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This episode of Swindled may contain graphic descriptions or audio recordings of disturbing events which may not be suitable for all audiences. Listener discretion is advised.
Samuel Israel III never intended to create a Ponzi scheme. It was born out of desperation.
In 1996, Israel co-founded a hedge fund called the Bayou Group with business partner James Marquez. The Bayou Group was named after Sam's roots, the famous Israel family from New Orleans. Sam's grandpa, Samuel Israel I, built from scratch one of the largest trading companies in America, which he sold for $44 million in 1981.
But Sam III wanted to pave his own way. He got a job on Wall Street to learn a new trade, though the family's pedigree certainly wouldn't hold him back in that line of work either. Sophisticated investors are usually attracted to hedge funds like Sam Israel III's Bayou by the promise of substantial profits.
Their vast sums of money are pulled together and actively managed by some financial wizard like Sam Israel III, who utilizes riskier investment strategies, proprietary information, and state-of-the-art technologies to outperform the market with little regulation or oversight. Hedge fund managers usually charge a fee and take a cut of the returned profit, and seemingly most become ungodly wealthy by doing so.
Unfortunately, Salm Israel III and his investors would not be joining that tier of financial excess. The Bayou Fund underperformed in its first few years of existence. In fact, the fund was losing value significantly. All the tricks of the trade, the secrets, and the cheating that Salm Israel had learned in his decade-plus of trading experience had let him down, and the descending trend lines on the monthly statement graphs had left some Bayou Fund investors spooked.
By the end of 1998, many of those investors were pulling their principals out of the fund, leaving Salm Israel pulling out his hair. Nevertheless, Salm was confident that he could recover what had been lost and then some. All he needed was a little more time. On the last trading day of December 1998, there was a frantic meeting at Bayou Group between co-founder Salm Israel III and James Marquez and the chief financial officer Daniel Marino.
They all knew that the situation was dire. The losses were piling up. They'd all watched a different hedge fund collapse just a few months earlier for similar reasons. Something had to be done, and fast. At that meeting, the three men decided to lie to their investors. They decided to send phony statements showing modest gains from the fund instead of the actual losses incurred.
Not only would those phony statements attract new investors to plug the increasingly gaping hole in the fund, but they would also prevent the current investors from leaving, thus buying Selm an indefinite amount of time until he was able to pull off some legitimate profitable trades to turn it all around. "Sounds great and all, but what about the audits?" assumedly one of them asked.
"That's easy," Salm Israel probably replied. "Let's just start our own accounting firm to sign off on our hedge fund's phony statements. Have you forgotten that our Dan Marino is a CPA and not the overly tanned quarterback on a mediocre professional football team? Our Dan Marino can actually rise to the occasion. So that's what Dan Marino, the CPA, did."
He created the Richmond Fairfield Associates accounting firm and rented an office in New York City. The Bayou Group was their only client, though obviously illegal. The plan worked. The Bayou hedge fund survived thanks to their doctored audits and inflated returns, and new money was pouring in every month. By the end of 2003, Salm Israel III was day trading with hundreds of millions of other people's dollars. The only problem was that he was still failing to turn a profit behind the scenes.
Another week, another loss. A familiar feeling for anyone with a Dan Marino on their team. The losses were compounded by the fact that the Bayou group was also dipping into their investors' funds for personal pleasure. Israel, 44 years old and in the midst of an expensive divorce and chronic back pain, blew wads of cash on cocaine and vodka and painkillers. He also rented a gaudy mansion for $32,000 a month. Donald Trump was his landlord.
CPA Dan Marino spent his fair share of investor cash as well. He bought a Bentley and a Ferrari and a six-bedroom home in Connecticut to call his own. At 40 years old, Dan finally moved out of his mother's house, which, honestly, is about as close to winning the Super Bowl as any Dan Marino would ever get. But close doesn't count. Not in football and not in solving financial crime.
In 2003, a lowly bookkeeper at the Bayou Fund came close to exposing the entire operation. He noticed that $7 million were missing from a money capital account. The Bayou executives listened to the employees as he relayed his discovery, and they responded by firing him. The fraud could continue, at least for a little while, but the bookkeeper's concerns were well-founded and just the tip of the iceberg.
By 2004, the Bayou Fund had either spent or lost $117 million in investor money. Salm Israel III was getting desperate again. He finally admitted defeat and stopped trading altogether. He transferred all of Bayou's assets to his personal and offshore accounts, all the while continuing to send statements to investors describing profitable returns. Though it seemed like all hope was lost, Salm Israel had not given up.
