Bernie Madoff Case Summary

Case Presentation: Bernard Lawrence Madoff

“Robbing Peter to pay Paul”, Bernard Madoff king of financial fraud will be serving 150 years in prison for running his Ponzi scheme. Now why such a big price to pay for running a Ponzi scheme? Bernard Madoff also referred to as “Bernie Madoff”, was charged with committing eleven charges, including robbery of thirteen thousand five hundred and eighty of his clients. The Bernie Madoff case made waves because it brought attention to how un-educated and unprepared the Securities and Exchange Commission (SEC) was for anything of this matter.

How did this massive collapse of the sixty-five billion dollar Ponzi Scheme even begin? Bernie Madoff saved up five thousand dollars from a job he had as a lifeguard, in nineteen sixty he opened a firm with the money he saved. The Firm helped create the National Association of Securities Dealers Automated Quotations (NASDAQ) In which he held chair from nineteen ninety through nineteen thirty. Madoff’s firm became profitable by exploiting the wealthy Jewish communities. Bernie became very involved with his Jewish fellowmen he knew at his local synagogue, where he would invite them to let him invest their money and then as the pyramid grows those men brought in men they knew to also let Madoff invest their money. He promised high rates of returns to his

clients, rates that were impossibly high.
Because of Madoff's exclusive status, high rates of return, secretive investing strategies and high profile involvement with the financial industry on Wall Street It made it difficult for anyone to accuse or even suspect a multi-billion dollar investing Ponzi scheme was even happening on the seventeenth floor a couple floors down the Madoff Investment Securities firm. He claimed his strategies were too difficult for investors to understand.
“He was a great marketer who gave the illusion of exclusivity to credulous investors. He put a fear into all of his investors that if they pulled out too soon they would lose out and not be able to invest again and get great returns. Sadly, all Madoff was doing was running a Ponzi scheme in which he would take funds from new investors, and pay dividends and redemption requests to older investors, pocketing a (large) portion for himself.” (Paul Volker).
On the seventeenth floor Madoff ran the Ponzi Scheme in a non-updated office, being watched by chief financial officer Frank DiPascali, a thirty-three-year-old veteran of the firm. There were many employees unsure of the work that he did, other than he was a big deal and no one questioned the work. Frank DiPascali set up an account for himself at the firm named after his fishing yacht, Dorothy Jo., never having had making a contribution he withdrew more than five million and took home bonuses that were over two million annually. There he worked with accountant and auditor David Friehling, and Daniel Bonventre director of operations whom falsified accounting records for years. As auditors they were considered to not have complete disclosure on what was going on in Madoff’s company, and didn’t question what should have been questioned.
Madoff, who was well connected to rich investors, politicians and regulators, ran the Seventeen-billion-dollar investment business for wealthy clients alongside his stock brokerage firm, ostensibly investing in blue chip stocks and options. But the warning signals were there for anyone who was watching. Madoff had for years been paying a ten percent to twelve percent return to his clients, in good times and bad.

The Scheme worked with feeder funds like; the Ascot Partners fund, Ezra Merkin, Fairfield Greenwich Group, and Bank Medici. Feeder funds work as Hedge funds and fund of funds; an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. A Feeder fund is used as a scheme to hopefully increase diversity of a portfolio. However, the diverse benefits are countered by the increased fees paid at the Feeder fund level and at the underlying investment fund level. Through the high twenty-five percent price clients paid, Bernie was able to pocket twenty billion for himself. Although the Scam couldn’t have worked without family members helping crank out false statements and direct operations with Madoff’s international Ltd. In London. The nine directors with shares consisted of Mark and Andrew Madoff (sons), Peter Madoff (brother), Ruth Madoff (wife) and Bernard Madoff.
Peter Madoff partnered with brother Bernie for more than forty years, his daughter Shana Madoff Swanson helped work the computerized trading system. Daughter Shana was marred to Eric Swanson, whom she met during a SEC review being conducted on the firm.
Eric Swanson worked as an assistant director of the SEC during the time. Eric Swanson an American lawyer who worked at the SEC from August of nineteen ninety-six to two thousand and six where he worked as the head of the inspection program responsible for regulatory oversight of trading. The SEC is responsible for enforcing federal security laws, proposing security rules and regulating the security industry, the nations stock, and options exchanges.
Son-in-law Eric Swanson was overhead of regulating Madoffs Investment securities firm, and when Harry Markopolos came out with five submissions of material against Madoff. Harry blew the whistle five times and the SEC hadn’t batted an eye. Markopolos began work on the investigation nearly a decade ago while he was working for a Boston investment firm. Harry’s boss told him that Madoff, was running a huge unregistered hedge fund that had ridiculous returns. The purpose of the boss informing Mr.Markopolos, was so that he could reverse engineer the trading strategy so that the firm could duplicate Madoff’s results.
It took Markopolos five minutes to know that it was a fraud and about another four hours of mathematical modeling to prove that it was fraud. What caught his attention was knowing that markets go up and down, and Madoffs only went up. “…That would be equivalent to a baseball player in the major leagues batting ninety-six hundredths for a tear. Clearly impossible.” Markopolos stated. By two thousand and five he had twenty-nine red flags you couldn’t miss. To execute the trading strategy, he would have had to buy more options on the Chicago Board Options Exchange than actually exist, no one there remembered making a single trade with Bernie Madoff. None of Madoff’s investment funds ever made any trades, since nineteen ninety-three. Madoff was suspected of being a fraud by some of the world’s largest, most sophisticated financial services firms ‘The biggest firms on Wall Street’.
In two thousand and six when son-in-law Eric Swanson stopped working for the SEC, the SEC finally opened up Markopolos’ allegations about Bernie Madoff.

