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Crime Throughout History: Bernie Madoff

Criminal Law Blog by The Law Office of Greg Tsioros

Crime Throughout History: Bernie Madoff

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The Bernie Madoff Case

At the end of 2008, a man named Bernie Madoff was arrested in relation to a case that would make history. This Wall Street professional was eventually convicted in the largest financial fraud case in the history of the United States. Evidence would reveal that Madoff perpetrated an elaborate and massive Ponzi scheme that defrauded investors of billions of dollars. When all was said and done, Madoff was accused of ripping off his investors in the amount of $64 billion.

Bernard Madoff will never be released from prison and he will go down in history as one of the most infamous white collar criminals of all time. But just how did he pull off this heinous financial crime?

Ponzi Schemes

Bernie Madoff perpetrated an old and well-known financial fraud called a Ponzi scheme. This financial crime is named after an infamous fraudster named Charles Ponzi, who used trickery and deceit to scam investors out of huge sums of money. A Ponzi scheme is deceptively simple and requires only a few things to work:

  • A fraudster who promises high returns
  • An initial group of investors
  • A continuous stream of new investors

The scheme works like this: a person, usually claiming inside knowledge of a financial market, will claim to have an investment opportunity with extremely high returns. This operator will convince an initial group of investors to hand over their money by promising huge payouts in a short time. Of course, this supposed “sure thing” does not exist. It’s simply a fraud used to get investors to deposit their money.

The fraudster will then turn to new investors with the same promise. The unsuspecting initial investors will be paid off with the deposits made by the new group of investors. All the while, the operator is skimming money off of the investments to fill his own pockets.

The scheme continues until the fraudster steals a great deal of money and then vanishes, leaving the investors without any trace of their money.

Ponzi schemes may last for awhile but they will eventually collapse. At some point, it’s no longer possible to conceal the deceit or to pay off each group of investors. This is the situation that Bernie Madoff found himself in.

Madoff’s Scheme

Bernie Madoff was a well-respected Wall Street financial expert. He had managed a financial company for decades and even served as a chairman for NASDAQ. This is one reason why he seemed to be above suspicion, at least at first.

It’s not known exactly when Madoff’s scheme began but he was suspected of illegal activities in the 1990’s and in 2000. The scheme started to fall apart when Madoff’s investors demanded to be paid out of their investments, then worth billions of dollars, but Madoff only had a few hundred million to pay out. This demand for payouts was spurred on the by stock market decline of 2008. As the market fell, investors tried to pull out their investments, only to find out that their money was long gone.

In December of 2008, Madoff’s sons confronted their father, asking why he could not pay his investors. Madoff admitted to the Ponzi scheme and his sons reported him to the authorities.

The Consequences

It’s unclear exactly how much money Bernie Madoff stole from his investors but the figure could be as high as $64 billion. In 2009, Madoff entered a guilty plea to 11 federal felonies, including securities fraud, mail fraud and perjury. He plead guilty to charges of lying about investment opportunities and actively working to hide his fraud. He also admitted that his Ponzi scheme began in 1991. He explained that he never made a single investment with his clients’ money, he simply deposited it into his personal bank account instead.

Madoff did not try to make a defense to his charges and he did not seek a plea bargain.

For his crimes, Bernie Madoff was sentenced to 150 years in federal prison. Madoff’s prison term will expire in 2139, long after the seventy-year-old will be dead.

It may never be known exactly how much money Bernie Madoff stole from unsuspecting investors. However, he will serve as an example of the consequences than can happen when attempting fraud on a massive scale.

This infamous crime in history is brought to you by The Law Office of Greg Tsioros. If you are in need of experienced legal representation, contact his office today at (832) 752-5972.

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