Course:MGMT405 2024W2/Case-2i

Bernie Madoff

Bernie Madoff
Bernie Madoff
Born	April 29, 1938 Queens, New York, U.S.
Died	April 14, 2021 (aged 82) Butner, North Carolina, U.S.
Education	Political Science at Hofstra University
Spouse	Ruth Madoff
Children	2 Sons Mark Madoff Andrew Madoff
Occupation	Former Chairman of the National Association of Securities Dealers Automated Quotations (NASDAQ)
Known for	The largest Ponzi scheme in history

Bernie L. Madoff (April 29, 1938 - April 14, 2021) was an American financier who was known for running the largest Ponzi scheme in history defrauding investors of about $64 billion.

• Bernie Lawrence Madoff was born into a Jewish-American family in Queens, New York. His father, Ralph Madoff, worked as a plumber and a stockbroker. His mother, Sylvia Madoff, traded securities.
• In 1963, the Securities and Exchange Commission (SEC) investigated his mother for improper record-keeping, however, there was no further action, and the case was ultimately dismissed.
• Madoff graduated from Far Rockaway High School in 1956 and married his high school sweetheart Ruth Alpern, known as Ruth Madoff, in 1959.
• His financial career began as a penny stock trader on Wall Street where he formed his business, Bernard L. Madoff Investment Securities LLC (BLMIS). in early 1960. His firm became one of the largest penny stock brokerages and wealth management firms.
• In 1990, Madoff served as a chairman of the National Association of Securities Dealers Automated Quotations (NASDAQ). His firm was handling a significant portion (10%-15%) of all trading orders for the New York Stock Exchange (NYSE) during the 1990s.
• Bernie Madoff had been seen as a philanthropist who supported many charity organizations. He also contributed to Democratic Party candidates in the U.S.

What Happened With The Bernie Madoff Case

For decades, Madoff's firm created false illusion of profits by manipulating trades and records. The fraud got revealed during the financial crisis in 2008 when investor started asking for their money and Madoff could not give it to them.

1960 - 1970s: Madoff's Early Years

• In 1960, after finishing law school, Bernie Madoff founded the firm bearing his name Bernard L. Madoff Investment Securities LLC (BLMIS). His father-in law was recommending him clients to get started.
• BLMIS was in the business of buying and selling stock on behalf of his clients. It serves as a middleman to connecting buyers and sellers.
• Madoff's side business, an investment advisory firm, started by trading Over-the-Counter(OTC) or as it is known in popular culture "pink sheets".
• The whole fraud started as early as 1962 when he lost a big amount of money trading. All of his clients at the time were relatives of his or friends of his dad and instead of owning up to losing money he decided to cover it by essentially removing the losses from the accounts and using a loan to cover the money.
• In the 1970s, Madoff claims he was using a technique known as Risk Arbitrage where he was exploiting differences in price between the different Stock Exchanges. In other words, he was buying stock listed on one exchange for $11 while selling them at the same time on a different exchange for $12.

1980 - 1990s: Growth of the Firm

• In 1985, Madoff was elected for the first of four consecutive terms onto the Board of Directors of the NASD's, the predecessor to the Financial Industry Regulatory Authority (FINRA), this body was tasked with regulating OTC trading, which played into Madoff notoriety as someone trustworthy.
• After the market crash of 1987, Madoff was left with a lot of withdrawals and he admitted starting to cover these by using cash from new clients.
• In the 1990s, Bernie Madoff was running an apparent successful brokerage firm, profits were around $100 million a year and he had over 120 employees. This firm was all legit, but he was running an other operation, his investment advisor firm, which at this point had $8 billion in accounts.
• In 1992, Madoff got close to getting caught when the accounting firm Avellino & Bienes, who invested all of their money with him, were caught running their own Ponzi scheme. This forced Madoff to fake more then three years of financial statements in order to make them match with the accounting firm. They ended up not getting caught by the SEC who was happy with the paperwork.

