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Bernie Madoff

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Bernard L. Madoff
Born (1938-04-29) April 29, 1938 (age 86)
New York City, USA
NationalityAmerican
OccupationBusinessman

Bernard Lawrence 'Bernie' Madoff (born April 29, 1938) was the chairman of Bernard L. Madoff Investment Securities LLC, which he founded in 1960,[1] until December 2008, when he was arrested by the Federal Bureau of Investigation and charged with fraud. Federal judge Louis L. Stanton has frozen Madoff's assets, and appointed Lee Richards as receiver.[2] The firm was one of the top market maker firms on Wall Street,[2] and also had an investment management business.[3]

The fraud is alleged to involve $50 billion[3]—the largest investor fraud ever blamed on a single individual,[4] and to have taken place over decades.[5] Mainly Spanish, French and Italian banks face losses from the scam.[6][7][8][9]

Madoff was also a leading figure of Jewish philanthropy.[10][11] The freeze of Madoff's assets significantly affected a number of charities,[10][12][13] one of which, the Lappin Foundation, had to close.[13][14]

Personal information

Madoff was born in 1938 to a New York Jewish family[15] and is married to Ruth Madoff.[16] He has homes in Roslyn, New York, Montauk, Long Island, and an apartment on Manhattan's Upper East Side valued at more than $5 million. He also owns homes in Palm Beach and France[17] and is a member of the Palm Beach Country Club. He owns a 55-foot fishing boat, named "Bull."[18]

Career

Madoff started his firm in 1960 with an initial investment of $5,000 that he said was earned from working as a lifeguard and installing sprinklers.[19]

He has been active in the National Association of Securities Dealers (NASD), a self-regulatory organization for the U.S. securities industry. His firm was one of the five most active firms in the development of the NASDAQ, and he served as its chairman of the board of directors, and on its board of governors.[20]

Madoff's firm was known for "paying for order flow," in other words paying a broker to execute a customer's order through Madoff. A reporter for CNN asked him about this in May 2000. He replied, "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated."[21]

Academics have questioned the ethics of these payments, and compared them to "kickbacks."[22] [23] Madoff argued that the payment to the broker did not alter the price that the customer received.[24]

Madoff served as the Chairman of the Board of Directors of the Sy Syms School of Business at Yeshiva University, as well as Treasurer of its Board of Trustees. [11] [12] He resigned his position at Yeshiva University after his arrest.[12] Madoff also serves on the Board of New York City Center, the historic theater and member of New York City's prestigious Cultural Institutions Group (CIG). [25] He also did charity work for the Gift of Life Bone Marrow Foundation, and ran a $19 million private foundation that donated money to hospitals and theaters.[11] [10]

Philanthropy

Madoff's family has been important in philanthropic circles.[11] When his nephew, Roger Madoff, died of leukemia in April 2006, paid death notices appeared in newspapers from a range of charitable organizations including the Lower East Side Tenement Museum.[11] Madoff donated approximately $6 million to lymphoma research after his son Andrew was diagnosed.[26]

Madoff has also undertaken charity work for the Gift of Life Bone Marrow Foundation, and through The Madoff Family Foundation, a $19 million private foundation which he managed along with his wife[10], he donated money to hospitals and theaters.[11] [10] The foundation has contributed to many Jewish educational, cultural, and health charities. The various organizations were mostly given charity funds backed by Madoff securities.[15][12]

In the wake of Madoff's arrest, the assets of the Madoff Family Foundation have been frozen by a federal court.[12][10]

Modus operandi

The Wall Street Journal has reported that, "Several investors say Mr. Madoff's main go-between in Palm Beach was Robert Jaffe. Mr. Jaffe is the son-in-law of Carl Shapiro, the founder and former chairman of apparel company Kay Windsor Inc. and an early investor and close friend of Madoff. Jaffe, a philanthropist in Palm Beach, Florida, attracted many investors from the Palm Beach Country Club."[18]

The New York Post reports that Madoff, "worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach, and through his position on the boards of directors of several prominent Jewish institutions, he was entrusted with entire family fortunes".[27] According to CNBC, Madoff was able to sell to European investors at ski competitions organized by stock exchanges.[17]

Henry Blodgett has reported in The New York Post and elsewhere that a number of Madoff's investors (the "smart money") were attracted to invest with him precisely because they assumed that he was crooked - the assumption amongst a number of his investors being that he was front-running trades against information he gleaned from his marketmaking operation, thus coming up with the unrealistic track record,[28][29] i.e. Blodgett is stating that he has been told that a number of Madoff's investors were also crooked, and were attracted to Madoff because they assumed he was running a crooked shop, thinking it was run with the benefit of insider information, and thus were trying to ride on his coattails and profit from his crooked operation.

