The Madoff investment scandal is the main case of stock and securities fraud discovered at the end of 2008. In December of that year, Bernard Madoff, former Chairman of NASDAQ and founder of Wall Street firm Bernard L. Madoff Investment Securities LLC, the wealth management arm of his business is an elaborate Ponzi scheme.
Madoff founded the Wall Street company, Bernard L. Madoff Investment Securities LLC in 1960, and became its chairman until his arrest. The company employs Madoff's brother, Peter, as senior managing director and chief compliance officer, Peter's daughter, Shana Madoff, as a government official and lawyer, and Madoff's sons, Andrew and Mark. Peter has since been sentenced to 10 years in prison, and Mark committed suicide by hanging just two years after his father's arrest.
Told by his sons, federal authorities arrested Madoff on 11 December 2008. On March 12, 2009, Madoff pleaded guilty to 11 federal crimes and claimed to run the largest personal Ponzi scheme in history. On June 29, 2009, he was sentenced to 150 years in prison with restitution of $ 170 billion. According to the original federal allegations, Madoff said that his company has "obligations of about US $ 50 billion". Prosecutors estimate the size of the fraud to $ 64.8 billion, based on the amount in the accounts of 4,800 Madoff clients on November 30, 2008. Ignoring the opportunity and tax costs paid on fictitious earnings, half of Madoff's direct investors lost money.
Researchers have determined others are involved in the scheme. The US Securities and Exchange Commission (SEC) has also been criticized for not investigating Madoff more closely. The question of his company had been raised as early as 1999. Madoff's business was one of the top market makers on Wall Street and in 2008 was the sixth largest.
The freezing of personal assets and business Madoff created a chain reaction throughout the business world and the philanthropic community, forcing many organizations to at least temporarily close, including the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation.
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Madoff started his company in 1960 as a penny stock dealer with $ 5,000, earned from working as a lifeguard and sprinkler supervisor. His new business began to grow with the help of his father-in-law, accountant Saul Alpern, who referred to his circle of friends and family. Initially, the company created the market (offering price and offer price) through National Quotation Bureau's Pink Sheets. To compete with companies that are members of New York Stock Exchange trading on the stock exchange floor, the company began using innovative computer information technology to disseminate quotations. After trials, the technology developed by the company became NASDAQ. At one point, Madoff Securities was the largest "buy-and-sell" market maker on the NASDAQ.
He is active in the National Association of Securities Dealers (NASD), a self-regulated securities industry organization, serving as chairman of the board of directors and the board of governors.
In 1992, The Wall Street Journal described him:
... one of the masters of the "third market" off-exchange and the curse of the New York Stock Exchange. He has built a very profitable securities firm, Bernard L. Madoff Investment Securities, which sucks large volumes of stock trading from the Big Board. The $ 740 million average daily trading volume that was executed electronically by Madoff's firm of exchange equaled 9% of the New York Stock Exchange. Mr Madoff's company can execute trades so quickly and cheaply that it actually pays the other broker a dime one share to execute their customer orders, taking profit from the difference between the offer price and the price demanded by most shares for trading.
Some family members work for him. His younger brother, Peter, is the senior managing director and chief compliance officer, and Peter's daughter, Shana Madoff, is a compliance lawyer. The sons of Madoff, Mark and Andrew, worked in the trade section, along with Charles Weiner, Madoff's nephew. Andrew Madoff had invested his own money in his father's funds, but Mark stopped in about 2001.
Federal researchers believe fraud in the investment management division and advisory division may have started in the 1970s. However, Madoff himself declared his fraudulent activity began in the 1990s.
In the 1980s, Madoff's market maker division traded up to 5% of the total volume made on the New York Stock Exchange. Madoff is the "first leading practitioner" payment for the flow of orders, paying brokers to execute their client orders through his brokerage, a practice that some people call "legitimate bribes." This practice gives Madoff the difference as the largest dealer in stocks listed on the NYSE in the US, trading about 15% of the volume of transactions. Academics have questioned the ethics of this payment. Madoff argues that this payment does not change the price that customers receive. He sees payments for the flow of orders as a normal business practice: "If your girlfriend goes to buy stockings at the supermarket, the shelves displaying the stockings are usually paid by the stocking company.The order flow is an issue that draws a lot of attention but is too much."
In 2000, Madoff Securities, one of the top US securities traders, has assets of around $ 300 million. The business occupies three floors of Lipstick Building, with an investment management division, called a "hedge fund", employing approximately 24 staff. Madoff runs a London-based branch that employs 28 people, separate from Madoff Securities. The company handles investment for its family of about Ã, Â £ 80 million. Two long-range cameras installed in the London office allowed Madoff to monitor events from New York.
Maps Madoff investment scandal
Modus operandi
In 1992, Bernard Madoff described the strategy he described for The Wall Street Journal. He says the return is really nothing special, given that Standard & amp; The 500-stock Poors Index yielded an average annual return of 16.3% between November 1982 and November 1992. "I would be surprised if anyone thinks that matching S & P over 10 years is something extraordinary." The majority of money managers actually follow S & amp; P 500 during the 1980s. The Journal concludes the future use and option of Madoff helps to dampen the return of the ups and downs of the market. Madoff says that he is offsetting hedging costs, which could lead him to follow the stock market footsteps, with stock-picking and market timing.