  

  The SEC faced scrutiny for not catching Madoff sooner.

• In these years, Madoff was living the high life buying an $11 million apartment, becoming a member of the Palm Beach Country Club, and routinely donating money to various charities.
• What is even more shocking about this whole story is that the SEC had received credible evidence of the fraud in 1999 but had failed to conduct a proper investigation.

2000s: Everything Starts Falling Down

• In 2001, an article in the Barron's was questioning whether Madoff's returns were even possible, stating that the fund has had an average return of 15% for the past decade and that they never had a down year. Another particularly interesting point made in the article is that many people tried to reverse engineer the trades and could not figure how Madoff made these profits.
• This article got the attention of the SEC and scared Madoff, who then tasked DiPascali to create documents that would show that all the trades were real.
• The SEC also received complaints in 2003 and 2004 from credible sources but they acted on it too late and made many mistakes in their audit which let Madoff pass them both times.
• By 2004, many people at Renaissance, Credit Suisse, and Rogerscasey had blacklisted Madoff and told their clients to avoid him. However, they still did not help the SEC uncover the fraud.
• In November 2005, the fraud almost got revealed as Madoff was running out of cash and needed to move money from his legitimate business and took out an eleventh hour loan in order to cover the withdrawals.
• In 2006, the SEC was back at interviewing Madoff. They came very close at multiple times to uncover the fraud. In multiple instances, they were one step away from uncovering the whole thing, but for some reason, the last call was never made or the letter was never sent.
• By April 2006, Bernie had transferred more than $260 million from his brokerage firm's accounts into the Ponzi Scheme in order to make payment for the increasing demands of withdrawals from his clients.
• On December 3, 2008, Madoff was out of cash. The 2008 Financial Crisis was going full force, and investors were all trying to withdraw at once. His investors were asking for $1.5 billion in withdrawals, but the account only had $300 million in it, and this time he has not able to raise the cash.
• A week later, on December 10, while he was running out of money, he told his sons and his wife about the fraud. They left him and called an attorney who called the SEC and from there the whole thing blew up.

Who Was Responsible

While Madoff was the main perpetrator there were other players involved. Some were directly aiding Madoff while others simply turned a blind eye on the unrealistic performance of Madoff's fund while reaping the rewards.

Bernie Madoff

Judge Denny Chin, who was responsible for the trial of Bernie Madoff, called his crimes extraordinarily evil. His criminal behavior devastated the lives of his victims, leading to suicides, bankruptcies and homes losses.

• Bernie Madoff was running a legitimate brokerage firm called Bernard L. Madoff Investment Securities LLC (BLMIS).

• Bernie was also running in a Ponzi scheme from a separate office, using cash from new investors to pay returns to old ones.
• Bernie Madoff was able to get away with this because the investment advisory business was never registered with the SEC until 2006.
• Additionally, Bernie was the chair of NASDAQ for the years 1990, 1991, and 1993, allowing him to manipulate people into trusting him. This is also how he attracted more clients.

Friehling & Horowitz

Friehling & Horowitz was the accounting firm of BLMIS for over 15 years and conducted audit of the firm activities.

• BLMIS was never properly externally audited by a reputable accounting firm. The closest thing was an audit by Friehling & Horowitz.
• Friehling was the sole practitioner at the firm. He was a CPA licensed by the state of New York.
• Friehling falsely certified that he prepared income statements, balance sheets, cash flows statement, and reports on internal control according to the Generally Accepted Auditing Standards (GAAS) and Generally Accepted Accounting Principles (GAAP).
• The firm failed to conduct audits that follows GAAS and GAAP. Among other things, it failed to conduct independent verification of assets, failed to conduct review of revenues sources, and failed to examine a bank account that contains billions of dollars.

Peter Madoff

Peter Madoff is Bernie Madoff's brother. He was his partner since the start in the brokerage business, and he claims that he was never involved with the Ponzi scheme.

