The Criminal Mind of Bernard Madoff
By Roger Caldwell
The “Ponzi Scheme” is nothing new under the sun, and there is a long list of American businessman who have stole millions with the “Ponzi Scheme.” In our own backyard Lou Pearlman stole millions and he was a multimillionaire who had sold millions of records. Norman Hsu stole 40 million dollars from investors and donated thousands of dollars to Hillary’s Clinton’s campaign in 2007.
A “Ponzi Scheme” is a swindle offering unusually high returns to early investors paid off with money from later investors. The principle organizer of the scheme is usually an individual who is credible and a leader in his chosen profession. Bernard Madoff was a former chairman of the NASDAQ Stock Market and his credentials were impeccable.
Investors trusted his experience and knowledge of the market and his hedge fund consistently outperformed other companies in the financial services industry. It was considered an accomplishment to be allowed to invest in his financial company, because it was extremely selective. Bernard Madoff’s company was global and the companies and individuals who invested with him were guaranteed a consistent return each year.
No one questioned his legitimacy and authenticity, because the Security Exchange Commission had allowed this company to flourish for over forty years. This company had managed billions of dollars each year with very few improprieties and mistakes. The investors received their monthly statements and their money when they requested or needed a pay out.
Madoff was a prominent businessman and philanthropist, and all of his investors considered Bernard Madoff an honorable person. His operation was conducted out of floors17 to 19 in New York and an additional London office with 28 employees. Madoff has helped develop many groundbreaking technologies in the market, and was one of the first to institute paying a broker to execute a customer’s order.
On December 11, 2008, Federal Bureau of Investigation agents arrested Madoff and charged him with one count of securities fraud. Madoff is seventy and faces up to 20 years in prison and a fine of up to $5 million. The Securities and Exchange Commission filed separate civil charges against Madoff.
Five days after his arrest, Madoff’s assets and those of the firm were frozen and a receiver was appointed to handle this case valued at a loss of up to $50 billion. The colossal magnitude of this case makes it the largest investor fraud ever attributed to a single individual.
Agents have questioned Madoff and he has claimed that he acted alone in this giant “Ponzi Scheme.” Some of the agents have identified 2005 as the year he initiated his scheme. Others claim that this scandal could have started back in 1970. Nevertheless, his operation held $300 million in assets and was one of the top traders of securities in the nation.
Madoff was a “master marketer” and he worked the “Jewish circuit” in Palm Beach, Long Island, Manhattan, and Hollywood. His list of investors included Jeffrey Katzenberg, Eliot Spitzer, Yeshiva University, the Elie Wiesel Foundation, charities by Mortimer Zuckerman and film director Steven Spielberg. One of the most prominent Jewish promoters, J. Ezra Merkin steered $1.8 billion toward Madoff’s firm.
Madoff’s friends and investors were also international in scope. He used feeder funds that connected him to investors in Singapore, Europe, South America, Asia, and China. Internationally, Madoff was advertising to anyone with money, and his sales force were well-dressed multilingual representatives in the financial capitals of the world.
As Madoff’s scheme began to unravel many international banks have announced that they have lost billions in U.S. dollars as a result of the scheme. A number of national charities, such as the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation have been forced to close as a consequence of the fraud.
Somewhere in the recesses of the criminal mind white collar crimes are not considered or treated as thief or robbery. White collar crime is considered a sickness, a temporary lapse in judgment, which is treatable with time, prayer, and professional consultation. The passion for success is a positive motivation, and the winners are held in high esteem.
Madoff was the ultimate rule bender and during his years of remarkable success, he helped create and implement many of the rules, technologies, online trades and brokers on the New York Stock Exchange. He was able to think outside of the box and there is a thin line between genius and insanity. As his scheme unraveled, Madoff was unable to raise $7 billion to cover redemptions.
Many investors have questioned Madoff’s assertion that he was alone in this colossal scandal and he was the only individual responsible for this large scale theft. His top financial officer Frank Di Pascal was responsible for the day to day operation of the business and never noticed that there was a problem with the books. Madoff’s auditor Friehling & Horowitz were unknown accountants with a one room office helped him manage billion’s of dollars with irregular business hours.
There appeared to be many red flags, but it appeared that someone else was helping Madoff stay under the radar of the investigators. The Security Exchange Commission should explain how Madoff was allowed to steal billions of dollars with the “scheme of the century” and no one has any idea when the scheme was initiated and implemented.
In order to be so successful, it appeared that there was a team of accountants, stock brokers, lawyers and other financial institutions collaborating and partnering to facilitate this huge lie. There had to be a group that generated the detailed financial statements to the investors each month, which were pure fantasy. Since the statements were huge lies and an international racket of deception, the question is “where is the money?”
One of the international investor managers has committed suicide, and many of the investors have lost their entire life’s saving. The Securities Investor Protection Corporation is liquidating Madoff’s brokerage firm and provides $500,000 in insurance for missing money or securities in individual brokerage accounts, but does not protect against bad investments. Madoff’s financial records are in disarray and it will take months to sort out the records in a case of this magnitude.
The scandal of the century continues to unfold and corruption and greed continues to be at the core. White collar criminals appear to remain arrogant and show little remorse for the lives they have devastated and destroyed. Maybe white collar criminals have lost all feeling and emotion and they are only concerned about the bottom line.
There is something wrong with a judicial system when an individual acknowledges that they have stolen and defrauded companies, banks and friends out of $50 billion, and they are not in jail.