Although Madoff was a pioneer of electronic trading, Madoff refused to provide his clients online access to their accounts.[10] He sent out accounting statements by mail, whereas most hedge funds email statements and allowed them to be downloaded via computer for easier analysis by investors.[17]

While hedge funds typically hold their portfolio at a securities firm (typically a major bank or brokerage), allowing an outside investigator to verify their holdings, Madoff's firm was its own broker-dealer and supposedly processed all its trades.[30]

One investor who declined to be named said “The returns were just amazing and we trusted this guy for decades — if you wanted to take money out, you always got your check in a few days. That’s why we were all so stunned.”[31][32]

Madoff supposedly had a remarkable track record of success year after year. Moderately-high consistent returns was a key factor in the perpetuation of Madoff's fraud for decades; other ponzi schemes paid out higher returns in the neighborhood of at least 20 percent and ended quickly collapsing. A hedge fund run by Madoff, which described its strategy as focused on shares in the Standard & Poor's 100-stock index, averaged a 10.5 percent annual return over the past 17 years. In November 2008, amid a general market collapse, the fund reported that it was up 5.6 percent that month, while the S&P 500-stock index fell 38 percent.[33]

Signs of trouble and downfall

Outside analysts raised concerns with Madoff's firm for years.[10] Amongst the suspicious signs were the fact that Madoff's company avoided filing disclosures of its holdings with the SEC by selling its holdings for cash at the end of each period.[10] Such a tactic is highly unusual. Improbably steady investment returns despite exceedingly volatile markets was another red flag.[34] A longtime friend said that "his rate of return [...] was never attention-grabbing, just solid 12-13 percent year in, year out".[11] Robert Ivanhoe, chairman of the real estate practice of the law firm Greenberg Traurig, added that Madoff increased his allure by refusing some investors.[11]

Harry Markopolos, a former Boston investment professional, said he repeatedly tried to get the SEC to investigate Madoff, first contacting the agency's Boston office more than a decade ago. The SEC said it conducted two inquiries of Madoff in the last several years and didn't find major problems.[35] An SEC statement detailed that inspectors examined Madoff's brokerage operation in 2005, finding three violations of rules requiring brokers to obtain the best possible price for customer orders, while in 2007, SEC enforcement staff completed an investigation and did not refer the matter to the SEC commissioners for legal action.[36]

Charles Gradante, co-founder of hedge-fund research firm Hennessee Group, observed that Madoff "only had five down months since 1996",[37] and commented on Madoff's investment performance: "You can't go 10 or 15 years with only three or four down months. It's just impossible."[34] Bloomberg News reported that a research firm warned clients away from Madoff's firm after discovering that its books were audited by a three-person accounting firm, Friehling & Horowitz, operating out of a 13-by-18 foot location in an office park in New York City’s northern suburbs.[38] Madoff also operated as a broker dealer with an asset management division. Joe Aaron, a longtime hedge fund professional, found the structure suspicious and in 2003 warned a colleague to steer clear of the fund. "Why would a good businessman work his magic for pennies on the dollar?"[39]

Madoff ran into trouble, in 2008, when clients wanted to withdraw $7 billion from the firm and he had to come up with the cash. [35] He had brought a high number of relatives into his business, who also lived within blocks of each other on the Upper East Side. His brother, Peter, was a senior managing director. Both of Madoff’s sons, Mark and Andrew, joined the team after finishing their educations. Charles Weiner, a son of Mr. Madoff’s sister, also joined the firm, and Peter Madoff’s daughter, Shana, took a job with the company as a lawyer.[11]

In 2007, Shana Madoff married Eric Swanson. He served at the Securities and Exchange Commission from 1996 to 2006, rising to the title of Assistant Director in the Office of Compliance Inspections and Examinations' market oversight unit in Washington. His duties included supervising the Commission's inspection program responsible for regulatory oversight of trading on the securities exchanges and ECNs.[40][41]

His sons Mark and Andrew were apparently unaware of the imminent insolvency of Madoff Securities.[10] According to the authorities, the sons confronted their father, asking him how the firm could pay bonuses if it couldn't pay investors, prompting Madoff's admission that he was "finished", after which they reported him to the authorities.[10]

Criminal and civil charges

Wikinews has related news:

Madoff was arrested by the FBI on December 11, 2008 on criminal charges of securities fraud, after he allegedly said that his business was "a giant Ponzi scheme."[42][43] The alleged behavior involves an asset management unit of his firm, rather than the better known market making unit.

