Date: December 10, 2008… The biggest financial fraud in the history of America was revealed. American financier Bernard Lawrence Madoff, facing bankruptcy in the recession, told his sons Mark and Andrew that his advisory business was “a big lie.” The sons complained about this to the FBI. Madoff was arrested on December 11, 2008. This fraud was worth about 65 billion dollars. As per today’s rates, this amount is about 5.54 lakh crore rupees. Madoff fooled thousands of investors around the world for 17 years. Many people who trusted Madoff lost their retirement money. The court sentenced him to 150 years. Son Mark committed suicide in 2010. The second son Andrew died of cancer in 2014. This fraud was committed by a person who was also the former chairman of the stock exchange Nasdaq. Today is Bernard Madoff’s birthday. He was born on April 29, 1938. He died on 14 April 2021. On the occasion of his birthday, the full story of this shocking fraud… Chapter-1: Setup Bernard Madoff’s firm had two main parts: Legitimate Market-Making and Proprietary Trading Business. Apart from this, there was a secret advisory business, through which this entire fraud was carried out. In the advisory business, Madoff promised annual returns of up to 8-12% in any kind of market condition. This business attracted people, hedge funds, charities and institutions seeking stable returns. Madoff would often refuse to take money from investors to create an aura of exclusivity and increase demand. At the same time, he used to take advantage of his former Nasdaq chairman’s image to increase his trust among the people. Chapter-2: Ponzi Structure Madoff did not invest the money taken from people. Instead of investing the client’s funds in stocks, bonds or other securities, it was deposited in a bank account. Madoff and his team prepared fake account statements to show fake trades and profits. These statements showed holdings in blue-chip stocks and Treasury securities. When clients requested withdrawals, Madoff would make payments from new investors’ money. That is, as long as new deposits were more than withdrawals, the scheme could run smoothly. Madoff claimed that he was able to give stable returns through a complex option strategy of stock purchases and index options. But in reality, no such trades took place. Chapter-3: Scale and Reach Thousands of investors gave Madoff to manage their funds. In 2008, this amount was $ 65 billion, that is, about Rs 5.4 lakh crore, but the actual cash in the account was less than $ 300 million (about Rs 2600 crore). Madoff’s clients included retired people and celebrities. Apart from these, there were universities, pension funds and feeder funds like Fairfield Greenwich Group, which raised billions of dollars from global investors. Chapter-4: Concealment Strategy Chapter-5: Trust Chapter-6: The Collapse Chapter-7: Impact Chapter-8: Sentence On March 12, 2009, Madoff pleaded guilty to 11 federal crimes, including securities fraud, money laundering and perjury. In June 2009, Justice Denny Chin sentenced him to 150 years in prison, calling the fraud ‘extraordinary evil’. Madoff, 71 years old at the time, was ordered to pay a compensation of $170 billion (current value – about ? 14.50 lakh crore). This amount was much more than the assets to be recovered from him. Chapter-9: Legal Accounts The matter went beyond Madoff’s punishment. The victims of the fraud pursued Madoff’s accomplices involved in it. 15 accused were convicted. Madoff’s brother Peter was sentenced to 10 years. Another accused, Ruth Madoff, settled with the complainants, in which most of her assets were confiscated. The SEC, faced lawsuits for negligence, settled with the representatives of the victims for millions of dollars. Under the leadership of trustee Irving Picard, more than $ 14 billion (? 1.2 lakh crores) was recovered by 2021. After this, funds were given to the victims of fraud through the Madoff Victim Fund. However, even with this effort, many investors could not fully compensate for their losses. Madoff’s primary banker JP Morgan Chase also had to pay $ 2.6 billion (about Rs 22 thousand crores) for not reporting suspicious activity. Chapter-10: Death Madoff spent his last days battling kidney disease at FCI Butner in North Carolina. He died on April 14, 2021, at the age of 82, after being denied mercy release in 2020. His death only closed one chapter, but the scars of his fraud remain. Many reforms were made after Madoff’s scandal, including stricter oversight of the SEC and increased investor due diligence. However, debate still continues about this weakness in the system.
