Bernie Madoff's Incredible Ponzi Fraud

Online Stock Trading - Bernie Madoff Arrested for Operating a Ponzi Scheme Fraud

Bernie Madoff , who is not some made-man or Mafioso from Brooklyn, but an internationally-renowned investor, billionaire and former Chairman of the NASDAQ has been arrested by the FBI for a $50 billion fraud that he had been operating for decades. How as Bernie Madoff discovered ? He wasn't. He turned himself in as he had no more money left to pay his liabilities. The SEC certainly didn't discover what he was doing. It is possible also that he owed money to some rather unpleasant characters so maybe he figured he would be safer with the police. He told his employees that he had been operating a giant Ponzi scheme and making money from the suckers who believed him for decades.

What is a Ponzi scheme ?

.......... Charlie Ponzi

Basically, a Ponzi scheme, named after Italian immigrant Charles Ponzi, is a fraudulent operation that pays out abnormally high returns to investors. That sounds good of course, the problem is that the money being paid out is not obtained from investments but from other mugs, sorry 'investors' (there apparently really is one born every minute).

Investor A puts in $10K and at the end of month receives back $12K, so he spreads the word that this scheme is great and so more investors pour in more money and get back fat profits from the money 'invested' by the new mugs that jump on the bandwagon. Eventually, of course, it all collapses, but usually by then the guys who set up the scheme are long gone.

The only difference with the Bernie Madoff scheme is the scale. There are now large numbers of people who thought they were millionaires who have discovered they are broke, because their 'millions' invested with Bernie Madoff were totally fictitious. There are also charities who find themelves in the same situation.

............................ Bernie Madoff

The only strange thing is that although Madoff was running a family business, employing his brother Peter, his nephew Charles, his niece Shana and his sons Andrew and Mark, apparently Bernie Madoff was the only one who knew that he was running a fraudulent operation. He was clearly a magician.

The SEC has said “We are alleging a massive fraud — both in terms of scope and duration. We are moving quickly and decisively to stop the fraud and protect remaining assets for investors.”

Notice how they say they are moving 'quickly' - it only took them twenty years and they didn't discover anything, it was Bernie Madoff that confessed and was subsequently 'shoppped' by his sons when they discovered the terrible truth. Sons clearly with high morals but low inteligence, what went wrong with their education I wonder.

Mr. Madoff who has been released on a $10 million bond was described by his lawyers as "a longstanding leader in the financial services industry.”

At one point Madoff was the largest market maker on the Nasdaq market, operating as buyer and seller of a vast array of widely traded securities and employing hundreds of traders. (Just a minute I thought there was no trading involved in this scheme?)

Some on Wall Street worry that Mr. Madoff’s fall would shake a lot more foundations than just those of his own company.

It would appear that other hedge fund managers have been wondering privately for years how Madoff could achieve such high returns, as the investment strategies he claimed to use were generally low-yielding

Congratulations go to Girish Reddy of Prisma Partners who decided against investing in the Madoff funds, saying : “The numbers were too good to be true, for too long .. And the supporting infrastructure was weak.”

How did the truth come out ? Alarm bells first rang last Tuesday, when Mr. Madoff told one of his senior executives (remember this is a family firm) that he wanted to pay annual bonuses in December, i.e. two months early.

But he had already told another senior executive that he needed to raise cash to cover $7 bn in withdrawals.

On Wednesday, the senior executive asked Bernie Madoff for an explanation, at which point he invited the two executives (his sons according to CNBC) to his apartment where he disclosed the terrible truth that he had managed to keep hidden from them (and most everyone else) for decades that his business was “all just one big lie” and “basically, a giant Ponzi scheme.” Incredible but true, or so we are invited to believe. Just like in Dallas, when they guy comes out of the shower and explains to the viewers in lala land that the last 90 episodes had all been a dream!

The executives were quick to catch on and in a flash understood that for years the firm had been paying returns out of the cash received from new investors. If it wasn't so tragic, and unbelievable, you would have to laugh.

Mr. Madoff said he intended to give himself up in about a week but first wanted to hand out approximately $200 million to $300 million to “certain selected employees, family and friends.” Gee what a generous guy! Distributing other people's money to his family. Doesn't it make you proud to be involved in the stockmarket?

Before he could carry out his dastardly plan however, he was arrested on a count of securities fraud, which has a maximum penalty of 20 years in prison (he's already 70 so he maybe doesn't care too much) and a maximum fine of $5 million (well that's a lot less than the $300 million he was going to hand out, so a win-win situation).

Mr. Madoff confessed to an F.B.I. agent that he had lost money on his investments and had “paid investors with money that wasn’t there.”

Bernie Madoff’s firm has played a significant role in the structure of Wall Street for decades.

His company had partnerships with the largest brokerage businesses on Wall Street, including Goldman Sachs and Merrill Lynch.

He founded Bernard L. Madoff Investment Securities in 1960.

His firm grew to be one of the largest independent trading operations in the securities industry. The company had apaprently around $300 million in assets in 2000 and was one of the top trading and securities firms in the US.

So, all incredible, but is it all true? Who knows, can we believe anything Mr Madoff says? Would you buy a used car from him?