Madoff Investment Scandal

Bernard Lawrence "Bernie" Madoff

Born April 29, 1938 Grew up in New York City Graduated from Hofstra Wife and two children

The Scam
Madoff was the chairman of the Bernard L Madoff Securities LLC( limited liability company) Starting in the early 1990s, Madoff told family and friends that if they invested money in him, he would add 10% interest to their account each year. Investors believed the 10% was put into their account and spread the word that Madoff was reliable, and he became more and more popular each year.

The Scam Cont.

Since people believed the 10% was being added each year, they had no reason to take their money out. If they did take the money out, Madoff would pay them with other peoples money Madoff continued doing this until October of 2008

Returns are way too high to be legit

Madoff vs 90 dayT-Bills annual returns
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% T-Bill avg. 3.9%

Madoff 90 day T-Bills

Madoff avg. 10.8%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Madoff split strike conversion strategy should have earned close to the Risk Free Rate. Instead, it earned nearly three times that.

The Catch
Due to the economy, everyone started taking their money out and Madoff could not pay them back. His sons found out and informed authorities

Magnitude of Scam
Madoff committed the biggest scam by a human being, scamming close to 65 billion dollars Afffected thousands of investors

Who discovered the fraud

In 1999, when financial analyst Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, he knew within five minutes that Madoff's numbers didn't add up, and it took four hours of failed attempts to replicate them to conclude Madoff was a fraud.He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the govt. the industry, and the press about the Madoff fraud.

Role of SEC
In the Madoff scandal, there were plenty of suggestions of conflicts of interest, such as Madoffs personal ties to regulators like chairman Arthur Levitt,as well as lower level connections such as the fact that Madoffs niece married a former SEC attorney who-prior to the relationship, it appears- had supervisory authority in the area in which Madoff operated.To this point, however, there has been no credible evidence that anyone at the SEC deliberately protected Madoff. This was almost surely a sin of omission, not commission. of course no doubt the savvy regulator understands the desirability of keeping Wall Street a vibrant, profitable, deal-generating place.

Friehling & Horowitz

Friehling was charged on March 18, 2009, with securities fraud, aiding and abetting investment adviser fraud, and four counts of filing false audit reports with the Securities and Exchange Commission. Friehling essentially rubber-stamped Madoff's books for 17 years, serving as Madoff's auditor from 1991 through 2008 while he worked as the sole practitioner at Friehling & Horowitz. Investigators also said that Friehling and his family had sizable investments with Madoff, accumulating a balance of more than $14 million by late last year and withdrawing more than $5.5 million since 2000. Prosecutors said it's a conflict of interest for an auditor to have such a large investment.

WHY????
He was paid a tidy sum by Madoff: Prosecutors said he made between $12,000 and $14,500 a month from 2004 to 2007. That works out to $144,000 to $174,000 a year.

HIS PENALTY
He faces a maximum sentence of 105 years in prison if convicted on all counts.Though he was released after his arraignment on bail of $2.5 million.

Legal System
On December 11, 2008 madoff was arrested for the largest financial crime. Remains in jail until hearing. Faces 150 years in charges. Madoff's lawyer's plea for a lighter sentence of 12 years.