The claimed strategy
Madoff's sales pitch is an investment strategy that consists of buying blue-chip stocks and taking option contracts on them, sometimes called split-strike or collar conversions. "Typically, positions will consist of 30-35 S & P 100 stock holdings, most correlated with the index, out-of-the-money 'call' sales on index and out-of-the-money 'puts' on the index.Sales 'call' is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of 'calling.' 'Placements', funded largely by 'call' sales, limiting the downside of the portfolio. "
In "Avellino and Bienes" 1992 interview with The Wall Street Journal, Madoff discussed the method that should be: In 1970, he had put the funds invested in a "convertible arbitrage position in large cap stocks, with the promise of results an investment of 18% to 20%, "and in 1982, he started using futures contracts on the stock index, and then put the put option on futures during the 1987 stock market crash. Some analysts who did the due diligence could not replicate the Madoff fund's past return using historical price data for US stocks and options on the index. Barron increases the likelihood that Madoff's return is likely to be due to running a client's brokerage company.
Mitchell Zuckoff, professor of journalism at Boston University and author of the Ponzi Scheme: The True Story of Financial Legend, says that the "5% payment rule", the federal law that requires private foundations to pay 5% of their funds year, allowing the Ponzi Madoff scheme to go undetected for a long time since he manages money especially for charity. Zuckoff noted, "For every $ 1 billion in foundation investment, Madoff is effectively on the hook for about $ 50 million in withdrawals a year.If he does not make real investments, at that level the principal will last 20. By targeting a charity, Madoff can avoid the threat of a sudden or unexpected withdrawal.
In his admission of guilt, Madoff admits that he has not really been trading since the early 1990s, and all his returns since that time have been made. However, David Sheehan, principal investigator for Picard, believes that Madoff's business wealth management arm has been a scam from the start.
Madoff's operation is different from a typical Ponzi scheme. While most Ponzi are based on non-existent businesses, Madoff's brokerage operations are very real.
Sales method
Instead of offering high returns to all entrants, Madoff offers simple returns but remains to exclusive customers. The investment method is marketed as "too complicated for outsiders to understand". He keeps a secret about the company's business, and keeps his financial statements closely guarded. The New York Post reported that Madoff "works with the so-called 'Jewish circuits' of the dreaded Jew he met in country clubs on Long Island and in Palm Beach." (The scandal deeply affects Palm Beach which, according to The Globe and Mail, residents "stop talking about local destruction, Madoff's storm only happens when Typhoon Trump comes" in 2016.) New York Times reports that Madoff invited many prominent Jewish executives and organizations; according to Associated Press, they are "trusted [Madoff] because he is a Jew". One of the most prominent promoters was J. Ezra Merkin, whose Ascot Partners fund drove $ 1.8 billion toward Madoff's company. Schemes that target members of a particular religious or ethnic community are a type of affinity fraud, and the Newsweek article identifies the Madoff scheme as "Ponzi closeness".
Madoff is a "master marketer", and his funds are considered exclusive, giving the appearance of a "velvet strap". He generally refused to meet directly with investors, who gave him the aura of "Oz" and increased investment attractiveness. Some Madoff investors are wary of spending their money from the funds, if they can not come back later.
Madoff's annual income is "amazingly consistent", about 10%, and is a key factor in perpetuating fraud. Ponzi schemes usually pay a 20% or higher return, and collapse quickly. One Madoff fund, which describes his "strategy" as a focus on stocks in Standard & amp; The Poor 100-stock index, reported a 10.5% annualized return over the previous 17 years. Even in late November 2008, amid falling public markets, the same fund reported that it was up 5.6%, while the same year total yield on the S & amp; P 500 has negative 38%. An unnamed investor commented, "The payback is great and we trust this person for decades - if you want to spend money, you always get your checks in a few days.That's why we're all so stunned."
The Swiss Bank Union Bancaire PrivÃÆ'Â © e explains that due to Madoff's large volume as a broker-dealer, the bank believes that he has a perceived advantage in the market because his trades are well managed, showing that they believe he is running.
Access to Washington
The Madoff family gained unusual access to Washington law and regulators through the industry's top trading groups. The Madoff family has a long-term relationship with the Association of Securities and Financial Markets Industries (SIFMA), the major securities industry organization.
Bernard Madoff sits on the board of directors of the Securities Industry Association, who joined the Association of Bond Markets in 2006 to form SIFMA. Madoff's brother, Peter, then served two periods as a member of the SIFMA board of directors. Peter's resignation over the scandal broke out in December 2008 amid growing criticism of Madoff's corporate ties to Washington, and how that relationship might have contributed to Madoff's fraud. During 2000-08, two brothers Madoff gave $ 56,000 to SIFMA, and tens of thousands of dollars more to sponsor the SIFMA industry meeting.
In addition, Bernard Madoff's nephew, Shana Madoff, is also active on the Compliance & amp; SIFMA. Legal Division, but resigned SIFMA position shortly after the arrest of his uncle. He married former assistant director of SEC OCIE Eric Swanson, whom he met in 2003 while he was investigating his uncle Bernie Madoff and his company. The investigation ended in 2005. In 2006 Swanson left the SEC and became engaged to Shana Madoff, and in 2007 both married. A spokeswoman for Swanson said he "did not participate in Bernard Madoff Securities' investigations or affiliates while involved in relationships" with Shana Madoff.
