Fraudster drew celebrities and bankers into the world’s biggest financial scam

On December 11, 2008, Bernie Madoff, one of the most sought-after investment managers of the previous two decades, was arrested by agents working for the US Federal Bureau of Investigation. Acting on a tipoff from the sons who worked for him, the authorities laid charges against the hitherto respected member of New York high society which, on the admission of Madoff himself, involved the loss of an estimated USS$50 billion. As many as three million individual savers around the globe were left impoverished.

The financial fraud was widely assumed to be the largest the world had seen and drew in many of the bestknown and supposedly most sophisticated money managers. HSBC said that Madoff swallowed $1b of its money. BNP Paribas in France, Nomura in Japan, and Santander of Spain were also caught in the scam.

The International Olympic Committee was burnt, as was the Robert I Lappin Charitable Foundation, which, among other things, organised trips to Israel for young Jews. It invested all its funds with Madoff: these were frozen after his arrest, and the charity had to suspend operations and lay off its staff.

Mort Zuckerman, owner of the New York Daily News, was taken in. Among those also ensnared were actors John Malkovich, Kevin Bacon and Zsa Zsa Gabor, talk-show host Larry King, and film director Steven Spielberg.

Madoff, who has died in prison aged 82, beguiled vast sums from a wide array of people and organisations. His annual returns of 10 per cent or more were fictitious and his wrongdoing was felt all the more broadly because other investment funds, so-called feeder funds, sent money in his direction. The fraud besmirched the reputation of hedge funds, whose tactics and expertise were already being openly questioned. Association with Madoff made hedge funds appear prone to the lowest forms of foolishness, instead of being staffed by brilliantly intuitive experts.

Falsified documentation appeared to show that Bernard L Madoff Investment Securities generated returns both high and consistent, even as most of the world’s financial markets collapsed. These seemingly impressive numbers ensnared some investors. Others were reassured by the fact that Madoff had once served as chairman of Nasdaq, the stock exchange company whose influence was second only to the New York stock exchange.

That mark of respectability seemed to be confirmed by his membership of exclusive country clubs. His stipulation that investors had to subscribe a minimum of $1m may have provided a perverse sort of comfort too. It suggested that Madoff thought big and attracted only those investors who, it might be assumed, had enough at stake to ensure his investment strategies were well founded.

Part of the reason Madoff conned so much money from investors was because he blinded them with investment science. He said he combined the purchase of stocks and shares with so-called derivatives, such as options, to buy or sell those same stocks and shares, in a manner that appeared to offer insurance against failure. It was called a ‘‘split-strike conversion’’, and it sounded good.

However, as Madoff admitted at the time of his arrest: ‘‘It’s all just one big lie . . . basically a giant Ponzi scheme.’’ He ‘‘paid investors with money that wasn’t there’’, and was broke. In March 2009, pleading guilty to 11 charges, he said: ‘‘As I engaged in my fraud, I knew what I was doing was wrong and indeed criminal.’’ He added he was painfully aware that he had ‘‘deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am.’’

His apology made little difference, and he became such a hate figure that he had to wear a bulletproof vest to court. The judge was unmoved too, sentencing him to 150 years in prison. In 2020 the same judge rejected Madoff’s request to be released on compassionate grounds owing to terminal kidney failure and said it had been ‘‘fully my intent’’ that he die in prison.

Bernard Lawrence Madoff was born in Queens, New York City. He graduated in political science from Hofstra University on Long Island. In 1959 he married Ruth Alpern, who survives him. Their two sons predeceased him. Mark killed himself in 2010, two years after his father’s arrest. Andrew died of lymphoma in 2014.

Madoff founded Bernard L Madoff Investment Securities in 1960, and was later joined by his brother Peter and several other family members. It said in its marketing material: ‘‘In an era of faceless organisations owned by other faceless organisations, Bernard L Madoff Investment Securities harks back to an earlier era in the financial world: the owner’s name is on the door.’’

It was perhaps appropriate, then, that it was Madoff’s own sons who closed the door on the Ponzi scheme by informing authorities of their father’s misdoings. –

‘‘It’s all just one big lie . . . I knew what I was doing was wrong and indeed criminal.’’