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10 Years after Bernie Madoff Arrest: A Look at the Largest Ponzi Scheme in History

This Tuesday December 11, 2018 marks the 10th anniversary of Bernie Madoff’s arrest for perpetrating the largest Ponzi scheme in history. For many of the investors victimized by Madoff’s $19 billion fraud, this day brings more even reason to celebrate. In a bankruptcy court hearing, the trustee unwinding Madoff’s long-defunct investment advisory firm sought authorization of $419 million in distribution payments to nearly 900 accounts.

That $419 million payment brings the total payouts for wronged investors to just over $12 billion. While that figure will never approach the $45 billion in fraudulent profits claimed by Madoff on account statements, a return of that magnitude is quite rare.

In honor of this particular day, we’ve put together a few points about Madoff’s operation, where things currently stand, and what lessons we’ve learned:

  • The scheme – As founder of Bernad L. Madoff Investment Securities, Madoff turned his Wall Street firm’s wealth management branch into an elaborate Ponzi scheme. By fabricating client records and securities transactions, Madoff led thousands of investors to believe he was trading on their behalves for modest and consistent returns, all while using their money to prop up the firm’s failing market-making unit, pay other client withdrawals, and accumulate riches for himself and his inner circle.
  • The downfall – With unsustainability being a common hallmark of Ponzi schemes, Madoff’s setup began to eventually deteriorate. As the general market downturn accelerated in the fall of 2008, investors requested to withdraw $7 billion from the firm. Unfortunately, Madoff had deposited their money into his business account, which despite having well over $5 billion at one time dipped to a dangerously low $230 million in November of 2008. Though he scrambled to keep the fraud afloat, the scheme ultimately succumbed to the avalanche of withdrawals.
  • The arrest – By the end of November 2008, Madoff knew he was approaching the end of his rope. His business account drained and options for borrowing enough money to meet outstanding redemption requests non-existent, Madoff directed an aide to use the account’s remaining balance to cash out close friends, family, and favored clients. On December 10, 2008, Madoff confessed to his two sons, Mark and Andrew, who reported him to law enforcement. Madoff was taken into custody by the FBI the following day.
  • The charges – On March 12, 2009, Madoff appeared in court for a plea proceeding. With no plea agreement or deal with prosecutors, he pleaded guilty to 11 federal charges, including securities and investment advisor fraud, mail and wire fraud, money laundering, perjury, false statements, making false filings with the SEC, and employee benefit plan theft.
  • The Sentence – In June of 2009, Madoff was sentenced to 150 years in prison, the maximum under federal sentencing guidelines. At his sentencing hearing, Madoff apologized to his victims, many of whom had lost their life’s savings, and some who had or would eventually go on to take their own lives. Now 80 years old, Madoff is currently serving his sentence at the Butner Federal Correctional Complex in North Carolina.

While the scheme will long retain its indelible mark in the pages of history, and the name Madoff now synonymous with greed, it’s important to not forget the devastation Madoff left in his wake. From the many convictions of aides, employees, and family that followed to the tragic stories of investors who trusted Madoff’s firm, the scheme is a glaring reminder of the need to improve our systems of oversight and accountability. Though the trustee overseeing the case has made the recent payment and is currently evaluating a revival of lawsuits from overseas investors worth around $4 billion, there’s still a lot to be done, both for victims in this case, and all investors at risk of becoming the next.

Meyer Wilson: Attorneys for Investment & Securities Fraud

For investors today, it’s worth noting that Ponzi schemes didn’t cease to exist when Madoff’s particular scheme went south. These types of schemes and many other forms of investment fraud are continually perpetrated across the country, with investors paying the price. Fortunately, financial crimes do provide an opportunity for the recovery of assets by victims, and our team at Meyer Wilson is committed to helping investors nationwide make the most of this opportunity in a range of investment misconduct claims.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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