The criminal complaint alleges that investors lost $50 billion because of the scheme.[44] He was charged with a single count of securities fraud. Madoff was released on the same day of his arrest after posting $10 million bail.[42] He faces up to 20 years in prison and a fine of $5 million if convicted.[42] According to the SEC, Madoff confessed to an FBI agent that there was “no innocent explanation” for his behavior,[44] and that he "paid investors with money that wasn't there".[44] His attorney stated that he "will fight to get through this unfortunate set of events." Independent hedge fund research firm Aksia told its clients in December of 2006 not to invest with Madoff’s firm after learning the identity of the New City, New York-based auditor, according to Jake Walthour, of Aksia. The auditor, Friehling & Horowitz included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said.[38]

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).[19]

The Securities and Exchange Commission filed a separate civil suit against Madoff on December 11, 2008.[19][45]

Separately, individual investors have filed civil suits against Madoff. The two firms leading the suits, Milberg LLP (suit led by partner Brad Friedman), and Seeger Weiss LLP (suit led by partner Stephen Weiss) announced on 12 December 2008 that the two firms have been retained by dozens of individual investors.[46]

Affected clients

Those affected include banks, Wall Street investors, charities, and individuals.

Spanish Banco Santander's Optimal Fund lost over $3 billion.[47] [7] Swiss private banks lost £2.5 billion, of which one billion Swiss francs (£570m) were lost by Union Bancaire Privée, a Geneva-based private bank.[8][9] BNP Paribas estimated its exposure to be more than $460m.[48]

Several charities were severely affected by Madoff's indictment. The $8 million Boston-based Robert I. Lappin Charitable Foundation, which had the bulk of its money invested with Bernard L. Madoff Investment Securities, closed its doors and laid off its seven staff members. Some stated goals of the 16-year-old charity had been "reversing the trend of assimilation and intermarriage",[49] funding trips for about 1,800[10] teens to Israel, and enrichment programs for Jewish educators.[12]

Other charities affected by the downfall include The North Shore-Long Island Jewish Health System, which claimed to have lost $5 million, and The Julian J. Levitt Foundation, which lost about $6 million.[10]

Some smaller asset management firms were significantly affected as well. UK-based Bramdean Alternatives lost 35% of its stock value after it revealed that about £21m (nearly 10% of its holding) was exposed.[48]

Notable affected institutional investors:

Notable affected individuals:

  • Stephen Abbott (San Francisco lawyer) and family[57]
  • Norman Braman, former owner of the Philadelphia Eagles football team[13]
  • Englebardt family of Los Angeles and elsewhere[13]
  • Stephen A. Fine, president of Biltrite Corp[35]
  • Avram and Carol Goldberg, former owners of the Stop & Shop supermarket chain[35]
  • Helfman family of Miami and elsewhere[13]
  • Robert Jaffe and family (see also father-in-law Carl & Ruth Shapiro) of Palm Beach and elsewhere[18]
  • Saul Katz, co-owner of the New York Mets[27]
  • Irwin Kellner, of Port Washington, N.Y.[27]
  • Susan Leavitt of Tampa Bay, Florida[3]
  • Loeb family[57]
  • J. Ezra Merkin, chairman of GMAC, and founder of Ascot Partners hedge fund[13]
  • Ira Rennert (billionaire), mentioned by Vicky Ward of Vanity Fair on CNBC on December 12, 2008 as being "heavily, heavily invested" with Madoff[57]
  • Carl and Ruth Shapiro (founder and former chairman of apparel company Kay Windsor Inc) and family (see also son-in-law Robert Jaffe)[35]
  • Richard Spring of Boca Raton, FL[18]
  • Thyssen family (including Thybo International fund)[57]
  • Lawrence Velvel, dean of the Massachusetts School of Law[27]

Further information

On December 13, 2008, the front page of the Madoff website was changed to read:

"The Honorable Louis L. Stanton, Federal Judge in the United States District Court for the Southern District of New York, has appointed Lee S. Richards of the law firm Richards Kibbe & Orbe LLP receiver over the assets and accounts of Bernard L. Madoff Investment Securities LLC (“BMIS”) as per the attached order.[1] Should you have further questions, please contact the Receiver at the following number: 214-647-7511."

