Bernie Madoff

Bernie Madoff

Personalities

Bernard Madoff, born Bernard Lawrence Madoff on April 29, 1938 in New York1 and died on April 14, 2021 in Butner, is an American businessman, founding president of one of the main investment companies on Wall Street: Bernard L. Madoff Investment Securities LLC.

On December 12, 2008, he was arrested and indicted by the FBI for having carried out a “Ponzi3” type scam, which could amount to 65 billion US dollars4. He was sentenced on June 29, 2009 to 150 years in prison5, the maximum prescribed by law. If the amounts at stake were confirmed, it would be the highest loss to date caused by the scam or error of appreciation of a market operator, employee or manager of a financial establishment6. Bernard Madoff died at the age of 82 on April 14, 2021 in the federal prison in Butner, North Carolina.

Biography

Youth

Bernard Madoff was born on April 29, 1938, in the New York district of Queens, to Ralph Madoff (June 1910-July 1972), and Sylvia Muntner (December 1911-December 1974) 7,8,9. Madoff’s grandparents were Jewish immigrants from Poland, Romania, and Austria. He has an older sister and a younger brother Peter10. Ralph Madoff was a plumber before becoming a stockbroker. Bernard Madoff attended Far Rockaway High School in 1956, then the University of Alabama for a year. There he became a member of the Sigma Tau Alpha Mu fraternity and graduated in political science from Hofstra College in 1960. The following year he began studies at Brooklyn Law School, which he dropped out.

Self-taught entrepreneur

Bernard L. Madoff is a self-taught entrepreneur who abandoned his law studies11 and began his professional life as a lifeguard on the beaches of Long Island12. Madoff founded in 1960, at the age of 22, his own investment company with 5,000 dollars13.

In 2008, Madoff owned several properties in New York, Roslyn, Montauk and an apartment in Manhattan valued at over US $ 5 million. He notably owned houses in Palm Beach in Florida and in France, in Antibes, on the French Riviera. He was a member of the Palm Beach Country Club and owned several yachts, one of which is called Bull 14.

The setting up of the scam

Bernard L. Madoff Investment Securities LLC became one of the leading investment firms on Wall Street15. Madoff was very active in the National Association of Securities Dealers (NASD), an organization of stockbrokers16. He notably participated, with his brother Peter, in the founding of the automatic processing of transactions giving birth to the Nasdaq17, set up in 1971 and which he will chair until 197317. His company was one of the five most active companies. in the development of the Nasdaq, of which Madoff was president from 1990 to 199313. He emerged as an innovator in the electronic stock market18.

He would thus have used his notoriety to set up a speculative investment fund managed in a very discreet manner19 by a parallel company that he had founded20. This fund only managed investments for 11 to 25 clients according to the SEC19, for an amount of $ 17 billion20. These clients were banks, funds and holders of large personal fortunes20 to whom he had come to offer a profit rate of 17% per annum21.

The scam is also distinguished by the care given to appearances. Thus, the daily mailing of false statements of sale or purchase of imaginary shares (or trading tickets) is carried out to the various clients of the fund17. These reports are produced from scratch by a team of secretaries based on the 17th floor of Madoff’s offices without any financial knowledge17.

The principle of the swindle proposed by Madoff was based on the principle of the mechanics of the Ponzi scheme named after its Italian-American inventor Charles Ponzi (1882-1949). Interest paid to the first custodians was taken on the deposits of subsequent investors. The funds are therefore not placed on the stock market. This pyramid scheme necessarily requires exponential growth in the number of investors to supply the financing chain17.

Its fraudulent activity was able to prosper because, at the same time, Bernard Madoff proposed a perfectly legal activity as a broker specializing in over-the-counter shares from companies too small to be listed on the Wall Street market (called Over The Counter or OTC) 17.

Intrigued by the rates of profit proposed by Madoff, Harry Markopolos, a financial analyst, had warned the SEC in writing several times in 199917 and concluded in 2005 with an unequivocal report: “The largest hedge fund in the world is a fraud ”22,23. The SEC nonetheless checked the books of account in 2006 without detecting the slightest fraud17.

2008 financial crisis and fall

The fund having accumulated enormous losses, Madoff would then have set up a system of cavalry18 where he paid the interest of the first investors with the capital brought by the last to join. After the fall of the financial markets at the end of 2008, some clients wanted to withdraw their funds, causing the system to collapse20. “At the beginning of December 2008, he had to face withdrawals of 7 billion dollars, whereas he had only one billion in the bank” 13. The SEC feared that all of the fund’s financial assets were in fact fictitious19 and that the scam was close to $ 50 billion, making it the largest single-man scam.

