Who Was Bernie Madoff?
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On December 10, 2008, Bernie Madoff informed his sons Mark and Andrew that his investment firm was “one big lie.” On December 11, 2008, Mark and Andrew Madoff reported their father to the authorities for running a decades-long Ponzi scheme.
Bernie Madoff’s business, Bernard L. Madoff Investment Securities LLC, began as a startup in 1960. He traded penny stocks and was eventually able to secure a large enough loan to grow his firm to the point of being able to trade on the New York Stock Exchange floor. Madoff’s company continued to expand, to the point of being one of the six largest markets in the New York Stock Exchange.
The first time Bernie Madoff’s company popped up in a fraud investigation was in 1992. A feeder fund for his company, called Avellino & Bienes, was discovered to be operating illegally. Surprisingly, the investigators in the Avellino & Bienes case did not examine Madoff’s records closely enough to discover suspicious activity. In fact, they didn’t bother to even examine his stock reports.
Bernard L. Madoff Investment Securities LLC was investigated by the Securities and Exchange Commission (SEC) again in 1999, 2000, 2004, 2005, and 2006-2007. The 2006-2007 investigation happened because Madoff had been accused of running a Ponzi scheme. However, the SEC found no evidence whatsoever that showed Madoff’s business was scamming clients out of money with no promise of payoff.
Suspicions about Madoff rose from Harry Markopolos, a successful analyst, in 1999. He was asked by a client to come up with an investment structure that mirrored that of Madoff, because his program was clearly a success. However, when Markopolos looked into Madoff’s records, he immediately noticed that the numbers did not logically add up. Markopolos complained to the SEC twice to no avail, and a third time in a 17-page memo entitled “The World’s Largest Hedge Fund is a Fraud.” He also approached the The Wall Street Journal in 2005, in hopes of them running a story about his discovery, but they had no interest in his findings. Six months prior to Madoff’s arrest, Markopolos and his team looked into Madoff’s records again, and predicted that Madoff was rapidly running out of money to pay off investors. Investors were withdrawing their funds at a spiked rate due to the economy’s downturn, and Madoff simply wasn’t bringing in enough new investors to pay off his old ones.
On December 10, 2008, Bernie Madoff suggested to his sons Mark and Andrew that they should give their employees bonuses two months early. They reacted by asking how they could pay their employees such large bonuses if they couldn’t pay their investors. Madoff then revealed that his business was “one big lie.”
Bernie Madoff scammed investors out of roughly $20 billion. He pled guilty to 11 counts of fraud, theft, money laundering and perjury, and is now serving 150 years in federal prison. His brother, Peter, was sentenced to 10 years in federal prison for his awareness about certain aspects of the scheme, making false statements, and obstructing the IRS. On December 11, 2010, exactly two years after Madoff’s arrest, his son Mark hung himself in his New York apartment. Mark had been under investigation for potential involvement and knowledge about his father’s scheme, and was unable to find work in the industry due to the scandal surrounding his family business.