Largest Ponzi Scheme now at $50 Billion

[Sun Baked]

http://www.sec.gov/news/press/2008/2008-293.htm

http://www.nytimes.com/2008/12/12/business/12scheme.html?ref=business

Prominent Trader Accused of Defrauding Clients

By DIANA B. HENRIQUES and ZACHERY KOUWE
Published: December 11, 2008

Bernard L. Madoff, a legend among Wall Street traders, was arrested on Thursday morning by federal agents and charged with criminal securities fraud stemming from his company’s money management business.

The arrest and criminal complaint were confirmed just before 6 p.m. Thursday by Lev L. Dassin, the acting U.S. attorney in Manhattan, and Mark Mershon, the assistant director of the Federal Bureau of Investigation.

According to the complaint, Mr. Madoff advised colleagues at the firm on Wednesday that his investment advisory business was “all just one big lie” that was “basically, a giant Ponzi scheme” that, by his estimate, had lost $50 billion over many years.

Wow, over 10 times larger than 2nd place.

[angelneo]

Wow, another blow to the crippling economy. I wonder how long before all the crap get blown sky high

[Consultant]

Andrew M. Calamari, an associate director for enforcement in the S.E.C.’s regional office in New York, said the case involved “a stunning fraud that appears to be of epic proportions.”

Wow, I am surprised they let this guy out on bail. If he can perpetuate such fraud, he probably has some funds diverted somewhere.

[Sun Baked]

Wow, I am surprised they let this guy out on bail. If he can perpetuate such fraud, he probably has some funds diverted somewhere.

Actually it looked like he did, and was in the process of doing it when he was arrested.

Idiot told employees that he had some cash left, and was going to divert it.

The speed at which he was arrested, almost makes it sound like an employee turned him in. Cacioppi said two senior Madoff employees told him that Madoff said during the Wednesday meeting that he planned to surrender to authorities in a week but first wanted to distribute $200 million to $300 million he had left to certain selected employees, family and friends.Can you imagine the surprise on your face if you got a million dollar Christmas bonus, blew it, and had the FBI come asking for it back during the new year.

[Blue Velvet]

Mr. Madoff advised colleagues at the firm on Wednesday that his investment advisory business was “all just one big lie” that was “basically, a giant Ponzi scheme” that, by his estimate, had lost $50 billion over many years.

Let's deregulate them even more, bail them out and cut their taxes. Enlightened self-interest, my arse.

[Sun Baked]

The ripples from this seems to be hammering how some of the hedge funds were operated, with them not even bothering to invest the money themselves, but take a huge fee for managing it and hand the money over to another manager or group of them.

[kavika411]

The speed at which he was arrested, almost makes it sound like an employee turned him in.

If I am not mistaken, he was actually turned in by his two sons.

[Queso]

I'll put money* on there being no hedge funds at all before the end of the year.



* Euros for the moment, Dollars tomorrow, probably Swiss Francs by the weekend...

[Dont Hurt Me]

Where's loudmouth Newt Gingrich? He did lobby congress for deregulation on these guys after he was kicked out of congress. A 6 figure contract! maybe a slightly more socialist system wouldnt be bad for the U.S. since the republicans refuse to regulate themself.

It must be stated Bush has removed the sentence that would have limited these rich guys bonus $$$. Wont be voting republican this decade,maybe not the next.

[Sun Baked]

If I am not mistaken, he was actually turned in by his two sons.

Though we didn't find that out until later.

Here son, have a bonus, and then when asked why he coughed up the story.

And was arrested the next day.

[CorvusCamenarum]

If I am not mistaken, he was actually turned in by his two sons.

Actually, this has been known for 8 years or so:

http://isteve.blogspot.com/2008/12/harry-markopolouss-19-page-letter-to.html

http://www.slideshare.net/hblodget/markopolos-madoff-complaint-presentation?type=document

[63dot]

who is he attached to? foreign government, group, company?

[Desertrat]

The sad part, to me, is that there are (now, "were") wealthy folks who let this (bleep) handle their entire investment portfolios. That impacts whole families, down to the kids and grandkids...

[Sun Baked]

The sad part, to me, is that there are (now, "were") wealthy folks who let this (bleep) handle their entire investment portfolios. That impacts whole families, down to the kids and grandkids...