Previous investigation
Madoff Securities LLC was investigated at least eight times over a 16-year period by the US Securities and Exchange Commission (SEC) and other regulatory authorities.
Avellino and Bienes
In 1992, the SEC investigated one of Madoff's feed funds, Avellino & amp; Bienes, the principals are Frank Avellino, Michael Bienes and his wife Dianne Bienes. Bienes started his career working as an accountant for Madoff's father-in-law, Saul Alpern. Later, he became a partner in Alpern's accounting firm, Avellino and Bienes. In 1962, the company began advising clients about investing all their money with a mysterious, highly controversial and controversial man on Wall Street - but until this episode, was not known as the ace money manager - Madoff. When Alpern retired at the end of 1974, the company became Avellino and Bienes and continued to invest only with Madoff.
Avellino & amp; Bienes, represented by Ira Sorkin, former lawyer of Madoff, is accused of selling unlisted securities. In their report to the SEC they mentioned that the "surprisingly stable" annual refunds to investors amounted to 13.5% to 20%. However, the SEC does not look more deeply into the matter, and never publicly refers to Madoff. Through Sorkin, who once oversaw the SEC office in New York, Avellino & amp; Bienes agrees to return the money to investors, close their companies, undergo audits, and pay a $ 350,000 fine. Avellino complained to the lead federal judge, John E. Sprizzo, that the cost of Price Waterhouse was excessive, but the judge ordered him to pay the bill $ 428,679 in full. Madoff said that he did not realize the feeder funds were operating illegally, and that his own investment returns tracked 10 years earlier from S & P 500. The SEC's investigation comes right in the middle of the three terms of Madoff as chairman of the NASDAQ stock market board.
Pool size is mushroomed by word of mouth, and investors grow to 3,200 in nine accounts with Madoff. Regulators worry everything may be just a big scam. "We got into thinking this could be catastrophic, they took almost half a billion dollars in investors' money, completely outside the system we could monitor and set up.It's pretty scary," said Richard Walker, who at the time was a new regional administrator York SEC.
Avellino and Bienes deposited $ 454 million in investors' money with Madoff, and until 2007, Bienes continued to invest several million dollars of his own money with Madoff. In an interview in 2009 after the fraud was revealed, he said, "Doubt Bernie Madoff?" Doubt Bernie? No, you doubt God You can doubt God, but you do not doubt Bernie He has an aura about him.
Bernard L. Bernard L. Bernard L. Madoff Securities LLC: 1999, 2000, 2004, 2005, and 2006
The SEC investigated Madoff in 1999 and 2000 about concerns that the company hid customer orders from other merchants, who were later taken corrective measures by Madoff. In 2001, an SEC official met with Harry Markopolos in their Boston regional office and reviewed his allegations of Madoff's fraudulent practices. The SEC claims to have made two other investigations into Madoff in recent years, but has not found any major offense or problem of concern.
In 2004, after a published article appeared to accuse the front running firm, the Washington SEC office cleared Madoff. The SEC detailed that inspectors had examined Madoff's brokerage operations in 2005, examining three types of offenses: the strategy he used for customer accounts; broker requirements to get the best price for customer order; and operates as an unregistered investment adviser. Madoff is listed as a broker-dealer, but does business as an asset manager. "Staff did not find any evidence of fraud". In September 2005, Madoff agreed to register his business, but the SEC kept his findings confidential. During the 2005 investigation, Meaghan Cheung, the head of the branch of the New York Enforcement Division, was the person responsible for errors and oversight, according to Harry Markopolos, who testified on February 4, 2009, at a hearing held by the House Financial Services Subcommittee on Capital Markets.
In 2007, the enforcement of the SEC completed an investigation that they started on January 6, 2006 into alleged Ponzi schemes. This investigation does not result in fraudulent findings, nor a reference to the SEC Commissioner for legal action.
FINRA
In 2007, the Financial Industry Regulatory Authority (FINRA), an industry-run supervisor for a brokerage firm, reported without explanation that part of Madoff's company had no customers. "At this point in time we are not sure on the basis of FINRA's conclusions in this regard," the SEC's staff wrote shortly after Madoff was arrested.
As a result, SEC chairman Christopher Cox stated that the investigation would investigate "all staff contacts and relationships with Madoff's family and company, and the impact, if any, on decisions by staff regarding the company". A former SEC compliance official, Eric Swanson, marries Madoff Shana's nephew, Madoff's corporate compliance lawyer.
Red flag
The outside analyst raised concerns about Madoff's company over the years. The first real concern about Madoff's operation was raised in May 2000, when Harry Markopolos, a financial analyst and portfolio manager at the Boston Rampart Investment Management options trader, warned the SEC about his suspicions. A year earlier, Rampart found that Access International Advisors, one of its trading partners, had significant investments with Madoff. Markopolos's boss at Rampart asked him to design a product that could replicate Madoff's rewards. However, Markopolos soon concluded that Madoff's numbers did not increase. After four hours of trying and failing to replicate Madoff's return, Markopolos concludes that Madoff is a fraud. He told the SEC that based on his analysis of Madoff's returns, it was mathematically impossible for Madoff to send them using the strategies he claimed to use. In his view, there are only two ways to explain the numbers - whether Madoff leads the flow of his order, or his wealth management business is a large Ponzi scheme. This submission, together with the other three, was passed without substantive action of the SEC. At the time of Markopolos' initial filing, Madoff manages assets of between $ 3 billion and $ 6 billion, which will make his wealth management business the world's largest hedge fund.
