Updated: April 20, 2021 8:25:41 am
Bernie Madoff, the Wall Street financier who was sentenced to 150 years after being convicted for what came to be known as the largest and most devastating Ponzi scheme in financial history, died on Wednesday in a prison hospital in the US.
The estimated $65 billion scam had victims from every strata of society, from the poorest to the high and mighty, with the list of those conned including filmmaker Steven Spielberg, actor couple Kevin Bacon and Kyra Sedgwick, broadcaster Larry King and baseball legend Sandy Koufax.
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Who was Bernie Madoff?
Born in New York in 1938 in a working-class family of immigrants from Eastern Europe, Madoff first started a stockbroking firm with his brother using money he had saved from working as a lifeguard and installing lawn sprinklers– a story that became a legend as he rose to fame.
He began in the 1960s by trading penny stocks, or shares of small companies that are not listed on major stock exchanges (interestingly, a route that had also been taken by fraudster Jordan Belfort, whose 2013 biopic starred Leonardo DiCaprio).
Madoff’s business, which was then legitimate, prospered. Working with his brother and two sons, his firm went on to become one of Wall Street’s largest market makers, matching buyers and sellers of stocks, and was among the pioneers of computerised trading.
Madoff was highly respected, and used his expertise in cutting edge technology in helping launch Nasdaq, the first electronic stock exchange, even serving as its chairman at one time. Federal regulators also looked at him as a trusted advisor.
‘The world’s largest Ponzi scheme’
Behind his respectable public persona, however, Madoff was running an elaborate scam.
Pretending to be trading securities, Madoff was running a proper Ponzi scheme: promising steady, double-digit returns to his customers, while actually using cash from new investors to pay back money to older ones.
Madoff was able to sustain the fraud for several years, withstanding a severe recession in the 1990s, a global financial crisis in 1998 and the jittery aftermath of the 9/11 attacks. Through those years, Madoff earned a reputation as a man of his word–never failing to honour redemption requests and delivering the ‘profits’ that had been promised to his customers.
Madoff and his wife lived a luxurious life, owning private jets, a yacht, and homes in Manhattan, Long Island, Florida and in the south of France.
It was only after the crash of 2008 that the Ponzi scheme finally unravelled. His investors, who had so far reposed their trust in Madoff, began to pull out their money just as new sources of income dried up. By November 2008, investors took out over $12 billion from Madoff accounts.
At this time, Madoff confessed to his two sons about the true nature of his business, reportedly telling them it was “one big lie”. They then informed authorities of the scam, and Madoff was arrested at his Manhattan penthouse in December 2008.
The scandal’s scale, and Madoff’s conviction
In total, the loss reflected by fake account statements hovered around $64.8 billion, including the fictitious profits that Madoff was sending back to customers for over at least two decades. Court-appointed trustees have so far been able to recover $14 billion of an estimated $17.5 billion that investors pumped into Madoff’s business.
The scandal is considered among the most humiliating failures of the Securities and Exchange Commission (SEC), the US stock regulator, as it was unable to detect wrongdoing despite investigating Madoff more than six times since at least 1992, as per The New York Times.
In March 2009, the then 71-year-old Madoff pleaded guilty to several charges including securities fraud, saying he was “deeply sorry and ashamed.” Such was the anger against Madoff that he would wear a bulletproof vest to court proceedings.
Calling his crimes “extraordinarily evil”, the court sentenced him to the maximum possible term of 150 years in prison, effectively the remainder of his life. His personal property including houses and investments was seized, as were assets worth $80 million that his wife claimed were hers. His brother was also sentenced to 10 years in prison in 2012.
Last year, after serving 11 years in prison, Madoff asked for an early release stating health problems. He said in an interview to The Washington Post, “I’m terminally ill. There’s no cure for my type of disease. So, you know, I’ve served. I’ve served 11 years already, and, quite frankly, I’ve suffered through it.”
The same judge who had sentenced him denied the request, saying that he did not believe that Madoff was “truly remorseful”, and that “he was only sorry that his life as he knew it was collapsing around him”.
Madoff’s Ponzi scheme took away money from working-class families– including farmers, teachers and mechanics– as well as rich investors from the Persian Gulf and Florida’s Palm Beach. Charities, pension funds and university endowments were also duped.
Madoff, who was Jewish, had also swindled prominent coreligionists by pretending to be interested in Jewish philanthropy– duping Nobel Peace Prize winner and Holocaust survivor Elie Wiesel and the charitable foundation of filmmaker Steven Spielberg.
According to an AP report, a former investor told the judge at Madoff’s sentencing, “He stole from the rich. He stole from the poor. He stole from the in between. He had no values. He cheated his victims out of their money so he and his wife … could live a life of luxury beyond belief.”
At least two investors killed themselves after suffering losses because of the scam. Madoff’s son Mark also took his life on the second anniversary of his father’s arrest in 2010. His other son, Andrew, died of cancer at the age of 48 in 2014, and had blamed the stress of the scam as the cause of the disease relapsing after 11 years since he first fought it off. Madoff is survived by his wife.
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