff to the maximum 150 years in prison. Irving Picard indicated that "Mr. Madoff has not provided meaningful cooperation or assistance."

In settlement with federal prosecutors, Madoff's wife Ruth agreed to forfeit her claim to US$85 million in assets, leaving her with $2.5 million in cash. The order allowed the SEC and Court appointed trustee Irving Picard to pursue Ruth Madoff's funds. Massachusetts regulators also accused her of withdrawing $15 million from company-related accounts shortly before he confessed.

In February 2009, Madoff reached an agreement with the SEC, banning him from the securities industry for life.

Picard has sued Madoff's sons, Mark and Andrew, his brother Peter, and Peter's daughter, Shana, for negligence and breach of fiduciary duty, for $198 million. The defendants had received over $80 million in compensation since 2001 and "used the bank account at BLMIS like a personal piggy bank." The trustee believes they knew about the fraud because of their personal investments in the scheme, the longevity of the fraud, and because of their work at the company including roles as corporate and compliance officers. Since 1995, Peter Madoff had invested only $14, but withdrew over $16 million. Mark and Andrew Madoff withdrew more than $35 million from a small original investment.

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