Arrest and trial

After confessing to his family on December 11, 2008, never having invested a single cent of the sums that had been entrusted to his company13, he was arrested the next day by the FBI, charged with fraud24 and released on December 12, 2008. , against the payment of a deposit of 10 million dollars25. Madoff admitted the facts19 and expected his arrest, according to an FBI agent. A US federal judge, Louis L. Stanton, appointed Lee S. Richards as receiver of Bernard L. Madoff Investment Securities LLC26. The company will be liquidated, and investors should receive very little reimbursement27. On March 12, 2009, he pleaded guilty, thereby avoiding a trial before a grand jury. Most of his property is seized to satisfy the prosecutions and his judgment postponed to June 16, 200928. On June 16, 2009, the verdict was postponed to June 29, 2009. The liquidator announced that he had filed a complaint to recover 10 billion dollars paid to investment funds clients of the financier. As of June 16, 2009, Irving Picard had received 8,848 complaints relating to 3,565 accounts opened with Madoff, some of which were joint accounts. On June 29, 2009, the New York court sentenced Bernard Madoff to 150 years in prison29. The financier does not appeal

Prison and death of relatives

Bernard Madoff is serving his sentence in the federal prison in Butner, North Carolina31.

On December 11, 2010, one of his sons, Mark Madoff, accused of improperly benefitting from his father’s financial manipulations, was discovered dead in his Manhattan apartment, New York police said. “He was found hanged. It is apparently a suicide, ”said his spokesperson. This is the second case of suicide in connection with the scam, the French Thierry de la Villehuchet having committed suicide in his office in New York two weeks after the outbreak of the scandal. Andrew Madoff, the youngest son, died on September 3, 2014 from cancer (lymphoma).

In 2017, Madoff got his hands on all of the hot chocolate from the Swiss Miss brand from the prison where he was serving his sentence in order to have a monopoly on it and resell it at a higher price to his fellow prisoners32. American journalist Steve Fishman relates the statements of Bernie’s prison comrades:

“He’s a real star. He has stolen more than anyone, which makes him a hero within the prison. Many seek him out for financial advice, like an inmate discussing a stock purchase with his broker. A little later, this same inmate admitted that he should have followed Madoff’s advice33. ”

In January 2020, Bernard Madoff applied for early release on medical grounds, indicating that he was suffering from terminal kidney disease and would only have 18 months to live31. Aged 81, he would only get around in a wheelchair and with a corset. Bernard Madoff suffered from kidney disease before his arrest.

Death in prison

On April 14, 2021, the American media Associated Press and CNN announced the death of Bernard Madoff, still in prison, at the age of 82.

Main Madoff Customers

More than twenty investors had envelopes of over $ 100 million invested in Madoff’s businesses at the time of the scam’s disclosure.

Losses of over a billion dollars:

  • Fairfield Greenwich Advisors : 7.50 billion $
  • Kingate Management : 3.50 billion $
  • Tremont Capital Management : 3.30 billion $
  • Banco Santander : 3.10 billion $
  • Bank Medici : 2.10 billion $
  • Ascot Partners : 1.80 billion $
  • Access International Advisors : 1.40 billion $
  • Fortis Bank Nederland : 1.40 billion $
  • Private Banking Union (UBP) : 1.00 billion $
  • HSBC : 1.00 billion $

Losses between $ 100 million and $ 1 billion include Natixis SA, Carl J. Shapiro, Royal Bank of Scotland Group PLC, BNP Paribas, BBVA, Man Group PLC, Reichmuth & Co., Nomura Holdings, Maxam Capital Management, EIM SA , and AXA SA. There would also be 23 potential losses ranging between $ 1 million and $ 100 million.

The audit firm Alix Partners, in charge of the bankruptcy proceedings of the company Bernard Madoff Investment Securities LLC, has compiled a list of Bernard Madoff clients and clients who have declared themselves to the Securities Investor Protection Corporation (SIPC) 38.

On February 20, 2009, the liquidator of Madoff’s company announced that he had recovered $ 650 million39. As of December 17, 2010, 10 billion had been recovered, 7.2 billion coming from the fortune of Jeffry Picower who died in October 200940.

