Born: April 29, 1938;
Died: April 14, 2021.
BERNIE Madoff, who has died aged 82, was for many years a financial advisor who seemed to have a magic touch: however the markets fluctuated, he always returned a health profit for his influential clients.
But then the financial crash happened in 2008 and it was all exposed: Madoff’s magic touch was an illusion and his business a fraud. There were no investments. The whole thing was a Ponzi scheme – in fact, the biggest Ponzi scheme in history.
Madoff’s scam worked just as Charles Ponzi’s had a century before. Instead of investing the money, he attracted new investors – mostly through word of mouth among the wealthy of Manhattan who wanted to be wealthier – and paid profits to the old investors with the new money.
As long as the new money rolled in, no-one knew anything, but after the 2008 crash, hedge funds and other investors started to take hundreds of millions of dollars from their Madoff accounts.
Madoff himself knew at once that the game was up. For years, he had orchestrated the scam behind a locked door in his offices, but, as it came crashing down, he called his sons into a meeting and told them the truth. “It’s all just one big lie,” he told them. His sons went to the FBI and the following day Madoff was arrested.
For the investors who had relied on Madoff – and encouraged others to invest with him – it was a massive shock. Some of them lost everything overnight, some lost their homes, and at least two took their own lives. There was also a toll on Madoff’s own family: one of his sons, Mark, killed himself on the second anniversary of his father’s arrest in 2010.
As for the financial industry, it suddenly realised that a man who had been right at the heart of its infrastructure was a crook. Madoff had been chairman of the Nasdaq, the first electronic stock exchange, which he helped launched.
He was also, ironically, an advisor to the Securities and Exchange Commission, the US agency that was set up to protect investors, and over the years he had attracted a long list of devoted investment clients, including the film director Steven Spielberg and the actor Kevin Bacon.
It is not entirely clear exactly when Madoff’s activities went from being largely legitimate to being largely fraudulent.
Born in New York to parents, Sylvia and Ralph, immigrants from eastern Europe, he graduated from Hofstra University and at first worked as a sprinkler salesman. But having married Ruth Alpern, he started Bernard L Madoff Investment Securities (BLMIS) in 1960 with the help of his father-in-law and savings of $5,000.
By the 1980s, the business occupied three floors of a Manhattan high-rise. There, with his brother and, later, his two sons, he ran a legitimate business as middlemen between the buyers and sellers of stock. But what no-one knew was that, behind the scenes, in a separate office kept under lock and key, he was operating the big scam, using cash from new investors to pay returns to old ones.
He decided what return he wanted and then, using historical data, pretended to have bought the shares he needed to deliver it.
The scam meant Madoff could lead a highly luxurious life. He and Ruth had a Manhattan apartment, an $11 million estate in Palm Beach, Florida, and a $4 million home on Long Island. They also had a home in France, private jets and a yacht.
When the whole edifice came crashing down, it was shocking and spectacular. Madoff’s chief financial officer, Frank DiPascali, told the trial that just hours before the scam was exposed, Madoff called him into his office. “He’d been staring out the window all day,” DiPascali said. “He turned to me and he said, crying, ‘I’m at the end of my rope. Don’t you get it? The whole goddamn thing is a fraud.’”
Madoff pleaded guilty in March 2009 to securities fraud and other charges, saying he was deeply sorry and ashamed. District Judge Denny Chin sentenced him to the maximum 150 years in prison.
“The message must be sent, “ said the judge, “that Mr Madoff’s crimes were extraordinarily evil and that this kind of irresponsible manipulation of the system is not merely a bloodless financial crime that takes place just on paper, but it is instead ... one that takes a staggering human toll”.
A forfeiture order was also issued, stripping Madoff of all his personal property, including real estate, investments, and 80 million dollars in assets which his wife had claimed were hers. The order left her with $2.5 million.
Last year Madoff’s lawyers filed court papers to try to get the 82-year-old released from prison in the Covid-19 pandemic, saying he had suffered from end-stage renal disease and other chronic medical conditions. The request was denied.
A court-appointed trustee has recovered more than $13 billion of the estimated $17.5 billion that investors put into Madoff’s business. At the time of his arrest, fake account statements were telling clients they had holdings worth $60 billion.
Madoff’s brother, Peter, who helped run the business, was sentenced to 10 years in prison in 2012, despite claims he was in the dark about what was going on.
Madoff is survived by his wife Ruth and was pre-deceased by his sons Mark and Andrew. The latter died from cancer aged 48.
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