?
Bernie Madoff Scandal -
The King of Ponzi Schemes
The End Result
- Confessed on December 11, 2008
- Investors lost up to $65 billion
- Charged on 11 counts of fraud
- Sentenced to 150 years
- Auditor was brother-in-law, also charged
- Madoff's son and one of the primary beneficiaries
of the scheme found dead
On the Surface
Bernard L. Madoff Investment Securities LLC
A respected investment firm with promising results
Suspicion and the SEC
- Harry Markopolos - Whistle-blower
- Investigated Madoff for 9 years
- Continuously warned the SEC
- SEC continuously ignored Markopolos
- Madoff held many high level positions
- SEC employees inadequately educated
Under the Surface
Markopolos Report
29 Red Flags
Influence of Title
- Third-party hedge funds and funds of funds are not allowed to name Madoff as the actual fund manager. Shouldn't he want publicity for his wonderful returns?
- The split strike conversion investment strategy is incapable of generating returns that beat the U.S. Treasury Bill rates and are nowhere near the rates required to sustain the rates of return paid to Madoff's clients.
- There are not enough OEX index put option contracts in existence to hedge the way Madoff says he is hedging.
- Madoff is suspected of being a fraud by several senior finance executives
- Helped develop NASDAQ Stock Market
- Chairman of the Board of Directors of the NASDAQ Stock Market
- Member of the Board of Governors of the NASD
- Member of numerous NASD committees
- Founding member of the International Securities Clearing Corporation in London
- Member of boards for various charitable foundations
- Respected and well-known investor in New York
SEC Problems
- Inexperienced
- Untrained in forensic work
- Insufficient financial knowledge
- Biased in favor of Madoff
- Frequently delayed by other priorities or inter-SEC rivalry and bureaucratic practices
Relevance of $65 billion
- 30,000 houses at $250,000 each
- 37,500 Ferrari's at $200,000 each
- 125,000 diplomas at $60,000 for four years
- 150,000 years of work at $50,000 a year
The Scandal
- Ponzi Scheme - a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors
- Investment advisor - developed the "split strike conversion strategy"
- Never actually invested money in securities
- Placed money in Chase Manhattan Bank
One Big Lie
- Never invested funds
- Developed a false strategy to cover non-investment
- Misrepresented purchases of securities in overseas markets
- Caused false trading confirmations and client account statements
- Filed false and misleading certified audit reports and financial statements
- False statements for registration as an investment advisor
- Wired money between the U.S. and U.K. to support overseas transactions
- Investors included actors, executives, hedge funds,
pension funds, international banks, and charities