There was a time when Bernie Madoff was among the most respected financial advisers in America. His firm would invest his clients money and seemingly always generate a healthy return – or at least, that’s what he claimed it was doing. In reality he was operating the largest Ponzi scheme in history, leading to countless news reporters making the sickeningly obvious pun that Madoff made off with people’s money. Before this was public knowledge his firm was seen as a safe investment. He was beloved by fellow wall street executives, even serving as the chairman of NASDAQ. He ran the sixth largest company on wall street, and overseeing the investment of billions of dollars. But today his name is synonymous with fraud. This is the fall of Bernie Madoff.
A Ponzi scheme is quite simple. You have a handful of investors who give you money. Their profit from investing is paid by other investors buying into the scheme. These new people are then given the money of future investors. That’s all it is – money being swapped between those involved in the scheme, who of course don’t know this. No Ponzi scheme can last forever. As they gain more investors they rely on an ever-growing number of future investors to keep it going. How long a Ponzi scheme lasts depends on how crafty it’s operator is. But sooner or later it will collapse and a lot of people lose their money.
In the case of Bernie Madoff, those buying into the scheme believed he was making wise investments on their behalf. They believed the success of these investments were behind the returns he paid them. But really their money was simply going into Bernie Madoff’s bank account. He would forge investments, inventing companies that didn’t exist and pretending they then grew in value. In reality he was just faking paperwork and redistributing the money his investors gave him. But like with all Ponzi schemes, Madoff was one day unable to provide returns for his investors and his company collapsed.
In the final days of his scheme banks were lending him money to pay investors. But when the economic downturn hit in 2008, banks became unwilling to loan him money, and so he literally had no way of carrying on the scheme. He knew the whole thing was about to collapse, which is the most fun part of any Ponzi scheme. But not so much fun for the people behind it. He decided to give away massive bonuses to staff before the collapse.
But his two sons, who also worked for his firm, thought this was strange. They confronted him and he told them their world was a lie. That everything they had was built on a Ponzi scheme. Being loyal children, they almost immediately went to authorities and turned him in. It was at this point he admitted running the biggest Ponzi scheme of all time. Sixty four billion dollars were estimated to have been lost due to the scheme. Before long Bernie Madoff was sentenced to 150 years in prison. Seeing as he was 71 at the time, there is a chance he will die before the sentence is over. As his firm was seen as a safe investment option countless lost their lives savings when the scheme collapsed.
Some individuals lost over a billion dollars personally. He was able to keep the scheme going for so long as he didn’t give returns as high as other firms – but gave a steady mid-lever RIO. This meant few suspected the firm as fraudsters usually fabricate high returns. But Bernie Madoff was too cunning for that. His fraud was hidden in plain sight. It’s thought Madoff ran the Ponzi scheme from the mid 1980s until 2008, making it one of the longest lasting to ever be exposed.
Much of the money lost to his scheme has now been recovered from secret accounts. But billions are still missing. Only Madoff knows where the money might be found. Bernie Madoff is in prison. One of his son’s committed suicide and the other died of cancer. But to his credit, keeping a Ponzi scheme going that long is not easy. And he did try and give large bonuses to his staff. Sop in a way he was a bit like Gandhi.