• However, despite this, Peter said that he was deeply ashamed of his actions, as he had still enabled the fraud.
• As compliance officer, Peter was supposed to protect against the scheme. Instead he continued to lie to investors and regulators.
• The SEC complaint that Peter created piles of compliance documents setting out policies and procedures over the firm investment advisory business, which was the section responsible for the Ponzi scheme. However, none of these were ever implemented or reviewed, even though Peter certified that he had personally conducted reviews.

  

  JPMorgan Chase & Co. office building in New York, USA

JPMorgan Chase Bank

JPMorgan Chase & Co. is one of the biggest bank in the world. It was the bank that Madoff used for his business including the Ponzi scheme.

• JPMorgan Chase should have noticed that there were billions of dollars going through a singular account. If it had been an ordinary persons’ account, it would be thoroughly scrutinized under the grounds of suspicious activity.
• It is speculated that JPMorgan Chase saw these transactions occurring. While they did not know there was a Ponzi scheme going on, they certainly knew something was not right, and they chose to ignore it.

Jeffry Picower

Jeffry Picower was a long time investor with Bernie Madoff. The two families used to go on vacations together and were great friends.

• Through various entities, Picower is the person who has profited the most and more than Bernie Madoff himself from the Ponzi scheme. He took out 7.2 billion of other investors money over two decades.
• Every time that Madoff needed money, Jeffry Picower would invest money into Madoff's company. Then, a couple weeks later, he would withdraw the money after it grew.
• Additionally, Madoff claims that Picower was aware of the whole Ponzi scheme. Madoff said that Picower never questioned Madoff about anything, especially when only part of his money was returned after Picower gave him large sums.

Annette Bongiorno

Annette Bongiorno was the secretary of Bernie Madoff. She joined the firm in 1968 when she was 19 years old and worked there for 40 years.

• While the reporting of fake trades was going on, Annette proposed another idea to help give investors the impression of higher profits.
• She would read the Wall Street Journal, pay attention to the best performing stocks in the previous month and then inform the investors about their earnings based on those values, giving them the impression that they actually have had these stocks "purchased” previously and are now experiencing a gain on them.
• Annette also ordered for all the statements from the period of 1989-1991 to be redone to match their accounting firm, Avellino & Bienes.

Avellino & Bienes

Avellino & Bienes were the accounting firm early in the fraud. They were running their own Ponzi scheme, in addition to Bernie’s Ponzi scheme.

• They had also recorded fake trades, like Bernie’s side business, however, their fake trades did not display the same values as Bernie’s fake business.
• This led to them having to redo all the statements from the period of 1989-1991.
• However, immediately after this, the SEC decided to audit and no discrepancies were found.
• In 1992, Avellino & Bienes got caught and forced to shut down due to being unlicensed. Before that, they had decided it would be best to downsize to a smaller office and have their employees take on any clients that they wanted to and just live off of the Madoff money.

Frank DiPascali

Frank DiPascali was the company's Chief Financial Officer (CFO). He has been dubbed to be the mastermind behind the whole fraud.

• In 2009, the SEC charged Frank DiPascali with securities fraud for overseeing the mechanics of Madoff entire fraud. According to the department, he generated fake financial transactions in order to create false profits of 10 to 17% per year.
• In his guilty plea, he said that all the statements detailing the trades were all fake.
• DiPascali profited personally from the fraud, and he had set up a personal account with the firm and withdrew more than $5 million for personal expense. This was on top of his salary of over $2 million per year.

The Securities and Exchange Commission (SEC)

The SEC questioned or investigated Madoff through the years. They had conducted multiple audits of the firm and had received various tips about Bernie Madoff's alleged fraud.

• The SEC conducted investigations in 1992, 2000, 2001, 2003, 2004, 2005, and 2006. However, due to poorly conducted reviews and Bernie Madoff falsifying records, he was able to avoid detection.

