How well can you really know another person? Like that old saying goes, you can’t judge a book by its cover. That’s how it was with Bernie Madoff. He was described as a soft-spoken, hard-working professional trusted by everyone.
“The man was very low-key. He was not a salesman,” one client said. An acquaintance agreed: ”If you had to pick one of the nicest guys on Wall Street — and there aren’t too many — he would’ve been one of them. He was not a ruthless, tycoon type.”
So what happened to financier Bernie Madoff, “one of the nicest guys on Wall Street” — an investment wizard you could trust completely, a former Long Island lifeguard who married his high school sweetheart — to topple him from his phenomenal financial throne?
ANATOMY OF A SWINDLE
It all began in 1928 when Bernard Lawrence Madoff was born in Brooklyn. He grew up in Laurelton, in Queens, as the child of Ralph and Sylvia Madoff, where he may have been exposed to questionable financial practices by his parents.
Sylvia ran a brokerage out of her home, Fortune.com alleged, which “might have been a smokescreen to cover up a shady business run by Madoff’s father, Ralph.” There were tax liens of $13,000 on Ralph’s home, and Sylvia’s firm was investigated in 1963 by the Securities and Exchange Commission (SEC) over missing reports; the commission stopped the investigation when she withdrew her registration.
At Far Rockaway High School, he competed on the swim team, and worked as a lifeguard at the Silver Point Beach Club in Atlantic Beach, Long Island. In 1960, after earning a political science degree from Hofstra University in Hempstead, he started a securities firm. He took daytime classes at Brooklyn Law School while running a sprinkler system business. With savings from his lifeguard job and sprinkler system business, along with $50,000 borrowed from his in-laws, he and Ruth Alpern, his high school sweetheart, founded an investment firm called Bernard L. Madoff Investment Securities, LLC, in 1960, matching buyers with inexpensive stocks.
According to the FBI, he added another business, an investment advisory firm. His father-in-law, a successful accountant, recommended investors, and Madoff’s successes had them clamoring to invest. Then the bottom dropped: Madoff lost a significant amount of money on a bad trade.
“He didn’t want to own up to the fact that he lost all this money for his father-in-law’s friends. So he started covering it up with all these other fake trades,” said the FBI’s Supervisory Special Agent Paul Roberts. “It just snowballed from there.”
ONE LIE LEADS TO ANOTHER
Madoff covered the losses with a Ponzi scheme. It went like this: A scammer convinces you to invest in nontraditional opportunities that yield high financial returns. But instead of investing your money, the scammer uses it to pay back earlier investors — and often to fund personal expenses.
The swindle was named for Charles Ponzi, who was hailed as a financial wizard in 1919, then unmasked as a fraud. Ponzi promised huge profits to thousands of investors; those who came in at the start received the returns promised, by using money invested later.
Ponzi took in about $15 million. Some 40 years later, Madoff took in approximately $80 billion.
Through word of mouth, Madoff’s business attracted high-profile clients such as Steven Spielberg, Kevin Bacon, and Kyra Sedgwick. Perhaps people trusted him so implicitly because their investments were earning 10% a year; some clients were earning hundreds of millions. Madoff attended charity balls and cocktail parties at places like the North Shore Country Club in Glen Head. As an invited guest, not a member, he worked the room, recruiting members as investors.
Madoff later explained, in a CBS interview with SEC Inspector General David Kotz, how he concealed the multibillion-dollar fraud.
”It never entered the SEC’s mind that it was a Ponzi scheme,” Madoff told Kotz, because of “the reputation I had.”
“The Madoffs used their profits to live it up at their Hamptons hideaway, a Montauk oceanfront mansion at 216 Old Montauk Highway; at a home in Palm Beach, Florida; a Manhattan apartment; and on several yachts. By contrast, after Bernie and Ruth married in 1959, they had lived in a one-bedroom apartment at Windsor Park in Bayside, Queens.
But years later came the losses, for clients such as North Shore-Long Island Jewish Health System: Madoff lost them $5.7 million, reported The New York Times.
FINDING THE FAMILY FRAUDSTER
For nearly 40 years, Madoff ran what would become history’s biggest Ponzi scheme, until Dec. 10, 2008, when his sons turned him in after he confessed that his business was a giant Ponzi scheme. Madoff was arrested the next day at his New York apartment, and in 2009, he pleaded guilty to fraud, money laundering, and other crimes. It was reported that Madoff told investigators that he had lost $50 billion of his investors’ money; the actual figure was $80 billion.
The 71-year-old pleaded guilty to 11 felony counts and was sentenced to 150 years imprisonment, the maximum sentence. He died in 2021 after 11 years behind bars.
