Bernie Madoff

Bernie Madoff
Born:	April 29, 1938 Queens, New York
Died:	April 14, 2021
Charges:	Securities fraud, Investment adviser fraud, Mail fraud, Wire fraud, Money laundering, Perjury
Sentence:	150 years
Facility:	FCI Butner Medium
Status:	Died in custody (April 14, 2021)

Bernard Lawrence Madoff (April 29, 1938 – April 14, 2021) was an American financier who operated the largest Ponzi scheme in history, defrauding thousands of investors out of an estimated $64.8 billion over several decades. A former chairman of NASDAQ, Madoff used his reputation and connections to attract investments that he never actually invested, instead using new investor funds to pay returns to earlier investors. He was sentenced to 150 years in federal prison and died while incarcerated at FCI Butner Medium in April 2021.

Summary

Bernie Madoff built a legitimate market-making business on Wall Street while secretly operating a massive fraudulent investment advisory operation. His fraud, which may have begun as early as the 1970s, ultimately affected approximately 37,000 accounts in 136 countries with paper losses of $64.8 billion and actual cash losses estimated between $17 and $20 billion.

Madoff's scheme collapsed in December 2008 during the global financial crisis when he was unable to meet approximately $7 billion in redemption requests. He confessed to his sons, who reported him to federal authorities. His arrest and subsequent prosecution revealed a decades-long fraud that had eluded regulators despite multiple warnings, most notably from financial analyst Harry Markopolos who had alerted the SEC beginning in 1999.

Background

Madoff was born on April 29, 1938, in the Queens borough of New York City. His parents, Ralph and Sylvia Madoff, were both children of Jewish immigrants from Eastern Europe. Ralph Madoff worked as a plumber before attempting to run a finance business that encountered regulatory problems with the Securities and Exchange Commission.

Madoff graduated from Far Rockaway High School in 1956 and briefly attended the University of Alabama before transferring to Hofstra University, where he earned a political science degree in 1960. He enrolled at Brooklyn Law School but dropped out after one year to focus on his business. In 1960, Madoff founded Bernard L. Madoff Investment Securities LLC with $5,000 he had saved from working as a lifeguard and installing sprinkler systems. His father-in-law, Saul Alpern, an accountant, helped him gain his first clients.

The firm grew into a legitimate market-making business that pioneered electronic trading systems and became one of the largest market makers on Wall Street. Madoff's legitimate trading operation brought him prominence in the securities industry, and he served on NASDAQ's board of directors, serving as chairman in 1990, 1991, and 1993. He became a respected voice in the securities industry and advised the SEC on market structure issues, which provided cover for his fraudulent investment advisory business.

Indictment, Prosecution, and Sentencing

The Ponzi Scheme

While Madoff's market-making business was legitimate, his investment advisory operation was a massive fraud. Madoff accepted money from investors claiming to use a sophisticated "split-strike conversion" investment strategy, but instead of investing the funds, he deposited them into a Chase Manhattan Bank account. He generated fake account statements showing consistent annual returns of 10-12%, and the "returns" paid to investors came from other investors' principal rather than actual earnings. The scheme ran for at least 17 years and possibly much longer, involving approximately $64.8 billion in paper wealth across 37,000 accounts in 136 countries, with actual cash losses estimated at $17-20 billion.

The fraud devastated individuals and organizations worldwide, including charitable foundations such as the JEHT Foundation and the Picower Foundation, celebrities including Steven Spielberg and Kevin Bacon, major financial institutions, and countless individual retirees who lost their entire life savings.

Collapse and Arrest

The global financial crisis of 2008 triggered the scheme's collapse when investors sought to withdraw approximately $7 billion as markets crashed. Madoff lacked sufficient funds to meet redemption requests. On December 10, 2008, Madoff confessed to his sons, Mark and Andrew, that his investment business was "one big lie" and "basically, a giant Ponzi scheme," estimating losses of approximately $50 billion. His sons reported him to federal authorities that same day, and FBI agents arrested Madoff at his Manhattan penthouse apartment on December 11, 2008.

Guilty Plea and Sentence

On March 12, 2009, Madoff pleaded guilty to 11 federal felonies, including securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filing with the SEC, and theft from an employee benefit plan.

On June 29, 2009, Judge Denny Chin of the U.S. District Court for the Southern District of New York sentenced Madoff to 150 years in federal prison, the maximum allowed. Judge Chin stated that the sentence was "symbolic" given Madoff's age but that the crimes were "extraordinarily evil." The court also ordered Madoff to forfeit $170 billion in assets. Madoff did not appeal the sentence.

Prison Experience

Madoff was incarcerated at Federal Correctional Institution, Butner Medium in Butner, North Carolina, a medium-security federal prison housing approximately 1,100 male inmates. Madoff adapted to prison life and reportedly worked in the commissary. In interviews from prison, he maintained that major banks and hedge funds must have known about his fraud, though he offered no evidence.

Madoff suffered from chronic kidney disease during his incarceration. In February 2020, his attorneys sought compassionate release, citing his terminal illness and the COVID-19 pandemic, but the request was denied. Bernard Madoff died at FCI Butner on April 14, 2021, at age 82 from natural causes related to his chronic kidney disease. He had served approximately 12 years of his 150-year sentence.

Irving Picard, the court-appointed trustee for the liquidation of Madoff's firm, has recovered over $14 billion for victims as of 2023, representing significant success in recovering actual cash losses. Madoff's fraud also had devastating consequences for his family: his elder son Mark died by suicide on December 11, 2010, exactly two years after his father's arrest, and his younger son Andrew died of lymphoma on September 3, 2014. Neither son was charged with any wrongdoing.

Public Statements and Positions

In prison interviews, Madoff made various statements about his crimes. On responsibility, Madoff stated: "I made a terrible mistake, but it wasn't the kind of mistake that I had made money for myself from... From the money that came in, I basically supported my victims' lifestyles." On the banks' knowledge, Madoff claimed: "They had to know. But the attitude was sort of, 'If you're doing something wrong, we don't want to know.'" Madoff's statements were widely criticized as self-serving attempts to deflect blame while minimizing his victims' suffering.

Terminology

• Ponzi Scheme: A fraudulent investment operation where returns to existing investors are paid using capital from new investors rather than from legitimate profits.

• Split-Strike Conversion: The investment strategy Madoff falsely claimed to use, involving the purchase of stocks and options to hedge positions.

• Feeder Fund: An investment fund that channels investor money into a larger fund; several feeder funds directed investments to Madoff without conducting adequate due diligence.

• SIPC: The Securities Investor Protection Corporation, which protects customers of failed broker-dealers and oversaw the Madoff liquidation.

• Clawback: Legal actions to recover funds paid to investors who received more than their original investment, as those payments came from other victims' principal.

See also

• Allen Stanford
• Prison Consultants
• Compassionate Release Policies
• Overview of Federal Prison Designation