• If the SEC had done a more thorough job, they would have been able to uncover the Ponzi scheme before Madoff's confession in 2008.
• In 2009, the SEC admitted to its failures in catching Madoff. They cited inexperienced investigators, overreliance on Madoff's reputation, failure to verify trades, and missing red flags.

Who Was Most Responsible for the Scheme?

Bernie Madoff was the main perpetuator for the Ponzi scheme. He was the one in charge of the whole operations. Although many other people were responsible, it was Madoff's deception that managed to commit the biggest scheme in history_.

• He was the one that organized the whole business, giving minimal or false information to other people.
• He controlled both the legitimate business, as well as the fraudulent side one.
• Ultimately, he confessed in 2008 and was sentenced to 150 years in prison, which was the maximum sentence.

Key Stakeholders And How They Were Impacted

The Bernie Madoff scandal had an impact on many stakeholders. These stakeholders included institutional investors, charitable organizations, universities, individual investors, employees, and family members of Madoff.

Investors

The logo of Santander Bank, one of the investors who lost over $3 billion to Madoff, is seen on the facade of the corporate building in Mexico City, Mexico.

Many famous financial institutions and investment groups were affected by this scandal including:

• Bank Santander lost $3.1 billion
• Bank Medici lost $2.1 billion
• HSBC lost $1 billion
• Korea Life Insurance lost $50 million
• Tremont Group lost $3.3 billion
• Ascot Partners lost $1.8 billion
• Abu Dhabi Investment Authority lost $400 million
• Fairfield Greenwich Group, who worked with Madoff's firm for 20 years also lost $7.5 billion

Charitable organizations and universities were also impacted. Many foundations had close down, leading to many projects supported by those foundations, such as scientific projects or various campaigns, to also close down.Some examples follow:

• Elie Wiesel Foundation and charities for Humanity lost $15.2 million
• Picower Foundation lost $958 million
• Yeshiva University and Tufts University together lost $120 million

Many individual investors also suffered from losses after investing their savings. Some examples follow:

• A retired soldier, Mr. Fox, committed suicide after losing almost $1 million of his life savings to the scandal.
• For actors, Kyra Sedgwick and Kevin Bacon, there was no disclosure of the amount of money, but they lost a lot of money. Also, another actor, John Malkovich, lost $2 million to this scandal.
• A writer, Elie Wiesel, and his wife lost their entire life savings, which totaled $12 million, to the scandal.

Overall, Bernie Madoff's Ponzi scheme impacted organizations' finances, individuals' finances, and the public trust in the financial system.

Madoff's Family

Madoff's family had been impacted and faced reputational damage, public disgrace, financial losses, and legal consequences due to Bernie Madoff's fraud. The following table will mention an impact individually:

Madoff's Family	Impact
Ruth Madoff	Bernie Madoff's Wife Ruth had never been charged in connection with the Ponzi scheme. She surrendered her wealth and moved to Connecticut. She attempted suicide on Christmas Eve in 2008. She does not have access to a luxurious life but she is currently still living a comfortable life. Her life and social standing were impacted due to the scheme.
Mark Madoff	Bernie Madoff's Eldest Son Mark worked at his father's firm, BLMIS. He and his brother, Andrew Madoff, who also worked at BLMIS, did not know about his father's fraud. In fact, both brothers were the ones who turned in their father after knowing about their father's fraud. Due to his father's crime, he was impacted by losing his reputation, leading to difficulty getting employed. Although he was not part of his father's crime, he was charged in another lawsuit with using $66 million of funds that he improperly obtained to purchase luxury homes. He committed suicide at the age of 46 in 2010 two years after his father's arrest.
Andrew Madoff	Bernie Madoff's Younger Son Andrew was also not part of his father's crime. He was diagnosed with cancer in 2003. Although his cancer went into remission, it returned in 2012. He believed that the cancer returned due to the stress from his father's crime. He passed away due to cancer at the age of 48 in 2014.
Sondra Weiner	Bernie Madoff's Sister Sondra (87-year-old) and her husband (90-year-old) were victims of the fraud. Their finance was impacted by the fraud and lost approximately $3 million. They were shot and died in a suspected murder-suicide in 2022.
Peter Madoff	Bernie Madoff's Brother Peter worked at BLMIS as compliance officer. He pleaded guilty and was sentenced to 10 years in prison. He was charged with committed securities fraud involving falsifying financial documents. He was released in 2020 after 9 years in prison. He was impacted by losing his time in prison.

