Bernie Madoff

Bernie Madoff is convicted fraudster former hedge fund manager and NASDAQ chairman, involved biggest Ponzi scheme in history.

Bernie  Madoff , 75, and in the fourth year of a 150-year sentence for his epic $17 billion investor fraud.

Hedge fund fraudster was widely considered to have the magic touch as an investor, is another serious black eye for the hedge fund industry and all non-transparent investment vehicles. Investors across the New York area have clamored to be in Ascot because of the stability of double-digit returns and the reports of serious wealth creation.

Bernie Madoff was a “master marketer,” and his fund was considered exclusive, giving the appearance of a “velvet rope.”

He generally refused to meet directly with investors, which gave him an “Oz” aura and increased the allure of the investment.

 

Rather than offer high returns to all comers, Madoff offered modest but steady returns to an exclusive clientele. The investment method was marketed as “too complicated for outsiders to understand.” He was secretive about the firm’s business, and kept his financial statements closely guarded.

 

 

Bernard Lawrence Madoff was born on April 29, 1938, in Queens, New York, to parents Ralph and Sylvia Madoff. Ralph, the child of Polish immigrants, worked for many years as a plumber. His wife, Sylvia, was a housewife and the daughter of Romanian and Austrian immigrants. Ralph and Sylvia married in 1932, at the height of the Great Depression. After struggling financially for many years, in the early 1950s, they became involved in finance.

 

Records of his Madoff’s financial dealings show they were less than successful with the trade. His mother registered as a broker-dealer in the 1960s, listing the Madoffs’ home address in Queens as the office for a company called Gibraltar Securities. The SEC forced the closure of the business for failing to report their financial condition. The couple’s house also had a more than $13,000 tax lien which went unpaid from 1956 until 1965. Many suggest that the company and the loans were all a front for Ralph’s backhanded dealings.

 

But the young Madoff showed no interest in finance during this time; he was far more focused on girlfriend Ruth Alpern, who he met in junior high. The couple continued to date while they attended Far Rockaway High School in 1952. Madoff’s other interest was the school swim team. When he wasn’t competing in meets, his swim coach hired Bernie as a lifeguard at the Silver Point Beach Club in Atlantic Beach, Long Island. Madoff began saving the money he made on the job for a later investment.

After graduating from high school in 1956, Madoff headed to University of Alabama, where he stayed for one year before transferring to Hofstra University. In 1959, he married high school sweetheart Ruth, who was attending Queens College with a focus on finance.

 

The next year, Madoff earned his bachelor’s degree in political science from Hofstra. Ruth also graduated, and landed a job on the stock market in Manhattan. Bernard began to study law at Brooklyn Law School, but quit later that year to began his own investment firm. Using the $5,000 he earned from his summer lifeguarding job and a side gig installing sprinkler systems, Madoff and his wife founded Bernard L. Madoff Investment Securities, LLC.

 

With the help of Madoff’s father-in-law, a retired C.P.A., the business attracted investors through word-of-mouth and amassed an impressive client list including stars such as Steven Spielberg, Kevin Bacon and Kyra Sedgewick. Madoff Investment Securities grew famous for its reliable annual returns of 10 percent or more and, by the 1980s, his firm handled up to 5 percent of the trading on the New York Stock Exchange.

 

As Madoff’s fame as a successful investor grew, Madoff Securities began using computer technology to develop stock quotes. The program that the firm tested and helped to develop became the National Association of Securities Dealers Automated Quotations, or NASDAQ. Madoff later served as president of the board of directors for the NASDAQ stock exchange.

 

Arrest

Madoff began employing more and more of his family members to help with the company. His brother Peter joined him in the business in 1970 as the firm’s chief compliance officer. Later, Madoff’s sons Andrew and Mark also worked for the company as traders. Peter’s daughter, Shana, became a rules-compliance lawyer for the trading division of her uncle’s firm, and his son, Roger, joined the firm before his death in 2006.

 

Madoff reportedly admitted to investigators that he had lost $50 billion of his investors’ money, and pled guilty to 11 felony counts—securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the United States Securities and Exchange Commission (SEC), and theft from an employee benefit plan—on March 12, 2009. While the extent of his fraud is still being uncovered, prosecutors say $170 billion moved through the principal Madoff account over decades, and that before his arrest the firm’s statements showed a total of $65 billion in accounts.

 

Bernie  Madoff , 75, and in the fourth year of a 150-year sentence for his epic $17 billion investor fraud.

Hedge fund fraudster was widely considered to have the magic touch as an investor, is another serious black eye for the hedge fund industry and all non-transparent investment vehicles. Investors across the New York area have clamored to be in Ascot because of the stability of double-digit returns and the reports of serious wealth creation.

 

If Madoff hadn’t faced $7 billion in redemptions, this Ponzi scheme might not have been discovered. What’s astonishing is that he got away with it for so long with nobody discovering it. What his four family members in Ascot knew is a puzzle that everyone wants answered, but one thing is certain: It’s virtually impossible to have returns like Madoff reported, and it should have been a major warning signal.

 

Aside from the impact on stocks overall, the exposure of fraud on a massive scale is also devastating to individuals who trusted Madoff with their fortunes and to nonprofit organizations like Yeshiva University, which counted on Madoff’s purported secret trading system to help operate its institutions. Sterling Equities, the investment vehicle of the Wilpon family, which owns the New York Mets baseball team, had $300 million reportedly invested in Ascot. So did some wealthy investors who had money in related hedge funds who were never informed of ties to Ascot. Another private bank executive placed $10 million from a client just two weeks ago. He knew of another family that had $100 million with Madoff. A woman in California told us that she had lost everything with Madoff and another hedge fund.

 

Everyone in New York wants to know how Madoff could have pulled off this Ponzi scheme whereby these new investment funds were apparently used to pay double-digit returns to some of the older investors. A charitable account that operates institutions in Israel received a 12% return recently. Other individual investors report that they got nothing.

 

Ascot’s monthly reports are voluminous, showing many transactions in and out of the market every day. Madoff was supposed to have some “black box” model that signaled when to buy and when to sell. He was one of the most active traders in the marketplace, and his annual returns in these short-term trades were mainly ordinary income, which made Ascot attractive mostly to tax free institutions like foundations, hospitals and religious groups. After many years of returns in the range of 12% to 15%, in recent times the profits have been in the high single digits at times.

 

If indeed, $50 billion was lost, as apparently Madoff claims, it is the largest such fraud in history, and one that might even shame the conman whose name is attached to this brand of deception. In 1920, Charles Ponzi, an Italian immigrant, began advertising that he could make a 50% return for investors in only 45 days. Incredibly, Ponzi began taking in money from all over New England and New Jersey. By July of 1920, he was making millions as people mortgaged their homes and invested their life savings. As with all frauds, he was discovered to have a jail record and was indicted on 86 counts of fraud. Some tens of millions of dollars were invested with him.

 

Other fraudsters have made inglorious names for themselves. In March of 1932, Ivar Kreuger, a Swedish businessman who had cooked the books of his match manufacturing business and forged $142 million of bonds, shot himself in the head. It was reported that he may have burned through $400 million of investor money by falsifying the accounts of 400 separate companies.

 

Until Madoff came along, the Equity Funding scandal may have been the largest fraud in dollar terms in U.S. history. A publicly held company whose shares traded on the New York Stock Exchange, the top executives falsified 64,000 insurance policies that were used to report revenues of $2 billion. The company also sold $25 million in counterfeit bonds and had missing assets of $100 million. Three auditors and high ranking executives served prison terms.

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