Even the people that got out awhile ago are the targets for the lawyers of current victims, as they look back years to strip people of ill gotten gains.

With these red flags going way back to 1999, the look back period authorized by the court could be asking grandkids to pay back their spent inheritance of ill gotten gains.

aka, should be as ugly a case as the Enron bankruptcy.

[fivepoint]

I thought the LARGEST Ponzi scheme was social security. ;)

http://www.goiam.org/publications/imail/photos/fdr_social_security_act.jpg

[63dot]

I thought the LARGEST Ponzi scheme was social security. ;)

It works for everybody, except my generation, the pig in the python, the holders of the roll of the toilet paper, aka the baby boomers. :)

[Dont Hurt Me]

This guy is walking around, how does someone who rips off people of 50 billion walk free yet someone who steals a loaf of bread does time? our system is 100% broke.

I bet this guy has millions tucked away in many shoeboxes all across the world.

White collar crime isnt a crime it appears. Madoff should be in a cold jail period.

[63dot]

It's funny reading about more famous controversial guys like Milken and Icahn and not hearing much, if at all, about Madoff. All the news is certainly not out, but his dealings appear, at least for now, to reach beyond the scope of either guy, junk bond king and takeover king.

What will people call Madoff? Or what will people call the Ponzi Scheme, the Madoff "with your money" Scheme? :)

Madoff's dealings are so big in scope they are far beyond Ponzi or Pyramid by traditional definiton/example, and approach the concept of market control via Bubble, or should I say Madoff Bubble as I am sure a term will develop from this big story. Pyramids and Ponzis can be controlled by one person, but not a bubble. No way, right? This may set a new precedent. But it's still hard to imagine "one person" exacting that much control.

Just read the NY Times story on Madoff today and it's only the tip of the iceberg.

[Badandy]

Let's deregulate them even more, bail them out and cut their taxes. Enlightened self-interest, my arse.

No one is suggesting deregulating criminals, bailing them out, and cutting their taxes.

[63dot]

This guy is walking around, how does someone who rips off people of 50 billion walk free yet someone who steals a loaf of bread does time? our system is 100% broke.

I bet this guy has millions tucked away in many shoeboxes all across the world.

White collar crime isnt a crime it appears. Madoff should be in a cold jail period.

Hey, Milken was out in less than two years, and I can't find any info on Icahn ever having done time, but only "settling" out of court. But if I am wrong, please somebody give me a link on Milken or Icahn. And remember Ivan Boesky? Two years then free.

But maybe Madoff is just too big to just let off the hook, especially in recessionary times. But if Madoff is as powerful as he appears, he may not do time or settle, but have a few weeks of "house arrest".

Without knowing all the facts of either of the four people mentioned, playing devil's advocate for a second, what laws did anyone break or did any of these men commit a crime(s)? Are those laws fair? And weren't any of these giants in business, and let's throw in Bill Gates and Jerry Yang into the mix, just doing business like any of us, but just on a bigger scale?

Anyway, allegations and descriptions of white collar crimes are probably far more complex than most of us may understand, but are crimes nonetheless. If the justice system is fair, Madoff will do serious time.

[Sun Baked]

Well Eliot Spitzer's year is getting worse for him, his family's real estate firm invested with Madoff.

And since he is refusing to disclose the damage, it is likely really painful.

Seems all his crusades against prostitutes and investment fraud have turn around to take a rather large chunk out of his ass and life.

[iJohnHenry]

This guy is walking around ...

Not any more, he isn't.

The judge has ordered him confined under house arrest, 24/7, with an electronic ankle bracelet.

"In his penthouse apartment in the sky."

He also has guards, due to death threats via E-mail.

Some very rich people are very unhappy. Surely some of them are of the bent-nose persuasion. ;)

[63dot]

Not any more, he isn't.

The judge has ordered him confined under house arrest, 24/7, with an electronic ankle bracelet.

"In his penthouse apartment in the sky."

He also has guards, due to death threats via E-mail.

Some very rich people are very unhappy. Surely some of them are of the bent-nose persuasion. ;)

Those guards are also there to keep him from attempting to flee.

Dreamworks has thrown a whopper of a suit against Madoff. What makes me angry is that Madoff stole from Holocaust Memorial organizations, and he himself is Jewish. That would be like Dr. Phil swindling the APA, or Steve Jobs swindling Apple. This is a very sad situation and may be a product of Bush de-regulation.

