Little Bits of History

March 12

Posted in History by patriciahysell on March 12, 2017

2009: Bernard Madoff pleads guilty. Madoff was born in Queens, New York in 1938. His father was a plumber and stockbroker. Bernie graduated from Hofstra University in 1960 with a degree in political science and briefly attended Brooklyn Law School before opening his own Wall Street firm, Bernard L. Madoff Investment Securities LLC. He was chairman of the company from its inception until his arrest on December 11, 2008. He began his firm as a penny stock trader with $5,000 (about $40,000 today), money he earned as a lifeguard and sprinkler installer. He got a loan of $50,000 from his father-in-law and the business began. They developed a system of information capturing that, after a trial run, was used to develop the NASDAQ (National Association of Securities Dealers Automated Quotations).

The business was a market maker (quoted bids and asking prices) and functioned as a third-market provider, directly executing orders from retail brokers without the input of exchange specialist firms. At one time, Madoff Securities was the largest market maker at the NASDAQ and by 2008 was the sixth-largest one on Wall Street. There was another division, investment management and advisory division, which did not publicize and was the origin of the fraud investigation. Between 1991 and 2008, Madoff and his wife contributed about $240,000 to various political candidates including a $25,000 per year donation to the Democratic Senatorial Campaign Committee (some of this money has since been returned to the bankruptcy trustee). Members of his family also served as leaders of SIFMA, a securities industry organization.

Madoff first came under scrutiny in a fraud investigation in 1992 but he returned all monies and closed the case. In 2004, the SEC’s office for compliance investigations found several inconsistencies and asked for further questioning. The lawyer in charge was told to ignore problems by Eric Swanson who eventually married Madoff’s niece. All this time, Madoff’s wealth management business was reporting much higher than usual earnings. No major Wall Street firms invested with him because his numbers were unbelievable. By December 2008, his self-admitted Ponzi scheme came crashing down. He was unable to pay clients and he was arrested for securities fraud.

Madoff was able to post the $10 million bond and was living his is Upper East Side penthouse apartment under 24-hour monitoring. On this day Judge Denny Chin revoked his bail and sent him to jail citing Madoff’s flight risk status. Incarcerated, Madoff pleaded guilty to 11 federal felonies: securities fraud, wire fraud, mail fraud, money laundering, making false statements, perjury, theft from employee benefit plans, and false filing with the SEC. He had defrauded clients of $65 billion, the largest Ponzi scheme in history. He was sentences to 150 years in prison and forfeiture of all assets.

Fuck my victims. I carried them for twenty years, and now I’m doing 150 years.

It was a nightmare for me. I wish they caught me six years ago, eight years ago.

What do I do with my life now?

I was astonished. They never even looked at my stock records. If investigators had checked with The Depository Trust Company, a central securities depository, it would’ve been easy for them to see. If you’re looking at a Ponzi scheme, it’s the first thing you do. – all from Bernie Madoff