According to the New York Times, $ 15.5 billion was repaid by the banks to their 720,000 investors outside the United States, corresponding to all funds invested excluding interest41.

The accomplices and the beneficiaries

Irving Picard, the receiver in charge of liquidating Bernard Madoff’s company, estimates that around 2,000 people or companies have made money from Madoff and accused around 1,000 of taking improper advantage of this. system, among them the Lévy family who negotiated an arrangement of 220 million dollars42,43,44, Carl J. Shapiro (in) and his family who will return 625 million dollars45 and the Swiss bank UBP with whom a recovery agreement for an amount of $ 500 million had been spent.

On December 17, 2010, New York Federal Attorney Preet Bharara announced that an agreement had been reached with the heirs of Jeffry Picower, one of the main beneficiaries of the scam and accomplice of Madoff according to a report from the bankruptcy syndicate, to return the $ 7.2 billion requested by Picard46.

Irving Picard said that “Madoff did not act alone to commit the biggest financial scam in history”, he announced that he was claiming $ 6.4 billion from US bank JPMorgan Chase, the fund’s main bank. by Bernard Madoff, $ 2.5 billion to Swiss bank UBS47 and $ 9 billion to Hong Kong bank HSBC48. He also lodged a complaint against the Citigroup concerned for $ 425 million, BNP Paribas for approximately $ 400 million, Capital Research, ABN AMRO, BBVA, Nomura, Merrill Lynch, Oppenheimer Acquisition Corp (en), Vontobel Asset Management, Pictet & Cie, Lombard Odier, Legacy Capital, the Tremont group, the MassMutual Holding LLC, Notz & Stücki, the Israeli bank Bank Hapoalim, the Swiss management company Genevalor Benbassat & Cie as well as four members of the Madoff family to whom he is demanded a total of $ 198.74 million and two fundraising executives, Frank Avellino and Michael Bienes who managed BLMIS’s first bull funds fueling the start of pyramid fraud, several family members and investment funds that ‘they were controlling to recover $ 900 million49,50,51,52.

Paul K. (77), the former accountant, is the fifteenth person to be charged (concealing accounting transactions). He will plead “not guilty” like the other five former Madoff employees. Their trial takes place on October 7, 2013 in New York.

In all, the liquidator will have filed more than a thousand civil complaints, for an amount close to $ 50 billion54.

The Kohn file

Irving Picard suspects Austrian banker Sonja Kohn of being Madoff’s main accomplice, “In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness matched his,” he said55 .

She is accused of having “for more than twenty years orchestrated a vast illegal plot”. “Mr. Madoff paid Mrs. Kohn who transferred money from her clients to Mr. Madoff’s fund, who paid her secretly in return” 56.

In the complaint centered on Sonja Kohn, Picard claims $ 9.1 billion in damages from her as well as $ 10.5 billion from the bank she founded, the Italian bank Unicredit, its subsidiary Bank Austria and 53 other people and entities.

“Given the extent of Madoff’s Ponzi scheme, the deceptive nature of the defendants, and the deliberately Byzantine structure of Medici Enterprise, we believe that even more information will come to light regarding the true scale of this criminal enterprise.” , he adds.

Peter Madoff

On December 20, 2012, Peter Madoff, 67, was sentenced to ten years in prison for having falsified the accounts of his brother Bernard Madoff’s former family investment company – seven years his senior – in which he worked as ” keeper of the accounts ”, and he is dispossessed of almost all his assets57.

Cost of attorneys’ fees

The Securities Investor Protection Corporation (SIPC), an industry-sponsored organization that provides financial protection to investors, has paid more than $ 290 million to law firms and consultants in two years since the Madoff Empire. collapsed in 2008. Lawyers and consultants are tasked with tracking down and recovering assets stolen by Madoff so that they can be redistributed to the victims of his scam.

This includes costs of around $ 128 million for Baker & Hostetler, the law firm leading the recovery of stolen goods. The Irving Picard company, which was appointed to serve as a trustee by the federal bankruptcy court overseeing the case, had an additional $ 3.2 million. The SIPC says it has disbursed an additional $ 10 million to law firms around the world.

In addition, the organization has paid nearly 150 million to consultants, including 84.6 million for FTI Consulting responsible for locating the assets embezzled by Madoff who hopes to receive twice as much in the coming years58.48 million dollars to AlixPartners , $ 2.5 million to Renaissance Associates and $ 10 million to other consultants

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