Bernie Madoff was born on 29th April, 1938 in New York. His parents were Jewish, namely Ralph and Sylvia Madoff. In 1956, he had graduated from the Hofstra University where he had studied political science.
He then became a plumber, and later on founded the Madoff charitable Foundation. His career in the investment field began after he married Ruth Alpern, his high school sweet heart, who worked at a stock exchange market in Manhattan. In 1960, he founded the Bernard L. Madoff Investment Securities LLC, (now NASDAQ) and has ever since acted as its chairman until he was arrested.
Before the discovery of the fraud, Bernard L. Madoff Investment Securities seemed like the kind of firm that every stock broker would want to work with. The investors and the employees all believed in Bernie. It was for this reason that he was appointed as the chairman of NASDAQ, and was also appointed to industry channels by the SEC. Madoff is said to have been a philanthropist who worked with many nonprofit institutions. He was a man of great influence, and many people had entrusted him with their wealth.
Madoff is known to have committed the biggest fraud through a Ponzi plan which he had carried out for at least 20 years. He confessed his crime to his sons, Andrew and Mark last year. This is an essay covering Madoff’s, big Ponzi plan that led to his incarceration. (Lenzner) The Ponzi plan Even as Madoff was still in studying law at Brooklyn Law School, he was in involved in the securities business. On of his first investments was with a company, called the Electronics Capital, where he had invested $200. According to what the SEC disclosed, his stocks had grown from the original $200 to $16,140.
At that time, this was a lot of money, and this must have captured his interest in the securities market. His scheme to get involved in illegal operations to make more money must have been in his mind for some time. This is because in the 1990s, Madoff would boast to some of his investors that he was using a different strategy from the split-strike conversion method. This must have been what led to the fraud. An investigation revealed that there were clues in his office, but it was very hard to catch him.
For example, there was an IBM server, and an AS/400 which dated from as early as the 1980s; reports said that it was so old, that some information was keyed in by hand, but Madoff was reluctant to have it replaced. This machine is said to have been the centre around which the fraud was schemed. Thousands of statements that were printed from it revealed trades that had never been made. (Bandler etal) According to those who played roles in the early electronic trading and the company, Madoff’s company was successful only in the 1970s and the 1980s.
They further said that the success could only be attributed to the fact that his security business was the first to have used the electronic software to trade stocks. He was also able to attract many consumers because the software was not only cheap, but also fast. Instead of taking a fee for trading stocks like the NYSE did, Bernie paid some firms like Charles Schwab a few dollars a share for every order they made. Though the software used by Madoff, his company had the expertise to hedge the risk that resulted form the imbalance in the buy and sell orders and hence were able to preserve its profit.
This means that even if he paid the client, he still remained with enough money to make a huge profit. During the early 1990s, his firm had succeeded, in that it was responsible for executing at least 9% of all the stocks traded every day at the NYSE. His firm specialized in trading other shares from big companies outside the exchange. In the history of trading stocks, no other company could outdo NASDAQ, which got its advantage from the use of electronic means. He was respected among his peers, except those of the NYSE, who likened his orders to kick backs.
They viewed Madoff’s trades as shabby, but they had no way to prove any illegal activities. The payments that he paid for the orders were all legal, and Madoff ensured that they remained so. NASD and SEC insisted that the securities industry’s self regulated body bring together a panel to investigate NASDAQ. Being the chairman NASDAQ, Madoff challenged his investigators by suggesting that they go ahead to include witnesses in the panel. He was able to talk himself out of the problems that could have possibly befallen him. (Bandler etal) He successfully talked the investigators into his line of thinking.
In fact, some of the members in the panel said that he was not pushy during the interrogations. Although his main aim was to protect his business, he never suggested that in any direct way. He was just determined to make the panel “understand” the way his business operated. At the end of it all, Madoff prevailed. He had managed to convince the panel that his practice of offering payments was all the same as that applied by the Wall Street. Things however changed in 1997, when the rules that governed the trading spreads changed. That year, they were slashed from 12. 5? a share to 6.
25? , and later on in 2001, dropped to just a penny. NASDAQ’s profits started decreasing. Madoff was able to continue committing his fraudulent acts because he now started marketing his investment business by convincing people through word of mouth. Those who learnt of it spread it to their friends. It became a private club, and Madoff’s plan not wanting to admit new members, attracted even more attention from those who knew of it. His private investors were urged to keep quiet, and not to mention the matter to an outsider; if they did, they risked losing their investments.
In spite of his efforts to keep his investments secret, they somehow surfaced, but he was determined to keep covering up any act that would arouse suspicion. Two publications that were directed at arousing suspicion on Madoff’s operations went ignored. Even the employees who worked within the organization ignored them; after all, they had no clue of what was going on. It later turned out that Madoff’s illegal investments were interfering with the legal ones. In fact, during the trial, Madoff admitted hat he transferred millions of dollars from his fraud businesses in London to his legal firm in New York.
His fraudulent schemes were so complicated; it is said that it would not be easy to understand his operations in details. He also lied to defend or cover up his acts. For example, in May 2006, he was interviewed by the SEC, and asked whether the equities were traded in Europe, he admitted that they were. The truth was that he always said that he had several trades in Europe, whenever he could not explain the nature of the businesses. There were also no equities being traded in Europe. In many occasions, Madoff’s lies paid him off. Madoff’s accomplice
Although Madoff was the mastermind schemer, he obviously had an accomplice. Employees confessed that Frank DiPascali, acted as Madoff’s deputy and was responsible for running the business on the 17th floor, the floor where Madoff’s office was. A former trader said that the he was aged 33, but people neither knew what his work really was, nor his title. One employee said that, “Everyone knew he was a big deal, but he was like a shadow. ” (Bandler etal) DiPascali, when arrested, showed his involvement in Madoff’s plan when he started to negotiate a plea deal with federal prosecutors.
He offered to uncover the whole scheme and to name names, in exchange for a reduced sentence. However, he had no evidence that there were other family members involved in the Madoff scheme. DiPascali was the facilitator of Madoff’s schemes. He admitted to have manipulated phony returns on behalf of several major investors in Madoff’s business. Some of them include Frank Avellino, is said to have been running the “feeder fund” and Jeffry Picower, who had to shut down his foundation as it was affected by the losses associated with Madoff.
For example, if one of such important clients earned more money on other investments, Madoff would tell DiPascali, who then fabricated a loss with the motive of reducing the tax bill. In my opinion, I would ay that the United States was able to produce such a person as Madoff because besides the fact that he had strong connections, his firm was performing well enough; in fact it offered job opportunities to Americans, while in many ways contributed to the economic development of the United States.
Madoff was also able to cover up his shoddy operations effectively, protecting himself from the authorities. An example of such an instance is when he was able to defend himself from the panel in 1991 during the investigations. (Paltrow) He had a clever way to get himself out o trouble. The fact that most people knew him as a philanthropist was enough defense, at least to the mercies. His generous acts like giving donations were just for show, including his donations to the 2008 presidential campaigns, where he funded both candidates.
The Madoff case was one of the hardest to be completely uncovered, given that it had been schemed for at least 20 years. It could also be enough reason that Madoff was a clever man since he was able to commit the fraud on his own. If Madoff could have had more funds to pay off his investors in December, then he would have been able to carry on with his Ponzi scheme. His scheme has led to the collapse and closure of several organizations that had invested in his operations. Works cited 1) Bandler J. Varchever N. (April 30, 2009) Ho