The Crime Book

120

brother, Peter, who worked with

him for over 40 years and was a

codirector of the firm, was ignorant

of the scheme’s exact nature.

Suspicions as early as the 1990s

that something was wrong were

easily dismissed as the result of

envy. In 2000, a financial analyst

and independent fraud investigator,

Harry Markopolos, told the SEC he

could prove that it was legally and

mathematically impossible to

achieve the gains Madoff claimed.

His findings were ignored for years,

but others also arrived at the same

conclusion. Apart from Madoff’s

private bank, J.P. Morgan, none of

the major Wall Street firms would

invest or trade with Madoff

because they did not believe his

numbers were real. J.P. Morgan

would pay for their involvement –

they were fined $2 billion (£1.6

billion) in 2014 to compensate

victims of his scheme.

The SEC had investigated

Madoff before 2008, but missed the

massive fraud. As early as 1992,

BERNIE MADOFF

they investigated and shut down

Avellino and Bienes, one of

Madoff’s “feeder funds” to attract

potential investors, but failed to see

the signs that its malpractice was a

part of Madoff’s larger operation.

Subsequent investigations were

plagued by incompetence, a lack of

financial expertise, and failures in

communication between SEC

departments working separately

on aspects of Madoff’s firm. The

frequent but unproductive contact

between the SEC and Madoff’s

compliance officers even led to the

marriage of Madoff’s niece and Eric

Swanson, an SEC lawyer leading

investigations into the Madoff fund.

After years of incompetent

investigations by the SEC, in late

fall 2008 Madoff knew that his

scheme, and the economy, were

beginning to crumble. Clients

suddenly requested a total of

$7 billion (£4.4 billion) in returns.

Madoff had only $200–300 million

(£125–185 million) left to give.

The truth comes out

On 10 December 2008, Madoff met

with his sons to discuss year-end

bonuses totalling millions of dollars.

He explained that he wanted to give

them earlier than scheduled. When

his sons were suspicious enough to

ask where the money was going to

come from, Madoff admitted that it

would come from a part of the

business they were not involved in,

1986

Madoff sets up his firm’s

headquarters at 885 Third

Avenue in New York.

1990

Madoff begins three

years serving as chair

of the NASDAQ stock

exchange.

1992

The SEC shuts down

Avellino & Bienes, a

“feeder fund” that

recruited investors in

Madoff’s company, but

fail to find a connection

to Madoff himself.

1960

Madoff founds Bernard

L. Madoff Investment

Securities LLC.

The math was so compelling...

unless you could change the

laws of mathematics, I knew

I had to be right.

Harry Markopolos

Respected Wall Street figure

Bernie Madoff had been secretly fooling

investors, regulators, and the

government since the early 1990s,

when he first devised his Ponzi scheme.

116-121_Bernie_Madoff.indd 120 02/12/2016 16:17

121

Embroidered velvet slippers were

included in an auction lot of Madoff’s

possessions sold to raise funds to

compensate the victims of his $65

billlion (£47 billion) Ponzi scheme.

and confessed to an elaborate Ponzi

scheme. Instead of accepting the

money, Madoff’s sons reported him

to federal authorities; FBI agents

arrested Madoff the next day.

Shortly after his arrest, Madoff was

WHITE COLLAR CRIMES

released on bail as he awaited

charges and sentencing. He and

his wife Ruth packed up some

personal and family items, including

jewellery, and posted it to their sons.

In 2011, Ruth Madoff stated

that she and her husband had

attempted suicide together on

Christmas Eve, 2008. Scared and

acting on impulse, they took a

cocktail of different pills – including

what they hoped would be an

overdose of sleeping pills – but

woke up unharmed.

Tragic conclusion

On 12 March 2009, Madoff pleaded

guilty to 11 different crimes,

including securities fraud,

investment adviser fraud, mail

fraud, wire fraud, three counts of

money laundering, giving false

statements, perjury, and making

false filings with the SEC.

On 29 June 2009, Madoff was

sentenced to 150 years in prison –

the maximum allowable sentence

for his crimes. Just before he was

sentenced, Madoff apologized to

his victims, many of whom were

seated on the benches behind him.

In November 2009, the government

began to sell and auction off

Madoff’s assets to repay his

investors. These included a large

yacht and two smaller boats; a

property portfolio including a New

York City penthouse, a beach house

in Montauk, New York, and a

Florida mansion; artwork by

Picasso and Roy Lichtenstein;

his wife’s extensive jewellery

collection, a Rolex collection, and

a Steinway grand piano.

The unravelling of Madoff’s

scheme – the biggest Ponzi scheme

in history – had a significant

impact on hundreds of families

across the US, and Madoff’s own

family would fall apart in the

aftermath. His 46-year-old son,

Mark, hanged himself on the

second anniversary of Madoff’s

arrest, as a sad finale to a complex

life lived under the constant but

elusive authority of his father. ■

2000

Harry Markopolos’s first

submission proving

Madoff’s guilt is

submitted to the SEC

but eventually rejected.

2008

Madoff confesses the Ponzi

scheme to his sons. They

immediately report their father to

the FBI and Madoff is arrested.

2005

Following concerns raised

by Renaissance Enterprises,

LLC, the SEC begins another

ultimately unsuccessful

examination of Madoff’s firm.

2002

An anonymous hedge fund

manager registers a detailed

complaint with the SEC about

Madoff’s investments. Nothing

comes of the investigation.

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