Bernie Madoff – the man behind the largest and most devastating Ponzi scheme, which appropriated $ 65 billion of tens of thousands of victims worldwide, died at the age of 82. on April 14 while serving a prison sentence.
What is Ponzi?
This is a scam that attracts investors and pays returns to previous investors with money from more recent investors.
This model leads victims to believe that profits come from the sale of products or other means, and they remain unaware that other investors are the source of the money and investment income. The Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most investors do not require full investment income and remain confident in the asset that does not exist.
Ponzi schemes are run by a central operator, who uses the money from new, incoming investors to pay off the promised returns to older ones. This makes the operation seem profitable and legitimate, then investors have forgotten the investment risks, even though no actual profit is being made. Meanwhile, the person behind the scheme pockets the extra money or uses it to expand the operation.
Ponzi schemes draw investors in by guaranteeing unusually high returns. The name originated with Charles Ponzi, a con artist who promised 50% returns on investments in only 90 days and ended up serving a 14-year prison sentence in 1920 due to his scheme.
Unlike previous similar models, Ponzi received considerable press coverage both within the US and internationally both while it was caused and after it collapsed – this notoriety eventually led to the model is named after him.
Why Bernie Madoff?
Although it was taken place after Charles Ponzi, the name Bernie Madoff is more famous with this model because he is the culprit of the biggest scam in history related to the Ponzi scheme.
Madoff was born in 1938 in a middle-class Jewish neighborhood in Queens, New York. His father, Ralph, was a stockbroker – the son of Eastern European immigrants in the United States.
Bernie Madoff helped make Nasdaq the largest stock exchange in North America. He was later appointed as president of Nasdaq, had become a reliable figure in the eyes of investors as well as regulators.
The turning point came for him in 1975, when the regulations on commissions for the stock brokerage industry were relaxed, allowing ordinary investors to trade more easily without any brokerage. Bernie Madoff begins to process high-volume transactions.
For many decades, Bernie Madoff is considered a model of a self-made financial expert who always enjoys luck despite the volatility of the market.
He has attracted a large number of dedicated investment clients, from Florida retirees to the rich and famous, including director Steven Spielberg, actor Kevin Bacon, Fred Wilpon – team boss baseball New York Mets, and Elie Wiesel – Nobel Peace Prize winners.
Over the years at least $ 13 billion has been invested in Madoff’s missions, the US authorities said. The collected documents show that Madoff’s profits are always stable at 2 digits even during market downturns.
But on December 11, 2008, Madoff confessed to some senior staff that “it was all a lie.” Before that, Madoff once told these employees that the customer was urgently demanding $ 7 billion in debt, but he did not know where to dig to pay.
What the US Securities and Exchange Commission (SEC) did not discover is that behind the scenes, in a separate and closed office, Madoff secretly runs the virtual wealth network using the money of new investors to pay back to the old ones.
If other ponzi scams work by paying high returns to investors and then collapsing quickly, Bernie Madoff pays a modest but steady return to perpetuate the scam over the long term.
Since these capitals are not self-profitable, the entire revolving system eventually collapses when the latter cannot carry the first, and the loss is up to 50 billion USD.
Immediately Bernie Madoff was arrested. Hundreds of investors, including owners of industries and corporations, became anxious about the $ 50 billion that would completely disappear.
Madoff said he “had no excuses” for his actions, and “paid investors with bogus money.”
Within days after the super-trick was arrested, US officials began a withdrawal campaign to reimburse the victims. Up to now, nearly 17 billion USD has been paid to tens of thousands of individuals and organizations. “This is the biggest individual investor scam in the history of the world,” said former SEC chairman Richard Breeden.
The pain that cannot be erased
Bernie Madoff’s crimes not only ruined the lives of 37,000 victims but also destroyed his own family. Tormented by his father’s actions and the lawsuits, Mark Madoff’s eldest son hanged himself in 2010. In September 2014, his second son Andrew Madoff also died of cancer. His wife, Ruth Madoff, cut off contact with her husband after Mark died.
Madoff has created “a legend around him that makes everything special, unique and all,” said Elie Wiesel, a victim of the Ponzi mission that was seized for $ 15.2 million. are kept secret.”
In a report released in 2009, lawyer Irving Picard, representing the victims of the scam said: “The investigation of Madoff’s assets has led to a maze of funds, nests organizations and many international agencies are related and intertwined in unprecedented complexity with a width that seems to have no stops.”
The report said Bernie Madoff’s scam spread widely: Britain, Ireland, France, Luxembourg, Switzerland, Spain, Gibraltar, Bermuda, the British Virgin Islands, Cayman Islands, Bahamas. More than 15,400 lawsuits have been filed against Madoff.
Madoff pleaded guilty in March 2009, saying he wanted to apologize to all victims and was deeply ashamed of his behavior. After being confined to an attic apartment in Manhattan for a while, he was sentenced to 150 years in prison in June 2009 and began serving in July 2009. The Madoff’s property was auctioned off. The US government also set up a trust to recoup the money that Bernie Madoff’s company has put into investments and pay thousands of victims.