Employees

• There were five employees , including Annette Bongiorno, Daniel Bonventre, JoAnn Crupi, Jerome O'Hara, and George Perez, who were convicted of conspiracy and aiding Bernie Madoff in his fraud resulting in losses for many clients. These individuals faced years in prison. Their financial situation and reputation were impacted due to the fraud.
• Other employees who were not aware of the fraud lost their jobs when the firm collapsed. They experienced reputational damage and difficulty in finding new jobs.

Regulators and Government Agency

• The SEC was responsible for overseeing BLMIS, but failed to detect fraud despite many warnings and complaints. The SEC disciplined eight employees for being unable to disclose the scheme, however, no one was fired.
• The SEC faced criticism after the scandal. The agency was impacted and had a culture change, presenting more skeptical and rigorous inspection processes.

Current Status Of The Case And Legal Outcomes

The case reached a significant milestone with Madoff's arrest in December 2008 and subsequent sentencing in June 2009. Madoff plead guilty to 11 federal felonies, including securities fraud, investment advisor fraud, and money laundering. He was sentenced to 150 years in prison, effectively a life sentence, and ordered to pay $170 billion in restitution.

Results of Concluded Lawsuits

The fallout from Madoff's Ponzi scheme led to numerous lawsuits, many of which have been concluded. Key legal outcomes include:

Madoff's Forfeiture and Restitution

• Madoff was required to forfeit all of his personal assets, including real estate, investments, and personal property. The forfeited assets were used to compensate victims of the fraud.
• The court-appointed trustee, Irving Picard, has been responsible for recovering funds for victims. As of 2025, Picard has recovered over $14.7 billion of the estimated $18 billion lost by investors, distributing these funds to victims through multiple rounds of payouts.

  

  Peter Madoff arrives at Manhattan federal court for his sentencing, Thursday, Dec. 20, 2012, in New York. The former senior compliance officer at the Madoff private investment business pleaded guilty to conspiracy and falsifying books and records of an investment advisor.

Lawsuits Against Madoff's Associates

• Several of Madoff's associates, including his brother Peter Madoff and key employees, were also prosecuted. Peter Madoff was sentenced to 10 years in prison in 2012 for his role in the fraud.
• Other employees, such as Frank DiPascali, Madoff's former finance chief, pled guilty and cooperated with authorities to receive reduced sentences.

Lawsuits Against Financial Institutions

• The trustee and victims pursue legal action against financial institutions that allegedly facilitated or turned a blind eye to Madoff's scheme.
• Notably, JPMorgan Chase, Madoff's primary bank, settled with the trustee for $2.6 billion in 2014.
• Other banks and feeder funds, such as HSBC and Union Bancaire Privée, also reached settlements totaling $62.5 million and $470 million respectively.

Victim Compensation

• The Madoff Victim Fund (MVF), established by the U.S. Department of Justice, distribute funds to victims who were not fully compensated through the trustee's recovery efforts.
• As of 2025, the last payment of the funds have been made. Over the years, they have recovered $4.3 billion to over 41,000 victims in 127 countries.

Pending Lawsuits and Ongoing Recovery Efforts

While the majority of lawsuits related to the Madoff scandal have been resolved, some legal actions remain ongoing

Madoff Victim Fund claims worldwide.

Feeder Fund Litigation

• Some lawsuits against feeder funds, which channeled investments to Madoff, are still pending.
• These cases often involve complex legal arguments about the extent to which the funds knew or should have known about the fraud.

