Madoff's Wide-Reaching Fraud Hits Hard

It may be impossible to overstate how extensive Bernard Madoff's apparently fraudulent investing seems to be. The 70-year-old investor, who admitted that he had essentially been running a "giant Ponzi scehme" (moving clients' money around to pay clients) while clients thought they were just investing with an unbelievably reliable hedge fund, said he believed the fraud to be around $50 billion. Bloomberg News has a good summary of how Madoff, a Brooklyn boy made good, unraveled (he was under a lot of stress, according to the criminal complaint, before his confession) and here are few quotes that just scrape the iceberg of the insanity:

“There are people who were very, very well off a few days ago who are now virtually destitute,” said Brad Friedman, a lawyer with the Milberg firm in Manhattan. “They have nothing left but their apartments or homes — which they are going to have to sell to get money to live on.” (NY TImes)
New York Mets owners Fred Wilpon and Saul Katz...may have lost as much as $500 million in the scheme. (NY Post)
One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Mr. Madoff. (NY Times)
During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,'" says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what." (Wall Street Journal)
Either way, as long as Bernard Madoff delivered big returns, investors didn't ask questions. "I hate computers, and I never tried to figure out what he was doing because the bookkeeping all added up," said Joyce Greenberg, a philanthropist and retired financial adviser in Texas. (Daily News)
"Palm Beach became a lot poorer in the last 48 hours," said a member at the Trump International Golf Club, where Madoff played regularly and where his brother Peter is a member... Sources say Jerome Fisher, the founder of the Nine West women's shoe empire, was said to have lost $150 million, and Carl Shapiro, who founded the Kay Windsor garment company, reportedly lost $400 million. (NY Post)
Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says. (Wall Street Journal)

Bottom line: No one was really paying attention while they made money, in spite of red flags. Back in 1999, Harry Markopoulos, working at a rival firm, said, "Madoff Securities is the world's largest Ponzi Scheme," and even, the WSJ reports, "pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal." But the SEC closed their investigation in 2007.

And the WSJ's Jason Zweig has a column on how Madoff made people look dumb: "The accounts managed by Bernard L. Madoff Investment Securities LLC reported gains of roughly 1% a month like clockwork, with nary a loss, for two decades. Why did that freakishly smooth return not set off alarms among current and prospective investors? Of all people, sophisticated investors like Mr. Madoff's clients should know that if something sounds too good to be true, then it's not. But they believed it anyway. Why?"

Contact the author of this article or email tips@gothamist.com with further questions, comments or tips.

By Jen Chung in News on December 13, 2008 11:36 AM

Comments [rss]

angry_pickle

Oh well, this white collar crime will get him 10 years of prison with other white collar criminals plus a small mid-million dollar fine which is pennies since he probably has tens of millions locked up in Switzerland.

These crimes will continue until white collar crimes receive much more severe punishment such as seizure of 99.99% of all their assets, sell all their boats, houses, and condos and relocate them to a trailer park.

MrManhattan

>>Even Bloomberg, which specializes in financial news, says this cost the investors $50 billion, so I'm inclined to believe that's what he stole.

I wouldn't be so sure he "stole" it. He could have put it all in Ferddie, Fannie, Merrill, Lehman and GM.

"Never attribute to conspiracy, that which can be explained by stupidity"

Spirit of 76

[23] [24]

I'm not so sure about that. The reports say the investors lost $50 billion. If some of that went back to prior investors, the figure would be much smaller. I think they were referring to the net loss. Even Bloomberg, which specializes in financial news, says this cost the investors $50 billion, so I'm inclined to believe that's what he stole.

Pull My Finger

I bet most of the people that lost it all are democraps.

Snoopy

Shouldn't this piece of shit just take his own life? It's really not the same as a human life being snuffed.

NannyState

Palm Beach? Trump golf course? Republicans? Could I dare to dream that Rush Limbaugh got himself cleaned out also? There's nobody more deserving of a Weekend At Bernie's than him...

MrManhattan

>>"The money's still around, just in smarter hands. "

>>Is it possible that there is something unethical with this judgment?

You can call it unethical, of course that would make Darwin unethical as well.

Jerky

Any hedge fund that invested with Madoff obviously completely failed to do due diligence and deserves to fail. E.g., Fairfield had 50% of their assets (7.5billion) invested???? Were they complete idiots?? They sent out a letter to their investors Friday, pledging to fight for a return of all assets. Ha! Good luck.

It doesn't take a genius to figure out that a single guy handling billions of dollars, yet whose only accountants/auditors were two random CPA's in New City, NY ****unassociated with any large accounting firm**** is probably not legitimate.

A basic rule of investing is to never have more than 10% in any single asset. If people were entirely ruined, it's basically their own stupid fault.

Rocknrope

Look at all those poor, formerly-rich fools waiting in the lobby. Do I hear Nelson Muntz behind that christmas tree?

edwards

WhoCanWeSue.com???

Snoopy

Update II: I have no money invested in Fred Wilpon's Sterling Equities,contrary to earlier reports.

longacre

Update: Fred Wilpon's Sterling Equities released a statement saying they had no money invested with Madoff, contrary to earlier reports.

longacre

That's what you get for voting Republican!

