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  • Writer's pictureTHE DEN

Biggest White Collar Scandal in the history of Mankind - Bernie Madoff


Bernie Madoff

“I look at the newspapers, and I cannot believe most of the stories I read. Bernie Madoff, who actually screwed millions of people for billions of dollars, it's just unbelievable what he got away with and how long it took for him to be exposed. A guy like that should be hanged.”

- Alan Abel (American Writer)

Bernard Lawrence Madoff was an American fraudster and financier. He ran the largest Ponzi scheme in history, worth about $64.8 billion. Madoff pleaded guilty in 2008 to 11 federal felony counts, including securities fraud, wire fraud, mail fraud, perjury, and money laundering.

The Wizard of lies

Bernie Madoff was one of the best traders on wall street. His consistent investment returns made him one of the best fund managers. He was the chairman of the NASDAQ stock exchange and revolutionized the trading business. Bernie Madoff started his investment firm in 1960 with $5,000 that he had made working during the summertime as a lifeguard and another 50,000 from his father-in-law.

In order to compete with large investment firms Madoff turned to technology. His firm pioneered the use of electronic trading, opting away from the historic human traders. With this focus on technology the company was able to provide a lower cost for their services which led them to have a substantial share of share market transactions.

He had spent decades building his multibillion-dollar empire until one day the house of cards fell and all that remained was a decade of lies as he had stolen $65 billion, ‘the largest Ponzi Scheme the world had ever seen’.

How does this Ponzi Scheme work ?

The person who runs a Ponzi offers their first investor high returns on their investment they then find new investors and give that new money to the original investors; so it’s like they continue pumping in new money and dumping it to older investors all the while of pocketing their own cut until there’s no more new investors then the scam dries up. In other words they rob one person to pay another person.

Paul Charles Ponzi was the first person to run the scheme hence it being called the Ponzi Scheme.

But wait we are not talking about Ponzi here, In Madoff’s case -

Investors would give their money to invest and Madoff gives them a healthy return but the return does not come from actual investments, he simply gives back a small portion of their initial investment instead. Eventually the money dries up so the stock needs to be replenished. Madoff then moves on to the next investor and so the scam grows larger.

How did it look ?

The investor has money invested in Madoff’s firm and gets a good return.

But in reality -

The money is being siphoned into Madoff's own accounts as well as paying off old investors to keep the lie afloat. Meanwhile he would show investors false reports that showed they were making money and if any of them wanted out he would pay them with money from the group account.

Actually, Madoff or his firm hadn’t made a single trade since 1993 or perhaps even earlier. Furthermore, the fraud ran until the market went into a recession in 2008.

Many investigations (around six times) happened before 2008 but nobody got any hard evidence since nothing can be proved via just theories, every time investigations went closed.

The Downfall

In December 2008, wall street was illuminated in red; trillions of dollars were wiped out from the stock market. In rushes and panics investors were asking for their original investments back; so were Madoff’s clients. Bernie tried but nothing was enough, the withdrawals were still more than he could bring in.

Ironically, nobody exposed him but he decided to turn himself in as he had no more money or new investors anymore. Madoff told his sons and wife about everything including that he has decided to turn himself in at the end of that week. Thereafter his sons called the lawyers and turned Madoff in before he could, fearing that they would become accomplices in their father’s crime.

In the end Madoff did not fight but admitted his crime and offered his remorse. Within a few months he was sentenced to 150 years of imprisonment. In April 2021, he died at FMC Butner prison in North Carolina of natural causes at the age of 82.

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