References

  1. ^ "Bernard L. Madoff". Business Week Online. McGraw-Hill. Retrieved December 12, 2008. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help)
  2. ^ a b Larson. Bloomberg.com "U.S. Judge Freezes Madoff Assets, Appoints Receiver, SEC Says". Bloomberg News. {{cite news}}: Check |url= value (help)
  3. ^ a b c "SEC Charges Bernard L. Madoff for Multi-Billion Dollar Ponzi Scheme (2008-293)". SEC.gov. U.S. Securities and Exchange Commission. December 11, 2008. Retrieved December 11, 2008.
  4. ^ "Wall Street legend Bernard Madoff arrested over '$50 billion Ponzi scheme'". Times Online. Times Newspapers Ltd. December 12, 2008. Retrieved December 13, 2008.
  5. ^ Rich investors 'wiped out' by Wall Street fraud
  6. ^ US fraud scheme to cost Spanish savers more than three billion: press
  7. ^ a b Spain may have 3 bln euros exposure to Madoff-paper
  8. ^ a b c d World’s richest hit by Bernard Madoff
  9. ^ a b c "Top investors duped in Madoff's alleged fraud: reports". Google News. Retrieved 2008-12-13.
  10. ^ a b c d e f g h i j k l m n Appelbaum, Binyamin. "'All Just One Big Lie' Bernard Madoff was a Wall Street whiz with a golden reputation. Investors, including Jewish charities, entrusted him with billions. It's gone". Washington Post. {{cite news}}: Unknown parameter |Date= ignored (|date= suggested) (help); Unknown parameter |Page= ignored (|page= suggested) (help); Unknown parameter |Publisher= ignored (|publisher= suggested) (help); Unknown parameter |accesdate= ignored (|access-date= suggested) (help)
  11. ^ a b c d e f g h i "Standing Accused: A Pillar of Finance and Charity". {{cite news}}: Unknown parameter |Publisher= ignored (|publisher= suggested) (help)
  12. ^ a b c d e f "Madoff Wall Street fraud threatens Jewish philanthropy". Retrieved 2008-12-13.
  13. ^ a b c d e f g h i Henriques. "For Investors, Trust Lost, and Money Too". New York Times. Retrieved 2008-12-13.
  14. ^ Madoff losses ripple into Boston, shut foundation
  15. ^ a b Sherwell. "Bernie Madoff: Profile of a Wall Street star". Telegraph. Retrieved 2008-12-14.
  16. ^ Lambiet. "Bernie Madoff's arrest sent tremors into Palm Beach". Palm Beach Daily. Retrieved 2008-12-12.
  17. ^ a b c "Wall Street Titan May Have Fooled Investors for Years". CNBC. Retrieved 2008-12-13. Cite error: The named reference "cnbc" was defined multiple times with different content (see the help page).
  18. ^ a b c d e f g h i j k l Frank, Robert (December 13, 2008). "Fund Fraud Hits Big Names; Madoff's Clients Included Mets Owner, GMAC Chairman, Country-Club Recruits". Wall Street Journal. Retrieved December 13, 2008. {{cite web}}: Unknown parameter |coauthor= ignored (|author= suggested) (help)
  19. ^ a b c Glovin, Dan (December 11, 2008). "Madoff Charged in $50 Billion Fraud at Investment Advisory Firm". Bloomberg News. Retrieved December 11, 2008. {{cite web}}: Unknown parameter |coauthor= ignored (|author= suggested) (help)
  20. ^ "The Owner's Name is on the Door". Madoff.com. Retrieved December 11, 2008. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help)
  21. ^ McMillan, Alex. [Money.CNN.com/2000/05/29/investing/q_madoff/ ""Q&A: Madoff Talks Trading"]. Money.CNN.com/2000/05/29/investing/q_madoff/. Retrieved December 11, 2008. {{cite web}}: Check |url= value (help); Text "coauthors +" ignored (help)
  22. ^ Ferrell, Allen (2001). "A Proposal for Solving the "Payment for Order Flow" Problem" (PDF). 74 S.Cal.L.Rev. 1027. Retrieved December 12, 2008. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help)
  23. ^ Battalio, Robert H. (January 15, 2007). "Does Payment for Order Flow to Your Broker Help or Hurt You?" (PDF). Retrieved December 12, 2008. {{cite web}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  24. ^ "Q&A: Madoff talks trading". CNNMoney. May 29, 2000. Retrieved December 11, 2008. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help)
  25. ^ NYCC Board of directors
  26. ^ Charity Caught Up in Wall Street Ponzi Scandal
  27. ^ a b c d e "INVESTOR FUROR OVER '$50B SCAM'". Retrieved 2008-12-14. {{cite news}}: Unknown parameter |Publisher= ignored (|publisher= suggested) (help) Cite error: The named reference "lukas" was defined multiple times with different content (see the help page).