Ongoing Investigations

• Although Madoff's death marked the end of his personal legal battles, investigators continue to examine the roles of other individuals and entities that may have been complicit in the fraud. These investigations could lead to further legal actions in the future.

Current State Of The Company And Key Players

After Bernie Madoff's Ponzi scheme defrauded investors through Bernard L. Madoff Investment Securities LLC (BLMIS). Here is what happened to his company and the key players:

Bernard L. Madoff Investment Securities LLC (BLMIS)

• After Bernie Madoff was arrested in December 2008, his firm was liquidated as part of the effort to distribute payments to compensate the victims.

• As of 2025, the Securities Investor Protection Act (SIPA) Trustee has managed to recover or negotiate agreements to recover approximately $14.709 billion.

Key Players

Bernie Madoff

• On June 29, 2009, Madoff was sentenced to 150 years in prison for running the largest fraudulent scheme in history. However, due to poor health, he passed away at age 82 on April 14th, 2021.

Peter Madoff

• Peter was sentenced to 10 years in prison in 2012 despite claiming he did not know about his brother’s misdeeds. Additionally, he had pleaded guilty but did not cooperate with the FBI. He now lives with his wife in West Palm Beach after being released from prison in 2020.

Jeffery and Barbra Picower have been referred to as bigger benefitors to the Ponzi scheme than Madoff himself.

Friehling & Horowitz

• The firm was forced to shut down, and its only member David Friehling avoided prison by cooperating with the SEC in the investigation.

Jeffry Picower:

• $2.2 billion was collected as part of the historic civil forfeiture recovery from the estate of deceased Jeffry Picower. He made more money from the Ponzi scheme than Madoff himself.
• Picower was found dead in a swimming pool after having a heart attack at his mansion in Palm Beach in 2009. His widow later agreed to return $7.2 billion.

JPMorgan Chase Bank

• JPMorgan Chase continues to operate today, however, on June 29, 2009, a $1.7 billion fine was collected as part of a prosecution agreement through asset forfeiture.
• In 2014, $2.6 billion was settled with the trustees.

Annette Bongiorno

• Annette ultimately was sentenced to a six year sentence after pleading innocent.
• Currently, not much is known about Annette’s whereabouts. However, she was released from prison in 2020 and has not been doing much in the public eye.

Avellino & Bienes

• Avellino & Bienes was forced to shut down in 1992 after SEC probing revealed they were unlicensed investment advisors.

Frank DiPascali

• He passed away in 2015. However, this was before he could be sentenced.
• Prior to this, DiPascali cooperated with government proceedings and sentences of other people not directly involved with the Ponzi scheme.

The SEC

• While there were no firings after the Bernie Madoff incident, the SEC disciplined eight employees and set up stricter rules for such an incident to never happen again.
• Some of the reforms made by the SEC, post- Madoff include:
  • Implementing a centralized technology system to handle complaints
  • Reducing sanctions for people who cooperate with investigations
  • Surprise exams, third party reviews, audit enhancements to protect investors
  • Rigorous review of firms
  • Hiring staff with more knowledge on risk, audits and investigations

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Who Was Responsible

• AI was asked to list out the key players in the Madoff Case. After viewing the list, individual research was done into each person mentioned, but additionally, some names were added due to AI not listing them. Names were also removed due to them not being a major key player.

Key Stakeholders And How They Were Impacted

• There was initial research on key stakeholders by asking AI to list the key stakeholders. However, the list provided by AI was not satisfactory so additional research was done to verify the stakeholders listed and to find more.

Current Status Of The Case And Legal Outcomes

• Initial research was done by our team into the status of the case and legal outcomes. Our notes were inputted into generative AI to organize into concise sections and points to improve formatting. The content provided by AI was then rewritten and adjusted into our own words. Sources and the information was gathered by our team and not AI to avoid any inaccuracies and outdated sources.