Economic Research Project- Bernie Madoff (Ponzi Scheme)

Brittany Callen

4B

Bernie Madoff’s Ponzi Scheme

Bernie Madoff can be described in many adjectives: thief, liar, ex-businessman, and father, many adjectives not admirable considering he founded the Ponzi Scheme, the largest financial fraud in the U.S. history. Investor account statements in 2008 showed $65 billion in false paper profits, but SEC estimates the fraud could be between $10-$17 billion dollars. Bernie Madoff chose to commit fraud against millions, as a result: civilians suffered loss of future retirement plans, many investors lost money, and some businesses even had to close.

The ponzi scheme affected many; largely small investors, who were relying on the income to create retirement funds. Other people that were hurt from the scandal were financial institutions, charity foundations, and even celebrities. Many of them are well known; Elie Wiesel, Steven Spielberg, and even the owner of the Mets, Wilpon family. The scheme led a ripple effect through the lives around Bernie; Mark Madoff, Bernies oldest son, committed suicide two years after his father's arrest. R. Thierry Magon de la Villehuchet also committed suicide after losing $1.4 billion in the scandal.

Irving Picard has recovered $10 billion and has created around 1,000 lawsuits to fund money for the people who have been stolen from. According to the PR Newswire, the US Labor Department is funding $220 million dollars to compensate for the money that has been stolen in the scandal. This settlement is still pending approval, yet if it’s authorized many investors and victims will be reimbursed. Although most were hurt from the scandal, some benefited from it. Around half of Madoff’s investors were “net winners” who earned more than their investment. There were lawsuits, called “clawbacks” which returned the money.

Many wonder why Bernie was able to pull off this 20 year long scandal. One reason is the SEC, Securities and Exchange Commission, ignored the 6 complaints that were filled towards Bernie. Even he himself thought multiple times he would be discovered by SEC investigators. The financial analyst and fraud examiner Harry Markopolos realized in 1999 that Bernie was committing a scandal, as it wasn’t possible to have earnings of which Madoff was claiming. Harry presented evidence to SEC in 2000, and 2001, yet again in 2005 and 2007. Harry unfortunately was ignored, and surprisingly Bernies sons, Andrew and Mark, turned in their father. This is when Bernie admitted, it was all “just one big lie.”

Madoff pleaded guilty to the 11 felony courts against him, including money laundering, perjury, and security fraud. During the trial Madoff apologized to the victims hurt by what he did, “I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. This is something I will live in for the rest of my life. I’m sorry.” Madoff's wife, Ruth, had little input but said, “I am breaking my silence now because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie’s crime, which is exactly the opposite of the truth. I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused. The man who committed this horrible fraud is not the man whom I have known for all these years.” He will now be facing his consequences and living the rest of his life in prison.

Bernie Madoff made the decision to commit fraud, and with help from others he was able to pull it off. He faces his consequences with his guilt, he destroyed his families life and took from many others. For his crime he hides behind bars, bars that are saving him from the vicious victims he took so much from.

Citations

Belson, Ken, and Richard Sandomir. "Mets' Owners Agree to Deal In Madoff Suit."New York Times 20 Mar. 2012: A1(L). Gale Student Resources In Context. Web. 29 Nov. 2012.

"Bernie Madoff Arrested for Ponzi Scheme, December 11, 2008." Historic U.S. Events. Detroit: Gale, 2011. Gale Student Resources In Context. Web. 29 Nov. 2012.

Nocera, Joe. "Suspense Is Over in Madoff Case." New York Times 26 June 2012: A23(L). Gale Student Resources In Context. Web. 29 Nov. 2012.

"Psychology Of Fraud: Why Good People Do Bad Things." All Things Considered 1 May 2012. Gale Opposing Viewpoints In Context. Web. 30 Nov. 2012.

"US Labor Department recovers nearly $220 million for Madoff victims." PR Newswire13 Nov. 2012. Gale Student Resources In Context. Web. 29 Nov. 2012.