  28. ^ http://www.nypost.com/seven/12142008/news/columnists/skilled_actor_was_perfect_in_concept_144058.htm
  29. ^ http://clusterstock.alleyinsider.com/2008/12/i-knew-bernie-madoff-was-cheating--thats-why-i-invested-with-him
  30. ^ Look at Wall St. Wizard Finds Magic Had Skeptics
  31. ^ Look at Wall St. Wizard Finds Magic Had Skeptics
  32. ^ Prominent Trader Accused of Defrauding Clients
  33. ^ 'All Just One Big Lie'
  34. ^ a b Hamilton. "Madoff's reliable returns aroused doubts". Latimes. Retrieved 2008-12-13.
  35. ^ a b c d e Healy. "Boston donors bilked out of millions". Boston Globe. Retrieved 2008-12-13.
  36. ^ Madoff fraud case raises questions about SEC
  37. ^ For Madoff investors, big returns trumped concerns
  38. ^ a b Glovin, David (December 12, 2008). "Madoff Securities' Auditor Generated 'Red Flags' (Update1)". Bloomberg. Retrieved December 12, 2008. {{cite web}}: Unknown parameter |coauthor= ignored (|author= suggested) (help)
  39. ^ Zuckerman. "Fees, Even Returns and Auditor All Raised Flags". WSJ.
  40. ^ BATS Exchange's management team focuses solely on the Company's mission to Make Markets Better.
  41. ^ The Girl Scout Council of Greater New York celebrated its 16th Annual Women of Distinction Breakfast by honoring six remarkable women: Maryam Banikarim, Susan Chapman, Wanda Hill, Sara Queen, Deborah Roberts, and Shana Madoff Swanson at the Hilton New York.
  42. ^ a b c Neumeister, Larry (11/12/2008). "Ex-Nasdaq chair arrested on fraud charge". Associated Press. Retrieved December 11, 2008. {{cite web}}: Check date values in: |date= (help)
  43. ^ "Top Broker Accused of Fraud; Madoff, Money Manager for the Wealthy, Said to Have Run '$50 Billion Ponzi Scheme'". The Wall Street Journal. December 11, 2008. Retrieved 11/12/2008. {{cite web}}: Check date values in: |accessdate= (help)
  44. ^ a b c Henriques, Diana (December 11, 2008). "Prominent Trader Accused of Defrauding Clients". The New York Times. Retrieved December 11, 2008. {{cite web}}: Unknown parameter |coauthor= ignored (|author= suggested) (help) Cite error: The named reference "Times1" was defined multiple times with different content (see the help page).
  45. ^ Honan, Edith (December 12, 2008). "Former Nasdaq chair arrested over alleged £33 billion fraud". International Herald Tribune. Retrieved December 12, 2008. {{cite web}}: Unknown parameter |coauthor= ignored (|author= suggested) (help)
  46. ^ Dozens of Defrauded Investors in Madoff Case Retain Milberg LLP and Seeger Weiss LLP to Seek Recovery of Losses Hundreds of Millions of Dollars at Issue
  47. ^ US fraud scheme to cost Spanish savers more than three billion: press
  48. ^ a b http://news.bbc.co.uk/2/hi/business/7782731.stm
  49. ^ Birkner, Gabrielle (2008-12-12). "Madoff Arrest Sends Shockwaves Through Jewish Philanthropy". Forward. Retrieved 2008-12-14. {{cite news}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  50. ^ Access International Says Funds Invested With Madoff
  51. ^ a b El colosal fraude de un bróker de EEUU causa pérdidas millonarias en España
  52. ^ Template:Es iconLa estafa de un 'broker' de Wall Street provoca 3.000 millones de pérdidas en España
  53. ^ Nicola Horlick is a possible victim of the Bernard Madoff scandal
  54. ^ 'Superwoman' stung by hedge fund guru's '$50bn trading scam'
  55. ^ a b Madoff's alleged $50 billion fraud hits other investors
  56. ^ Fairfield pension money tied to embattled investor
  57. ^ a b c d e f g Blodget. "Bernie Madoff's Victims: The List". clusterstock. Retrieved 2008-12-14.
  58. ^ http://www.ft.com/cms/s/0/5446156e-ca1f-11dd-93e5-000077b07658.html
  59. ^ http://www.forbes.com/markets/2008/12/12/madoff-ponzi-update-markets-equity-cx_ra_1212markets32.html?partner=contextstory
  60. ^ Luzerner Privatbank von Finanzskandal um US-Financier betroffen
  61. ^ http://news.search.ch/wirtschaft/2008-12-14/madoff-skandal-luzerner-privatbank-betroffen

What a jackass

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