If Madoff was Bonnie, then GOP financial industry deregulation was Clyde. Both must pay up. And I am talking to you, John, Mr. John McCain. :)

[Sun Baked]

Imagine the people's surprise when they talk with their accountant for taxes in a few months.

They've hopped on board a lawsuit trying to recover as much money as they can ... they walk in and talk to their accountant.

The fake profits ... poof, gone, only the actual dollars you put in are actual losses.

You paid taxes for years on profits that weren't real, and can only redo a few years taxes. Feel sorry for the people in for 15-20 years that paid taxes on doubling/tripling their money.

The lawsuit you just joined, postpones the actual losses you can write off until the case is settled ... and the SIPC is probably going to fight to say that only the brokerage was covered that the off-the-books company might not be.

So the SIPC will take 2-3 years to pay out if they do (unlike FDIC, they have some strange ways to pay back), and your tax losses will keep getting postponed as long as the case you joined moves forward for 5-6 years.

[Desertrat]

63dot, you're wasting psychic energy with "Bush did..." stuff. There were those in the SEC who had been told of apparent irregularities, and I've read that some allegations had been made in the late 1990s.

FWIW, it is rare that the investigatory/enforcement sections within any governmental bureaucracy change their behavior because of any change in administration. Career types just keep on keeping on. If there were political influence which helped Madoff, just take a look at those to whom he made large political contributions. Hint: They weren't Republicans. :)

[MacNoobie]

And its a wonder why I partly despise western democracy and western crime and punishment. There is no justice when a guy like madoff can simply walk into a government center, sign a few papers and be free to leave back to his warm comfortable home with electronic monitoring in place. A common thief stealing no more then a few dollars in goods gets thrown into jail and possibly spending months in jail after conviction. There's no doubt madoff will serve more then a few months in jail but thats just not good enough.

Honestly madoff should be shot in the back of the head and anyone in his family found to be involved should suffer the same fate. Not because he is a bad person but as an example to anyone else that tries to conjure up a scheme to defraud people of their money.

Yeah its not the way we do it in the good old US of A, its inhumane and savage blah blah blah but it does serve as a deterrent. If you knew your life and possibly the life of your family were to be taken away then you'd probably think twice about doing something like this.

[iJohnHenry]

Honestly madoff should be shot in the back of the head and anyone in his family found to be involved should suffer the same fate.

That smacks of stamping out breeding "errors", which Humans only apply to animal breeding, not their own. :eek:

Do I have an opinion? Yes. Will I argue it? No. :p

[Dont Hurt Me]

White collar crime in the U.S. is joke. Millionaires dont go to jail for very long if at all because they can afford to manipulate the system,but killing him isnt the right thing to do.
Solution is to take everything he has,find his hiding places for all that money and have him and those involved work the rest of their lives to pay back whatever they can to those they stole from.

This is what we get when we have people like Newt Gingrich who pushed as hard as they could for deregulation while getting 6 figure checks from guys like this.

[Desertrat]

"This is what we get when we have people like Newt Gingrich who pushed as hard as they could for deregulation while getting 6 figure checks from guys like this."

No, this is what happens when folks are too lazy to do due diligence. And what we get when the regulatory folks at the SEC ignore what warnings they've been given.

Ponzi schemes work because people won't believe that ancient adage, "If it sounds too good to be true, it's not true." And 18% return on investment, year after year after year, just ain't true. A wee dab of greed on the part of the investor doesn't hinder the deal, either...

Hey, Madoff just figured that if it works for Social inSecurity, it would work for him. :D

[pseudobrit]

"This is what we get when we have people like Newt Gingrich who pushed as hard as they could for deregulation while getting 6 figure checks from guys like this."

No, this is what happens when folks are too lazy to do due diligence. And what we get when the regulatory folks at the SEC ignore what warnings they've been given.

Ponzi schemes work because people won't believe that ancient adage, "If it sounds too good to be true, it's not true." And 18% return on investment, year after year after year, just ain't true. A wee dab of greed on the part of the investor doesn't hinder the deal, either...