Please elaborate. The firm was founded in 1960 and sailed through 4 Democratic administrations without any trouble.

Amanda Harletsch

"The money's still around, just in smarter hands. "

Is it possible that there is something unethical with this judgment?

JacqueMehoff

that's correct, some of the money is in the fees made by the investment bankers.

MrManhattan

>>The question is where is that money? He couldn't possibly have spent it all. It has to be stashed somewhere. The feds just have to find out where. Are we sure waterboarding is completely illegal in all circumstances?

The money is in the pockets of those on the other side of the bad trades that Madoff made. The money's still around, just in smarter hands.

JacqueMehoff

if I heard the news correctly, he's out on 100mil bail.

Rocknrope

Can you imagine having hundreds of millions of dollars reducing to nothing in 48 hours? Watch out for mass suicides in Palm Beach.

Spirit of 76

The question is where is that money? He couldn't possibly have spent it all. It has to be stashed somewhere. The feds just have to find out where. Are we sure waterboarding is completely illegal in all circumstances?

Splicer

Every time a story like this surfaces, I say to myself, "Don't let it be a Jew". Oy!

gilbertleighprestigemonkey

nik13:

Hmmm...those who "invested" with him a decade ago & were getting on avg.10% annual returns cannot seriously claim to be victims. Their money lost value due to inflation, but they got dollar-for-dollar back.

Not necessarily - only if they pulled out their 10+% each year and stored it elsewhere (or spent it). But (a) the principal wasn't intended to be spent - that's why they invested it and (b) if you're making that kind of a return on a sure-thing investment and don't need the cash, you leave it in the magic machine where it increases the multiplier even more.

Don't get me wrong. I have little sympathy for anyone who knew the game was bogus but played anyway, safe in the knowledge that they were on the right side of the con...

schadenfreudian mensch

@Think twice

I couldn't agree with you more.

Snoopy

Plain and simple the investors got jewed.

JacqueMehoff

ha ha Republicans!

and it's much bigger than that nicem.

they probably had doctored all their statements to clients and he was probably betting the market would rebound to cover his losses and it snowballed.

how do I know this? let's just say I was on a jury and was shown all the evidence for a similar fraud case. there's blame all around including regulation.

Amanda Harletsch

GREED Is at the core of all this!

100% disproportionate risky management!

...the curious part is that if it was for all the people involved in these frauds, a republican Government will be still ruling the game Out of proportion risky management: like their political/ethical values are not part of the equation.

EastRiver

That's what you get for voting Republican!

Do shut up. This is a case about fraud, not regulations. The idea that regulation will eliminate criminal behavior is naive.

Gentrifier

Of all people, sophisticated investors like Mr. Madoff's clients should know that if something sounds too good to be true, then it's not. But they believed it anyway. Why?"

Because people prefer a shining lie to a shabby truth.

CommonCents

That's what you get for voting Republican! (ha ha ha ha ha!) Gee, let's review some GOP mantras:

"LESS regulation is good regulation."

"The market is ALWAYS RIGHT."

"It's the government that is evil."

"We must shrink the government so small that i can be drowned in a bathtub."

"Greed is good."

Someone needs to seriously rethink republican values or we will all be serfs to our corporate overlords very soon.

Think2wice

Schadenfreude overload.

nik13

Hmmm...those who "invested" with him a decade ago & were getting on avg.10% annual returns cannot seriously claim to be victims. Their money lost value due to inflation, but they got dollar-for-dollar back.

rcltrh

Oh and don't tell me, now those broke investors will be wanting part of the $700 TARP money for a bailout, and our corrupt repugnican leaders who are still in office will probably give it to them. Wonder how many of Bush's cabinet had investments in this "firm?"

rcltrh

My sentiments exactly nicemarmot!

ixvnyc

I fuckin' love this story :)

nicemarmot

So basically, everybody knew something sketchy was going on, but nobody knew exactly what it was - so all these investors were perfectly happy to keep their money with this guy as long as he kept showing them big returns. They didn't care that it was sketchy. So in the end, they lost everything and got what they deserved for being willing to work with an obvious crook.

zyskandar

'MAD-OFF' did this guy change his name from 'MAD-JERK-OFF-ISSHEY' to be more anglicized??? LIKE YOUSE COULD REALLY 'TRUST' A GUY(pronounced G-e-e like da frenchie french wankers) wid da name 'MAD-OFF'???!!! All dose 'STOOPID-INVESTURS' GETZ CONNED-AW TOO BAD!!! And they says G-D does not have a sense of humor??? Ha.

Amanda Harletsch

This is exactly what the term "classy" says to me: money lovers blinded their own reflection.

Steven

Why should anyone ask question if they're rolling in the big bucks, right?

As long as everyone is making loads of money they're happy no questions needed.

Snoopy

Vit a name like Madoff, what is not to trust? His mother said he is a nice boy.

Plus the idiot is broke. Well maybe. Who knows what he has hidden in Switzerland.

Those financial advisors should be held accountable also. I like the inclusion of the Trump name in the story. It adds class. All of it being low.