Bernard Lawrence "Bernie" Madoff; (born April 29, 1938) is an American former financier and convicted felon.

He served as a non-executive chairman of the NASDAQ stock exchange He pled guilty to an 11-count criminal complaint, admitting to defrauding thousands of investors of billions of dollars.

He was convicted of operating a Ponzi scheme that has been called the largest investor fraud ever committed by a single person
Federal prosecutors estimated client losses, which included fabricated gains, of almost $65 billion.

Other estimates of the fraud are $14-21 billion.

On June 29, 2009, he was sentenced to 150 years in prison, the maximum sentence allowed
The firm was one of the top market maker businesses on Wall Street, which bypassed "specialist" firms, by directly executing orders over the counter from retail brokers. Madoff was a prominent philanthropist, who served on boards of nonprofit institutions many of which entrusted his firm with their endowments.

Ponzi scheme is a scam investment designed to separate investors from their money.

A Ponzi scheme promises investors a large return on their investment.

Unlike a valid investment strategy, the way a Ponzi scheme pays its investors is by recruiting new investors. It is poorly documented The scheme is designed to convince the public to place their money into a fraudulent investment.

Once the scam artist feels that enough money has been collected, he disappears - taking all the money with him.

 The investors give money to the Firm The Firm gives back money to the investors with returns

Firm Investors

 This way the firm makes its first set of customers These customers spread the word to other potential investors

 These new investors invest in the firm and receive returns

 Newer set of customers are made The investors again refer a newer set of investors This is how the funds of the firm increase

The complete events of the Company can be broken down into 2 main Phases,
Phase I Phase II

(1960-1992) (1992-2008)

Madoff gathered money from local establishments like country clubs and charity events.

Investors would be present at these gatherings and they would question Madoff for advice, as he was already a well-known investor who was able to make seemingly magic returns.
These investors would entrust him with his savings, which only fueled the principal that Madoff needed to make his Ponzi scheme continue to work.

1960 Madoff started career in his father's accounting firm in NY as a market maker and as an investment advisor It was completely off the radar, that it wasn't registered He basically started small, with a handful of closely known people, promising a return of around 14-20%. Brought In two accountants from his father-in-laws firm, Frank Avellino & Michael Bienes They handled the funding part, taking small percentage of the total funds

1992

SEC (Securities and Exchange Commission ) Launched an investigation after a complaint from an Investment advisor, suspecting a Ponzi

scheme

Above 3000 clients were being served By November 1992, SEC ordered shutting doing the Co.

Avellino and Bienes paid back all the investors money

End of Phase I

1992 Madoff took over the company in public

Avellino & Bienes themselves invested their personal money with Madoff

Mid 90s By now Madoff had Bigger players in his scheme, Private banks had started to pool in money

The family of the investors did the marketing

It had started being marketed to the wealthiest and famous people all around the world

It seemed like Madoff had everything set in his favor until 2006 rolled around. The amount of principal that was being introduced to Madoff's Ponzi scheme wasn't enough to cover the returns previous investors were promised. Investors were moving to withdraw their funds from Madoff's care, caused parts of Madoff's scheme to collapse.

How did it collapse??

In 2007 after the Housing bubble burst, most of the companies in the market allowed its investors to withdraw money or were simply shut down By December of the same year, there were more requests of withdrawals in the firm than deposits The firm was unable to pay the customers and the scheme came to light

The Victims of the Fraud

The known list of victims are prominent billionaires- Steven Spielberg, famous Hollywood Director
Carl Shapiro, a clothing magnate who may have lost $545m Thousands of wealthy retirees; and a cluster of mostly Jewish charities,

some of which face closure.

Dozens of supposedly sophisticated financial firms including banks such

as Santander and HSBC

He claimed to be employing an investment strategy known as split-strike conversion. This is a fairly common approach that entails buying and selling different sorts of options to reduce volatility. Aksia, an advisory firm, concluded that the S&P 100 options market that Mr Madoff claimed to trade was far too small to handle a portfolio of his size.

Stock holdings were liquidated every quarter, presumably to avoid reporting big positions.

For a godfather of electronic trading, Mr Madoff ran the business where clients were denied online access to their accounts.
Even more worryingly, he cleared his own trades, with no external custodian. A computer program specially designed to backdate trades and manipulate account statements.

 After

many years of returns in the range of 12% to 15%, in recent times says Madoff investor Burt Ross
only reason that this ended was because, at one given point in time, the economy did so badly that people wanted - needed -- to get money out of Madoff's investments."

"The

The company being Unregistered although serving thousands of customers

There was always a steady rate of return even if the market goes up or down The statements sent to customers was always given in printed form and were never available online. Statements were set to customers 35 days AFTER a deal in the market was made. If customers complained on any of the above issues, the firm would threaten to return back the money

The 3rd party Due Diligence (Auditor) officer had his office in Bermuda, a place not known for having such offices Whistle Blowers Like Harry Markopolos published these facts in 2001 but SEC did not act accordingly

Following are SECs responsibilities which should have been checked:

SEC should have checked if the firm was registered or not

Should have proactively taken the initiative to check on the firm of its

funds
Even after the warnings from whistleblowers, the SEC should have swiftly

acted on the situation

Gautam Agrawal Hitesh Agrawal Giftson Jeyakumar Sahil Kasat Deepesh Kothari Hitesh Makkhijani Pratik Shah

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