Hey, Madoff just figured that if it works for Social inSecurity, it would work for him. :D

I've heard his returns were in the 8-12% range. Which is what much of the "retirement education" literature I've read always seems to think is a reasonable expectation when calculating your retirement. So for the average investor I'm sure it seemed perfectly reasonable. I doubt greed or complacency was a factor here; most investors will never understand the nuances of the markets or that it's possible to be defrauded despite today's regulatory environment.

What is troubling is that there was competitor who put together a dossier on Madoff and handed it to the SEC with a ribbon. The SEC has been deliberately negligent, and Cox should never work in public office again. This is Bush's financial Katrina: the warnings were there but the people he put in place think a career in public service is a joke.

[Sun Baked]

Starting to see some of the charities and investors lowering their loss estimates, as they realize that their Madoff "profits" never existed.

With a haircut to 1/3 of the portfolio size back to the original investment, it just shows how long some of them have been with Madoff.

Though unraveling the true losses from those unjustly enriched at others expense can likely take years.

[MacTraveller]

Another Republican-caused EPIC FAIL.

"De-regulation" is Republican-speak for "let's let the corrupt traders and greedy crooks run Wall Street without any limits, rules or guidelines and hopefully everyone will get rich! Free market economy Wild West Style, yeehaw!"

Epic Fail.

[MacNoobie]

And still this ******* is going to go to club fed for possibly the rest of his life thus setting the stage for someone else to exceed his 50 billion ponzi scheme and secure their way into the record books as well. All things regulation/lets hang dogs on Bush aside I wish the government would make a public spectacle of madoff, dare I say a firing squad and anyone else that decides to cheat others would share the same fate. Eventually people would get the message but sadly there's no accountability and sense of punishment in the western democracy we live in.

[MacTraveller]

And its a wonder why I partly despise western democracy and western crime and punishment. There is no justice when a guy like madoff can simply walk into a government center, sign a few papers and be free to leave back to his warm comfortable home with electronic monitoring in place.

Maybe you should move to Communist China. In mainland China, when a bigshot business executive or a government minister is convicted of fraud or corruption or incompetence, he is almost always sentenced to death. Usually executed by firing squad. Or sometimes he is thrown into a large pool filled with live piranhas. Or sometimes they just lock him up in a small dark prison-cell and forced to listen to loud music of Britney Spears' latest album. He usually dies within 24 hours.

That kind of swift and direct "justice" may be more to your liking. :D

Edit: Come to think of it, that kind of justice is more to my liking too! :D

[Dont Hurt Me]

Judge just ruled again no jail time for this 50 billion$$$ thief. Makes you think Madoff bought this guy off or contributed to his campaign.

White collar crime again appears to be no crime to the crooks in govt.

[BigHungry04]

He still may face jail time if he is convicted for his crimes. He is out on bail, which is a very common occurrence.

[MacNut]

He still may face jail time if he is convicted for his crimes. He is out on bail, which is a very common occurrence.Why should he even get bail?

[Music_Producer]

. Or sometimes they just lock him up in a small dark prison-cell and forced to listen to loud music of Britney Spears' latest album. He usually dies within 24 hours.
:D

I laughed so much at that. Thanks.

Wasn't the whole point of keeping him locked up in his house, basically to help the investigation? Or at least that's what the investigators say.. :rolleyes:

What happened to the millions he mailed out to his relatives though? What a scum bag - I hate the way he smiles every time he's on TV - it's like he is so proud of it and saying 'Haha suckers.. what can you do?'

[Sun Baked]

What happened to the millions he mailed out to his relatives though? What a scum bag - I hate the way he smiles every time he's on TV - it's like he is so proud of it and saying 'Haha suckers.. what can you do?'

Didn't think much of it, just a very Merry Christmas for some.

Until they said that he had also written out millions in checks that he hadn't mailed yet.

---

Should be interesting about the Swiss bank accounts, to see whether it was him or the plane sharing partner that flew to Geneva.

Like quite a few of the tax scofflaw jurisdictions, getting in trouble and having these destinations rarely helps your case... since there might be better spots to vacation.

[chagla]

So the lesson here is, don't rob the next guy for petty cash. If caught, you WILL go to jail. Instead try stealing billions, because when you steal big, you don't go to jail. :(

[Sun Baked]

So the lesson here is, don't rob the next guy for petty cash. If caught, you WILL go to jail. Instead try stealing billions, because when you steal big, you don't go to jail. :(

He is going to jail it may simply take a couple years for him to be indicted, and for him to have his day in court.