The culmination of Markopolos's analysis is his third submission, a 17-page detailed memo titled The World's Largest Hedge Fund is a Fraud. He has also approached The Wall Street Journal about the existence of the Ponzi scheme in 2005, but the editors have decided not to continue the story. The memo set 30 red flag numbers based on 174 months (slightly over 14 years) from the Madoff trade. The biggest red flag is that Madoff reported only seven months lost during this time, and the loss was statistically insignificant. This produces a backflow that rises upward at an almost perfect 45 degrees. Markopolos argues that the market is too volatile even under the best conditions for this to be possible, a fact that is clear to anyone who understands the underlying mathematics. Later, Markopolos testified before Congress that this is like a baseball player hitting.966 for the season "and no one suspects cheating".
As part of the memo, the memo concludes: "Bernie Madoff runs the largest hedge fund unregistered in the world He regulates this business as a 'hedge fund of fund' personally labeling their own hedge fund Bernie Madoff is quietly walking for them to use conversion divide strategy is paid only an undisclosed trade commission.If this is not an avoidance rule, I do not know what it is. "Markopolos states that portfolio management is" not sophisticated "Madoff is a Ponzi scheme or runs ahead (buy shares for his account itself based on his client's order knowledge), and concludes it is most likely a Ponzi scheme.
In 2001, financial journalist Erin Arvedlund wrote an article for Barron's titled "Do not Ask, Do not Tell," questioning Madoff's secrets and wondering how he gained such consistent returns. He reports that "Madoff's investors are praised about his performance - though they do not understand how he does it." Even the knowledgeable people can not really tell you what he's doing, "a very satisfied investor told Barron." The Barron's article and one on MarHedge by Michael Ocrant suggests Madoff is front-running to achieve its benefits. Hedge funds investing in it are not allowed to name it as money manager in their marketing prospectus. When a high-volume investor considering participation wants to review Madoff's records for the purpose of due diligence, he refuses, assuring them of his wish that the ownership strategy remains a secret.
By selling his holdings for cash at the end of each period, Madoff avoids disclosure of his shareholdings with the SEC, an unusual tactic. Madoff refused a call for an external audit "for reasons of secrecy", claiming that it was the exclusive responsibility of his brother, Peter, the chief compliance officer of the company ".
Markopolos then testified to Congress that to give 12% of annual income to investors, Madoff needed to get 16% gross, so to distribute 4% cost to feeder fund manager, who would secure new victims, to be "blind deliberately, and not too intrusive ".
Concern was also raised that Madoff's auditors of the record were Friehling & amp; Horowitz, a two-person accounting firm based in the suburb of Rockland County with only one active accountant, David G. Friehling, a close friend of the Madoff family. Friehling is also an investor in Madoff's fund, which is seen as a glaring conflict of interest. In 2007, hedge fund consultant Aksia LLC advised his clients not to invest with Madoff, saying it was inconceivable that small companies could adequately cater to such a large-scale operation.
Typically, hedge funds hold their portfolios in securities firms (big banks or brokers), which act as the main broker of the fund. This setting allows external investigators to verify ownership. The Madoff Company is a broker-dealer himself and allegedly processing all his trades.
Ironically, Madoff, a pioneer in electronic commerce, refused to grant online access to his clients to their accounts. He sends an account statement by mail, unlike most hedge funds, which is an email statement.
Madoff operates as a broker-dealer who also manages the asset management division. In 2003, Joe Aaron, a hedge-fund professional, also found a suspicious structure and warned a colleague to avoid investing in funds, "Why would a good businessman do his magic for a penny?" he concluded. Also in 2003, Renaissance Technologies, "arguably the most successful hedge fund in the world", reduced its exposure to the first Madoff fund by 50 percent and ultimately entirely because of suspicions about the consistency of returns, the fact that Madoff is charged very little compared to other hedge funds and the impossibility of the strategy that Madoff claimed was used because the volume of options had nothing to do with the amount of money Madoff said to manage. The option volume implies that Madoff's fund has $ 750 million, while he is believed to be managing $ 15 billion. And only if Madoff is assumed to be responsible for all options traded in the most liquid strike price.
Charles J. Gradante, co-founder of Henwall Group's hedge-fund research company, observes that Madoff "has only five months down since 1996", and commented on Madoff's investment performance: "You can not go 10 or 15 years with just three or four months down It's impossible. "
In 2001, Michael Ocrant, editor-in-chief of MARHedge wrote a story in which he interviewed dubious merchants that Madoff had 72 consecutive months, an unlikely possibility.
Clients such as Fairfield Greenwich Group and Union Bancaire Privà © e claim that they have been given "unusual access levels" to evaluate and analyze Madoff's funds and find nothing unusual with his investment portfolio.
The Irish Central Bank failed to find Madoff's big foul when he started using Irish funds and had to provide an enormous amount of information that should have been enough to allow Irish regulators to uncover frauds much earlier than late 2008 when he was finally arrested in New York.
Weekend and collapse
The scheme began to unravel in the fall of 2008, when the market decline was generally accelerated. Madoff earlier nearly collapsed in the second half of 2005 after Bayou Group, a hedge fund group, was exposed as a Ponzi scheme that used a fake accounting firm to misrepresent its performance. In November, investors had asked for $ 105 million for redemption, even though Chase Madoff's account only had $ 13 million. Madoff only survives by moving money from his broker-dealer account to a Ponzi account. Finally, he withdrew $ 342 million from the broker-dealer credit line to keep the Ponzi scheme last until 2006. Markopolos writes that he suspects Madoff was at the brink of bankruptcy as early as June 2005, when his team learned that he was seeking loans from the bank. At that time, at least two major banks are no longer willing to lend money to their customers to invest with Madoff.
In June 2008, Markopolos's team found evidence that Madoff received leveraged money. To Markopolos's mind, Madoff ran out of cash and needed to increase his promised reward for maintaining the scheme. Apparently, redemption requests from passionate investors subsided after the collapse of Bear Stearns in March 2008. Flutes became flooded when Lehman Brothers was forced to bankrupt in September, as well as nearly the collapse of the American International Group at the same time.
As the market declines, investors try to attract $ 7 billion from companies. However, unknown to them, Madoff simply deposits his client's money into his business account at Chase Manhattan Bank, and pays customers from that account when they request a withdrawal. To pay the investors, Madoff needed new money from other investors. However, in November, the balance in the account dropped to a very low level. Only $ 300 million in new money comes in, but the customer has withdrawn $ 320 million. She just barely enough in her account to meet her redemption payment on November 19th. Even with the rush of new investors who believe Madoff is one of the few funds that is still running well, it is still not enough to follow the withdrawal landslide.
In the weeks before his arrest, Madoff struggled to defend the scheme. In November 2008, Madoff Securities International (MSIL) in London made two fund transfers to Bernard Madoff Investment Securities about $ 164 million. MSIL has neither customers nor clients, and there is no evidence that they are trading on behalf of third parties.
Madoff received $ 250 million around December 1, 2008, from Carl J. Shapiro, a 95-year-old Boston philanthropist and businessman who is one of Madoff's oldest friends and financial supporters. On December 5, he received $ 10 million from Martin Rosenman, president of Rosenman Family LLC, who then attempted to recover $ 10 million that was never invested, kept in Madoff's account at JPMorgan, a cable six days before Madoff's arrest. Judge Lifland decided that Rosenman was "indistinguishable" from other Madoff clients, so there was no basis for giving him any special treatment to recover the funds. The judge separately refused to dismiss the lawsuit filed by Hadleigh Holdings, who claimed he had entrusted $ 1 million to Madoff's company three days before his arrest.
Madoff asked others for money in the final weeks before his arrest, including Wall Street financier Kenneth Langone, whose office sent a 19-page field book, allegedly made by staff at Fairfield Greenwich Group. Madoff said he raised money for a new investment vehicle, between $ 500 million and $ 1 billion for an exclusive client, moved fast in the company, and wanted an answer the following week. Langone refused. In November, Fairfield announced the creation of a new feeder fund. However, it is too little and too late.
In the week after Thanksgiving, Madoff knew he was at the end of his moorings. The Chase account, which at one point in 2008 had more than $ 5 billion, dropped to just $ 234 million. With the bank having all but stopped lending to anyone, he knows he can not even borrow enough money to meet the extraordinary redemption demand. On December 4, he told Frank DiPascali, who oversaw the Ponzi scheme operations, that he had finished. He directed DiPascali to use the remaining balance in his Chase account to monetize his favorite relatives and investor accounts. On December 9, he told Peter that he was on the verge of collapse.
The next morning, December 10, he suggested to his sons Mark and Andrew that the company paid over $ 170 million in bonuses two months ahead of schedule, of $ 200 million in assets the firm still owns. According to the complaint, Mark and Andrew, who were reportedly unaware of the company's pending bankruptcy, confronted their father, asking him how the company could pay bonuses to employees if it could not pay investors. At that time, Madoff asked his sons to follow him to his apartment, where he admitted that he was "finished", and that the company's asset management group was actually a Ponzi scheme - as he said, "one big lie". Mark and Andrew then report it to the authorities.
Madoff intends to take a week to end the company's operations before his children warn the authorities. Instead, Mark and Andrew immediately called a lawyer. When sons disclose their father's plan to use the rest of the money to pay for relatives and favored investors, their lawyers connect them with federal prosecutors and the SEC. Madoff was arrested the next morning.
Investigation of co-conspirators
The investigator is looking for someone else involved in the scheme, despite Madoff's assertion that he himself is responsible for large-scale operations. Harry Susman, a lawyer representing several clients from the company, stated that "someone must create the appearance that there is a return", and further suggests that there must be a team that buys and sells shares, forges books, and reports. James Ratley, president of the Certified Foaming Tester Association said, "In order for him to do this himself, he must work night and day, no vacations and no rest time.He has to keep the Ponzi scheme every day.What happens when he goes? who handles it when someone calls while he is on vacation and says, 'I need access to my money?' "
The criminal case is the US. V. Madoff, 1: 08-mJ-02735.
The SEC case is Securities and Exchange Commission v. Madoff , 1: 08-cv- 10791, both US District Courts, Southern District of New York. Cases against Fairfield Greenwich Group et al. consolidated as 09-118 in the US District Court for the Southern District of New York (Manhattan).
While awaiting punishment, Madoff meets the SEC's Inspector General, David Kotz, who is conducting an investigation into how the regulator failed to detect fraud despite many red flags. Due to concerns of inappropriate behavior by Inspector General Kotz in Madoff's investigation, Inspector General David C. Williams of the US Postal Service was brought in to conduct an independent external review. The Williams report questioned Kotz's work on Madoff's investigation, as Kotz was a "very good friend" with Markopolos. Researchers can not determine when Kotz and Markopolos become friends. Violations of the rules of ethics occur if the friendship coincides with Kotz's investigation of Madoff.
Former SEC Chairman Harvey Pitt estimates true net fraud between $ 10 and $ 17 billion, excluding fictitious earnings credited to Madoff's account.
Crime complaints
AS. v. Madoff, 08-MAG-02735 .
The original criminal complaint estimates that investors are losing $ 50 billion through the scheme, even though The Wall Street Journal reported that the figures include alleged false profits reported by Mr Madoff's company to its customers for decades.It is unclear how many investors paid to the company. "He was initially charged with one count of securities fraud and faced 20 years in prison, and a $ 5 million fine if found guilty.
The court papers show that the Madoff company had about 4,800 investment client accounts as of November 30, 2008, and issued a report for that month reporting that the client account had a total balance of about $ 65 billion, but actually "only a fraction" of that balance to clients.
Madoff was arrested by the Federal Bureau of Investigation (FBI) on December 11, 2008, on alleged criminal fraud securities. According to a criminal complaint, the previous day he had told his sons that his business was a "giant Ponzi scheme". They called a friend for advice, Martin Flumenbaum, a lawyer, who called the federal prosecutor and the SEC on their behalf. FBI agent Theodore Cacioppi makes home calls. "We're here to find out if there's an innocent explanation," Cacioppi said quietly. The 70-year-old financier quit, then said: "There is no innocent explanation." He has "paid investors with money that is not there". Madoff was released on the same day his arrest after posting $ 10 million bail. Madoff and his wife surrendered their passport, and he was subject to travel restrictions, at 7 pm. curfews in his co-op, and electronic monitoring as a condition of collateral. Although Madoff has only two signatories for a $ 10 million guarantee, his wife and brother, Peter, rather than the four required, a judge permits him to be bailed but orders him to live in his apartment. Madoff is reported to have received death threats that have been referred to the FBI, and the SEC is referring to "danger or flight" concerns in his request for Madoff to be confined to his Upper East Side apartment. The camera monitored the door of his apartment, his communication device sent a signal to the FBI, and his wife had to pay for additional security.
In addition to 'Bernard L. Madoff' and 'Bernard L. Madoff Investment Securities LLC ("BMIS")', orders to freeze all activities also prohibit trading from Madoff Securities International Ltd. ("Madoff International") and Madoff Ltd..
On January 5, 2009, the prosecutor had requested that the Court revoke the guarantee, after Madoff and his wife allegedly violated the freezing of the assets ordered by the court by sending jewelry worth up to $ 1 million to the family, including their sons and Madoff's brother. Also note that $ 173 million in signed checks has been found at Madoff's office desk after he was arrested. Her sons reported the letter to the prosecutor. Previously, Madoff was considered working with prosecutors. The following week, Judge Ellis rejected the government's request to revoke Madoff's guarantees, but it was necessary as a condition of assurance that Madoff made inventory of personal belongings and that his letter was ransacked.
On March 10, 2009, US Attorney for the Southern District of New York filed 11 criminal information, or complaints, demanding Madoff with 11 federal crimes: securities fraud, investment advisory fraud, letter fraud, wire fraud, three money laundering charges, false statements, fake, making false submissions with the SEC, and theft of employee benefit plans. The complaint states that Madoff has fooled his client nearly $ 65 billion - thereby spelling out the largest Ponzi scheme in history, as well as the biggest investor fraud committed by one person.
Madoff pleaded guilty to three charges of money laundering. Prosecutors allege that he used the London Office, Madoff Securities International Ltd to launder more than $ 250 million in client money by transferring client money from investment advisory business in New York to London and then back to the US to support US trading operations. from Bernard L. Madoff Investment Securities LLC. Madoff gives the impression that he is trading in Europe for his clients.
Plea resume
On March 12, 2009, Madoff appeared in court in defense, and pleaded guilty to all charges. There is no agreement between the government and Madoff; he only pleaded guilty and signed a pardon. The accusation carries a maximum sentence of 150 years in prison, as well as mandatory restitution and penalties of up to two times the gross profits or losses arising from the offense. If government estimates are correct, Madoff will have to pay $ 7.2 billion in damages. A month earlier, Madoff settled the SEC's civil suit against him. He received a lifetime ban from the securities industry, and also agreed to pay the secret fines.
In his defense allocation, Madoff admitted to running a Ponzi scheme and expressed regret for his "criminal act". He stated that he had started his plan some time in the early 1990s. He wants to satisfy his client's expectations of the promised high return, even during an economic recession. He admitted that he had not invested his client's money since the start of his plan. Instead, he just deposited money into his business account at Chase Manhattan Bank. He acknowledged fake trading activities that were covered by foreign transfers and returns of fake SEC. When a client requests an account withdrawal, he/she pays them from a Chase account, claiming that profit is the result of a unique "split-strike conversion" strategy. He said that he intended to end the scheme, but proved "difficult, and ultimately impossible" to escape. He eventually reconciles himself to be exposed as a fraud.
Only two of at least 25 victims who have been asked to be heard at the court are speaking in an open court to accept a guilty plea from Madoff.
Judge Denny Chin received his guilty plea and returned him to Metropolitan Metropolitan Prison Center until his sentence was imposed. Chin said that Madoff is now a huge flight risk due to age, wealth, and the possibility of spending the rest of his life in jail.
Madoff's attorney, Ira Sorkin appealed, to return it back to his penthouse arrest, awaiting punishment, and returning the conditions of his guarantee, stating he would be more amenable to cooperating with a government inquiry, and prosecutors filing notice in the opposition.. On March 20, 2009, the appeals court rejected his request.
On June 26, 2009, Chin ordered Madoff to lose assets of $ 170 million. His wife, Ruth will release her claim for $ 80 million in assets, leaving it with $ 2.5 million in cash. The settlement does not prevent the SEC and Picard from continuing to make claims against Mrs.'s funds. Madoff in the future. Previously, Madoff was asked to protect $ 70 million of assets for Ruth, arguing that it was not related to a fraud scheme.
Punishment and prison life
The prosecutor recommended a 150-year jail sentence, a maximum likelihood of being under federal punishment guidelines. They told Chin that Irving Picard, the trustee who oversaw the bankruptcy process for Madoff's organization, had indicated that "Mr. Madoff has not provided any meaningful cooperation or assistance." The US Prison Bureau has recommended 50 years, while defense lawyer Ira Sorkin recommends 12 years, arguing that Madoff has confessed. The judge granted Madoff permission to wear his personal clothing during the sentence.
On June 29, Judge Chin sentenced Madoff to 150 years in prison, as recommended by the prosecutor. Chin said he had not received a lightening letter from friends or family who testified to Madoff's good deeds, saying that "the lack of such support is obvious." Commentators note that this is different from other high-end white-collar experiments as Andrew Fastow, Jeffrey Skilling, and Bernard Ebbers are known for their philanthropy and/or cooperation to help victims; But Madoff's victims included some charities and foundations, and the only person who begged for mercy were Ira Sorkin's advocates.
Chin called the fraud "unprecedented" and "shocking", and stated that the punishment would prevent others from committing similar fraud. He declared, "Here the message must be sent that Mr. Madoff's crime is utterly evil." Many victims, some of whom had lost their life savings, praised the punishment. Chin agreed with the prosecutor's opinion that the fraud began at a point in the 1980s. He also noted Madoff's crime was "off the chart" because federal penalty guidelines for fraud only rose up to $ 400 million in losses; Madoff cheated his investors several times. The prosecutor estimates that, at least, Madoff is responsible for the loss of $ 13 billion, more than 32 times the federal cap; the often quoted loss of $ 65 billion is more than 162 times.
Chin said, "I have a feeling that Mr. Madoff has not done everything he can do or told him everything he knows," noting that Madoff failed to identify the foot, making it harder for prosecutors to make a case against someone else. Chin dismissed Sorkin's request for relief, stating that Madoff lent large amounts to family members and transferred $ 15 million from the company to his wife's account shortly before confessing. Picard also said that Madoff's failure to provide substantial aid makes it difficult to find assets. A former federal prosecutor suggested Madoff would have the possibility of a punishment with parole if he was fully cooperating with the investigator, but Madoff's silence implies that there are other minions in the fraud, leading the judge to impose a maximum penalty. Chin also ordered Madoff to pay $ 17 billion in damages.
Madoff apologized to his victims on the sentence, saying, "I have left a shameful heritage, as some of my victims have already shown, to my family and grandchildren - this is something I will live for the rest of my life. I'm sorry... I know it does not help you. "
Madoff was locked up at the Federal Extermination Complex outside Raleigh, North Carolina. The prisoner number is # 61727-054.
On July 28, 2009, he gave his first home jailhouse interview to Joseph Cotchett and Nancy Fineman, a San Francisco lawyer, as they threatened to sue his wife, Ruth, on behalf of some investors who lost their wealth. During the 4th session of 1 / 2 , he "answered every [lawyer] question", and expressed regret, according to Cotchett.
Recovery of funds
Madoff's combined assets are worth about $ 826 million when they are frozen. Madoff listed the secrets of its assets and company to the SEC on December 31, which was disclosed on March 13, 2009 in court filings. Madoff has no IRA, no 401 (k), no Keogh plan, no other pension plan and no annuity. He has less than a combined $ 200,000 in securities in Lehman Brothers, Morgan Stanley, Fidelity, Bear Stearns, and M & Q. No registered foreign or Swiss bank account.
On March 17, 2009, a prosecutor filed documents containing more assets including $ 2.6 million in jewelry and about 35 sets of watches and cufflinks, over $ 30 million loaned to the couple by their son, and Ruth Madoff's interest in real estate funds. sponsored by Sterling Equities, whose partners include Fred Wilpon. Ruth Madoff, and Peter Madoff, invest as "passive limited partners" in real estate funds sponsored by companies, as well as other venture investments. Assets also include Madoffs interest in Hoboken Radiology LLC. in Hoboken, New Jersey; Delivery Concepts LLC, an online food ordering service in midtown Manhattan that operates as "delivery.com"; interest in Madoff La Brea LLC; interest in restaurants, PJ Clarke at Hudson LLC; and Boca Raton, Viager II LLC based in Florida.
