Bernard Lawrence "Bernie" Madoff; (born April 29, 1938) is an American former financier and convicted felon. Madoff, who once served as a non-executive chairman of the NASDAQ stock exchange, pled guilty to an 11-count criminal complaint, admitting to defrauding thousands of investors of billions of dollars. He was convicted of operating a Ponzi scheme that has been called the largest investor fraud ever committed by a single person.
Federal prosecutors estimated client losses, which included fabricated gains, of almost $65 billion. Other estimates of the fraud, excluding the fabricated gains, are $14-21 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 started as a penny stock trader with $5,000 (about $35,000 in 2008 dollars) that Madoff earned from working as a lifeguard and sprinkler installer. His business grew with the assistance of his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families. Initially, the firm made markets via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate its quotes. After a trial run, the technology that the firm helped develop became the NASDAQ
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.
Madoff was a prominent philanthropist, who served on boards of nonprofitinstitutions — many of which entrusted his firm with their endowments. The collapse and freeze of his personal assets and those of his firm affected businesses, charities, and foundations around the world, including the Robert I. LappinCharitableFoundation, the Picower Foundation, and the JEHTFoundation which were forced to close.
Ponzi scheme is a scam investment designed to separate investors from their money. It is named after Charles Ponzi, who constructed one such scheme at the beginning of the 20th century, though the concept was well known prior to Ponzi.The scheme is designed to convince the public to place their money into a fraudulent investment. Once the scam artist feels that enough money has been collected, he disappears - taking all the money with him.
Graphical Working of Ponzi Scheme
The complete events of the Company can be broken down into 2 main Phases,
End of Phase I
Conditions implied to customers
Madoff did well till 2008. In 2008, almost 1/3rd of all Geneva fund managers had invested with Madoff
This was because most of the investors needed money to pay their own customers and/or to run their own business
The 2 main rules of Ponzi scheme are:
These rules are put to a shock test whenever there is a downfall in the market
Finally on December 10 2008 Madoff confessed to his 2 sons about his funds being a Ponzi scheme and the next morning the FBI were at his doorstep
He was later granted a sentencing of 150 years, being accused of Fraud and 8 other cases
Even before the SEC busted the scheme, there were a lot of obvious catches which, if had been taken into consideration at the right time by the SEC, could have prevented this from happening. They are as follows:
In 2006 SEC finally launched an investigation into the matter
Following are SEC’s responsibilities which should have been checked: