Even for those with only a passing interest in the news headlines, the report of the death last month of Bernie Madoff could hardly have gone unnoticed. Madoff, perpetrator of the biggest individual fraud in history, died in prison – hardly a surprise, given that he had been serving a sentence of 150 years, which would not expire until he reached the age of 201.
Madoff had devised the daddy of all Ponzi schemes, that high finance fraud by which the perpetrator robs Peter to pay Paul, and everyone is happy until the music stops. A Ponzi scheme lures investors to part with their money on the promise of high dividends, which is then used to pay dividends to earlier investors. The victim believes that the profits are coming from a legitimate business, and remains unaware that other investors are actually providing their return.
Not that too many asked questions, since a Ponzi scheme only requires investors with plenty of cash, an appetite for more, and a reluctance to look a gift horse in the mouth. So as long as Madoff Investment Securities was paying back a juicy 15 percent to investors, nobody looked too closely behind the curtain.
And Madoff made sure that all appeared above board; those few who asked to withdraw their money were paid back immediately; every investor was provided with an authentic looking annual statement showing their dividend. Invariably, they told Bernie to simply add it to their holding. As word of Madoff’s extraordinary business acumen spread, more and more investors clamoured to get on board.
Bernie Madoff’s main personal asset was the trust in which he was held. He had been founding chairman of Nasdaq, the electronic stock exchange platform; he was famously respected on Wall Street, a reliable pillar of the financial community for forty years; he was a governor of several universities; even the Securities and Exchange Commission, the financial watchdog, would seek his advice on any particularly knotty problem.
As long as the stream of new investors kept flowing, there was never a problem. Right through the financial woes of the 1990s, Bernie’s business flourished, with individuals, universities, pension funds and foundations investing billions with him. Steven Spielberg, the Bank of Scotland, Tufts University, John Malkovitch and HSBC were among those who trusted him with everything. As a Jew himself, he told Elie Wiesel, the Holocaust survivor and Nobel laureate, he had a special interest in helping Jewish causes. It was enough to persuade Wiesel to invest $15 million of his Foundation for Humanity with his fellow Jew.
As long as the money kept coming in on the ground floor, all was well. But then came the financial meltdown of 2008, and the music stopped. Panicked investors, stuck with other pressing debts, came looking for their money back. The first run of demands was for $12 billion, which Madoff was unable to come up with. Word spread like wildfire, there was a run on Madoff’s offices, and then came the shocking truth.
In all, €50 billion of assets had gone unaccounted for; 5,000 small investors – the tip of the iceberg – had seen their life savings disappear. Their money had gone on beach houses in the south of France, luxury cars, private jets and penthouses in Manhattan.
Madoff’s remorse in the courtroom cut little ice with the judge, who said the only regret of the accused was that he had been caught. Pleas from his lawyers for a lenient sentence on grounds of age and ill health were flatly refused; the sentence of 150 years was the maximum which it was possible to impose.