On March 2, 2009, Judge Louis Stanton modified the existing freeze order to hand over Madoff's assets: securities companies, real estate, artwork, and entertainment tickets, and grant the prosecutor's request that the existing freeze remain valid for Manhattan apartments, holidays in Montauk, New York, and Palm Beach, Florida. He also agreed to give up his interest in Primex Holdings LLC, a joint venture between Madoff Securities and several large brokers, designed to mimic the auction process on the New York Stock Exchange. Madoff April 14, 2009 opening day of New York Mets tickets sold for $ 7,500 on ebay.
On April 13, 2009, a Connecticut judge dismissed a temporary freezing of assets from March 30, 2009, and issued an order for Fairfield Greenwich Group executive Walter Noel to post a $ 10 million property pledge against his home in Greenwich and $ 2 million against Jeffrey Tucker. Noel agreed with the attachment at his home "without findings, including not finding accountability or mistakes". Andres Piedrahita's assets continued to be temporarily frozen because he was never served with a complaint. The perpetrators were all involved in a lawsuit filed by the Fairfield, Connecticut, pension fund, which lost $ 42 million. The case of a pension fund is a Pension Plan for a Fairfield City Employee v. Madoff, FBT-CV-09-5023735-S, Connecticut High Court (Bridgeport). Maxam Capital and other companies suspected of feeding Madoff funds, allowing Fairfield to recover up to $ 75 million are also part of the dissolution and requirements.
Professor John Coffee, from Columbia University Law School, said that most of Madoff's money may be abroad. The SEC believes that keeping secrets of assets will prevent them confiscated by foreign regulators and foreign creditors.
The Montreal Gazette reported on January 12, 2010 that there is an unrecoverable Madoff asset in Canada.
In December 2010, Barbara Picower and others reached an agreement with Irving Picard to return $ 7.2 billion from her deceased husband Jeffrey Picower to other investors in the scam.
In relation to the compensation process of victims, on 14 and 17 December 2012, the Government filed a motion requesting the Court to seek restitution to be impractical, thus allowing the Government to distribute to more than $ 2.35 billion casualties currently disbursed as part of the investigation through remission process, in accordance with Ministry of Justice regulations. Richard C. Breeden is retained to serve as a Special Master on behalf of the Department of Justice to organize the compensation process of victims through the Madoff Victim Fund.
Affected clients
On February 4, 2009, the US Bankruptcy Court in Manhattan released a list of 162-page clients with at least 13,500 different accounts, but without specifying the amount invested. Individual investors who invest through Fairfield Greenwich Group, Ascot Partners, and Chais Investments are not included in the list.
Clients include banks, hedge funds, charities, universities, and wealthy individuals who have revealed about $ 41 billion invested with Bernard L. Madoff Investment Securities LLC, according to Bloomberg News calculations, which may include double counting of investors in feeder fund.
Although Madoff filed a report with the SEC in 2008 stating that his advisory business only has 11-25 clients and about $ 17.1 billion in assets, thousands of investors have reported losses, and Madoff estimates a $ 50 billion asset fund.
Other important clients include former Salomon Brothers economist Henry Kaufman, Steven Spielberg, Jeffrey Katzenberg, actors Kevin Bacon, Kyra Sedgwick, John Malkovich and Zsa Zsa Gabor, Mortimer Zuckerman, Baseball Hall of Fame pitcher Sandy Koufax, Mets), Larry King broadcaster and World Trade Center developer Larry Silverstein. The Elie Wiesel Foundation for Humanity lost $ 15.2 million, and Wiesel and his wife, Marion, lost their life savings.
The largest shareholder
According to The Wall Street Journal investors with the greatest potential losses, including the feeder funds, are:
The potential loss of eight investors totaled $ 21.32 billion.
The International Fund's feeder fund Thema as of November 30, 2008 had the value of net assets recognized at the time invested in a fund of $ 1.1 billion.
Eleven investors have potential losses of between $ 100 million and $ 1 billion:
Twenty-three investors with potential losses of $ 500,000 to $ 100 million are also listed, with a total potential loss of $ 540 million. The total potential for big losses on the table The Wall Street Journal is $ 26.9 billion.
Some investors have changed their initial estimate of losses to include only their initial investment, since Madoff's reported profit is likely to be fraudulent. Yeshiva University, for example, said the actual loss was investing $ 14.5 million instead of the initially estimated $ 110 million, which included falsifying profits reported to universities by Madoff.
IRS penalty
It is estimated that potential tax penalties for foundations invested with Madoff are $ 1 billion.
Although foundations are excluded from federal income taxes, they are subject to excise taxes, for failing to finance Madoff's proposed investment correctly, heed the red flag, or diversify cautiously. Penalties may range from 10% of the amount invested during a tax year, up to 25% if they fail to try to recover the funds. Officers, directors, and trustees face up to 15% fines, with a $ 20,000 fine for individual managers, per investment.
Impact and effect
Criminal charges against Aurelia Finance
The criminal charges against five directors will continue against Swiss wealth manager Aurelia Finance, who lost $ 800 million in client money. Asset directors have been frozen.
Grupo Santander
Clients mainly located in South America who invested with Madoff through Spanish bank Grupo Santander, filed a class action lawsuit against Santander in Miami. Santander proposed a settlement that would give clients a $ 2 billion preferred stock in Santander based on the original investment of each client. Shares pay a 2% dividend. Seventy percent of Madoff/Santander investors accepted the offer.
Union Bancaire Giver
On May 8, 2009, lawsuit against UBP
Source of the article : Wikipedia
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