The Mighty Fraud: The fall of Bernard Madoff
It’s being touted as the biggest fraud in history. This is quite something, given the competition U.S. financial trader
Bernard Madoff is up against in this year’s financial rogue sweepstakes. Madoff, founder of Bernard L. Madoff Investment
Securities LLC, is one of those characters who was seen as a good sort of fellow, giver to both the political and
philanthropic machines of the United States.
Madoff was a presence on Wall Street for decades and used the infamous ‘Ponzi scheme’ (named after Charles Ponzi), which
may well hail as one of the biggest deceptions on the public in history. Its format is typified by abnormally high
yields where later investors buy off earlier ones in what most outside the U.S. would term a pyramid scheme.
The defrauded were also the sort you might consider good chaps. Country club members, New York Mets owner Fred Wilpon,
GMAC Chairman J. Ezra Merkin. The Elie Wiesel foundation and an assortment of other of charities were also fleeced. The
Robert I. Lappin Foundation in Salem, Mass., announced a day after Madoff’s arrest that it would be shutting down
operations after losing all its assets – $8 million in all. The Chais Family Foundation duly followed on December 14.
Entire life-savings have vanished.
Madoff’s lines of influence were also considerable, going straight to Washington. In that wonderful collusion between
politics and capital that is so typical of this country, his family had contributed almost $400,000 to committees and
candidates. According to Politico, red-faced lobbyists have been scrambling to sever ties. They, like other customers of the Madoff empire, were duped.
The hedge fund industry was already in deep trouble before Madoff was arrested on December 11. This revelation will sink
them further. Madoff’s firm had a difficult structure, and proved opaque to outsiders and regulators. Not that anyone
was interested in looking. Again, the lack of regulation through such bodies as the Securities and Exchange Commission,
which had received various tip offs about the nature of Madoff’s returns, assisted the unsustainable endeavour to
Perhaps this aspect is not surprising, given that former assistant director in the SEC’s Office of Compliance
Inspections and Examinations’ market oversight unit in Washington, Eric Swanson, is married to Madoff’s niece, Shana
What of the defrauded? Assets from Bernard L. Madoff Investment Securities LLC will be carved out in due course by the
receivers, Richard Kibbe and Orbe LLP. Few will be surprised if these fail to cover the losses inflicted on Madoff’s
External help may well be in the offing as well. The SIPC reserve fund could ease the pain to a certain extent, though
this is not automatic. Busy lawyers will also seek to target brokerage firms who robed Madoff’s enterprise with glowing
references to encourage investments from the gullible. As ever, the lack of oversight form firms that should have known
Figures like Madoff have been sprouting like fungi on bracken in the last eighteen months. Given the mania against
regulation and supervision, their emergence is hardly surprising. The only difference is one of scale. If you are going
to defraud people and entities, do it in spectacular style. Madoff now towers over other financial calamities that have
characterized this period of economic woe. And the most he will get in return is a possible $5 million penalty with
short prison sentence.
Binoy Kampmark was a Commonwealth Scholar at Selwyn College, University of Cambridge. Email: firstname.lastname@example.org