The case was closed without ever opening formal investigation, due to no ‘evidence of fraud’. The SEC according to Markopolos stated that the SEC people are “…Totally untrained in finance; they’re unschooled; they’re un-credentialed. Most of them are just merely lawyers without any financial industry experience.” They were trained in checking every piece of paper perfectly and finding misdemeanors but they will miss all financial felonies that are occurring, because they never look

there.
So if not being caught by the SEC, what brought down this sixty-five-billion-dollar scheme? Bernie Madoff was turned in by his son and charged with Money laundering, perjury, false filings and fraud. Just seven months after beginning his one hundred and fifty-year sentence, lawsuits are filed against Madoffs sons, brother and niece.
Although turning themselves in before authorities came after them helped the Bernard’s case when he knew the companies predicted collapse when an investors requested to pull out and receive their seven billion back in return. Madoff and investment securities only had 200-300 million left to give. It failed because Ponzi Schemes are running by central operators that use money from new incoming investors to pay off the promised returns to the older ones. Making the operation seem profitable and legitimate, even though no actual profits are being made.
To avoid having too many investors reclaim their "profits," Ponzi schemes encourage them to stay in the game and earn even more money. The "investing strategies" used are vague and/or secretive, which schemers claim is to protect their business. Then all they need to do is tell investors how much they are making periodically, without actually providing any real returns. So when Investors no longer wanted to stay “in” with Madoffs Scheme he ultimately crumbled because there were no real returns.
But through the entanglement of feeder funds, international hedge funds, sub-partnerships and pension funds, family members and accountants putting out false statements, and SEC’s failure to address Markopolos’s requests, Madoff was able to get away with decades of scamming.
The aftermath that affected his clients is unrecoverable. Eleven billion of the nearly twenty billion Madoff took from investors will be returned. No matter how much is recovered some of the lives of investors can never be fully repaired. For example, in two thousand and eight, Michael De Vita of Chalfont, a client of Madoff, said the five million retirement account he and his mother entrusted to Madoff would allow him to retire at sixty while giving his mother comfortable golden years filled with worldwide travel and three months a year in Florida. Its stressed that none of Madoffs Clients will be made whole.
“People are getting back a portion of the money they gave Madoff. But nothing can bring back the millions of dollars they should have been earning over decades - interest and investment earnings Madoff Falsified in monthly statement to investors” (Matt Assad).
Bernard Madoff's fraudulent investment firm, collapse included some of the largest international banks, hedge funds, charities, pension funds, wealthy investors and some of more modest means. Madoff admitted that his firm was "a giant Ponzi scheme" and owed at least $50 billion.
The scandal, the world's largest ever fraud, will mean the widespread destruction of wealth, not just in the United States, but internationally. Leading to billions of dollars in write-downs and losses for financial institutions, bankruptcies for weaker and smaller banks, and financial devastation for pensioners, hospitals, universities and philanthropic organizations whose assets were placed with Madoff. Sparking fears about the financial viability of hedge funds and other investment firms, leading hedge funds to limit withdrawals
As for the Family and Employees, they did not end up in a good situation after all of this either. Son Mark Madoff committed suicide, Son Andrew Madoff Died at the age of forty-eight of lung cancer, wife left with only two point five million, Peter and Shana settling one hundred and ninety-nine-million-dollar lawsuit. Employees and partners under scrutiny, facing prison time, and jobless. As for Bernard he is still facing and serving his one hundred and fifty-year sentence.