Edit: Move too quick and you can blow the case for the 3-20 people who had to have been helping him, and maybe mess the possible case with the people in the hedge funds who were getting kickbacks to place money with him.

[garybUK]

I know a lot of institutions here in Europe were heavily affected by this, some poor chap in charge of a French institution committed suicide over this ......... poor excuse of a human!!!!

EUROPE should DEMAND his extradition here and punish him to the full extend of the law!!!! He should be charged for Manslaughter on top of his other crimes. And serve time in a Siberian salt mine! :p

The US are obviously dragging their heels about imprisoning this person.

If it were the other way the USA would want them there now!!!

[BigHungry04]

Why should he even get bail?

He committed a non-violent crime, so bail is justified. If convicted he will go to jail. Whatever happened to innocent until proven guilty?

[Sun Baked]

Sounds like they could have shut this down in 1992 when they stepped on a Ponzi scheme that funneled money to Madoff.

They shut down Avellino, got him to return the money and pay a fine ... and it didn't go much further.

http://www.nytimes.com/2009/01/17/business/17ponzi.html

Seventeen years ago, federal investigators questioned for the first time whether Bernard L. Madoff was connected to a Ponzi scheme. Their inquiry centered on Frank Avellino, an accountant who had been funneling investors to Mr. Madoff since the 1960s...

...The two men gradually shifted their focus from accounting to raising money for Mr. Madoff. Their business expanded until 1992, when the S.E.C. received marketing materials showing that Avellino & Bienes had promised investors annual returns of up to 20 percent. Commission officials said at the time that they believed they had stumbled upon a Ponzi scheme.

But when the investigators went to Mr. Avellino, they found, to their surprise, an apparently legitimate explanation. The money, $441 million from 3,200 clients, was being managed by Mr. Madoff, whose brokerage firm by then was one of the biggest stock traders on Wall Street. In a deposition, Mr. Avellino explained that he had promised returns of 13.5 to 20 percent a year. If Mr. Madoff fell short of producing those returns with his stock trades, Avellino & Bienes would make up the difference, Mr. Avellino said...

[Sun Baked]

Seems these Ponzi schemes are getting ugly, even for the defense lawyers...

Fulbright, Paul Hastings Are Sued to Recoup Alleged Ponzi Operator's Defense Fees (http://www.law.com/jsp/article.jsp?id=1202428935365)

Sheri Qualters
The National Law Journal
March 10, 2009

A court-appointed receiver tapped by a Utah federal judge to recover money for investors victimized by an alleged Ponzi scheme operator sued Fulbright & Jaworski and Paul, Hastings, Janofsky & Walker to get back money the alleged Ponzi perpetrator paid the law firms to defend him.

...

The legal allegations against the firms include fraudulent transfers and unjust enrichment. The case also demands that the firms provide the receiver an accounting of funds or assets they received directly or indirectly from Southwick or VesCor and what the firms did with the funds.

...

Typical scheme used by the feds to kill competent council in the middle of a criminal case, but the victims using the tactic to recover funds later might get interesting with all these Ponzi schemes floating around.

[63dot]

The Madoff story seems to be about part fiction and part media hype. With the lack of an Enron story, or a Microsoft monopoly story, Madoff goes to the top of the white collar criminals list.

$50 billion dollars over 30+ plus years is huge, and Madoff will likely serve many years in the end and pay over $10 million dollars in fines (if he even has that which can be found). We all know he will not serve anything close to what he deserves.

But it's funny how the media ignores that an insurance company settled for $92 million in a field which is said to fraud the American people 100 billion annually. What about Microsoft being levied over a billion Euros in fines?

I don't know if the American media likes to focus on one big story, beat it to death, and then move on. Madoff is chump change compared to other white collar crimes but a person is easier to be fascinated with than a faceless company.

[pseudobrit]

I don't know if the American media likes to focus on one big story, beat it to death, and then move on. Madoff is chump change compared to other white collar crimes but a person is easier to be fascinated with than a faceless company.

Madoff was a straight-up criminal fraud, taking money he absolutely knew he was not investing or able to return.

AIG and most of the DJUSFN were and are just criminally reckless and incompetent.