His new plan to recoup a ton of cash quickly was inspired by a new friend named Robert Booth Nichols. Mr. Nichols is a legend in the conspiracy theory community. He claimed to be a former CIA operative deeply involved in "black operations." Nichols told Israel that he had proof of a shadow government. He also convinced Israel that there was a secret financial market with investment opportunities for high-yield bonds that privately financed super-secret government projects.
Salm Israel bought in. He transferred more than $150 million to Robert Booth Nichols. Nichols gave Salm Israel an old box containing more than $100 million in Federal Reserve bonds as collateral. A more savvy investor would have recognized the red flags upon receipt. The Federal Reserve, unlike the Treasury, has always issued notes. To conduct the top secret trade, Robert Booth Nichols invited Salm Israel to Hamburg, Germany.
Unsurprisingly, the deal fell through. Israel claims that he and Mr. Nichols were tracked and ambushed by a Middle Eastern man wearing a turban on their way to an unspecified German bank. Israel claims to have engaged in a gun battle with that man, who he shot once in the hip. He said Nichols shot the man in the shoulder. Some Israel claims he then stood over their assailant and unloaded into the man's brain at point-blank range without hesitation. Luckily, there were no witnesses.
Israel claims that Robert Booth Nichols used some of his underground connections to clean up the scene before anyone noticed. Sam Israel returned to the United States empty-handed, but he did receive most of the $150 million back. Nichols only kept $10 million for himself, and then died mysteriously in a Swiss hotel room soon after. As time was up, so too was the Bayou Funds.
On July 27th, 2005, Selm Israel III surprised his investors with a letter announcing that the Bayou Fund was shutting down. All principal investments would be returned to the investors, the letter promised. The checks were in the mail. Of course there were no checks, because there was no money. Most investors realized that sad fact when they heard the robot lady's voice on the other end of the phone telling them that the voice mailbox of every Bayou Group executive was full.
A few weeks after receiving that farewell letter, Eric Dillon, a money manager for Silver Creek Capital in Seattle who was owed $53 million from the Bayou Fund, flew across country looking for answers. He went to Bayou's offices but no one was there. So Eric Dillon let himself in through an unlocked door at the back entrance. And there, on Chief Financial Officer Dan Marino's desk, sat a neatly typed single-spaced six-page letter. The first line read, quote,
This is my suicide note and confession." What followed was a complete breakdown of the entire scheme. Marino admitted that there were no profits from the Bayou Fund and never had been in the six years prior. And Marino admitted that the accounting firm that vouched for Bayou's books was non-existent. "If there is a hell, I will be there for eternity," the letter read. "I am sorry. I know God will have no mercy on my soul."
Eric Dillon reportedly called 911 immediately upon finding the letter. Dan Marino was later found by cops alive and breathing. He was taken to a hospital for a psychiatric evaluation. The Securities and Exchange Commission, who couldn't be bothered to investigate the Bayou Fund, even after the company was sued by their former bookkeeper who had been fired after discovering missing money, was finally hot on the trail.
The SEC filed a lawsuit against the Bayou Group for defrauding investors out of more than $400 million. Selm Israel III turned himself in. Both Israel and Daniel Marino pleaded guilty to conspiracy, mail fraud, and investment advisory fraud. In April 2008, both men were sentenced to 20 years in prison and ordered to forfeit $300 million.
James Marquez, the Bayou Group's co-founder, also pleaded guilty to similar charges and was sentenced to four and a half years. The 48-year-old trader fueled a high life by bilking investors out of $450 million through the Bayou Fund he founded, the biggest hedge fund fraud in history. Israel was eventually sentenced to 20 years in order to pay $300 million in restitution.
"I lied to you, and I cheated you, and I cannot put into words how sorry I am," Salm Israel told the court. His lawyers had pleaded for leniency. Israel had nine back operations, a painkiller addiction, and a pacemaker. Twenty years was essentially a life sentence, his lawyers claimed. U.S. District Judge Colleen McMahon was unmoved. She responded, "He suffered from these ailments while he did the crime. He can deal with them while he does the time."
However, Judge McMahon did show a little compassion towards Salm Israel by letting him go home for a few weeks before reporting to prison. He would need the time to get his affairs in order. Instead, Salm Israel III jumped off a bridge. According to his girlfriend, last Monday morning, Israel was driving to Massachusetts to start that prison term. He never arrived.
Police found his car idling on Bear Mountain Bridge, high above the Hudson River. Boats scoured the water but found nothing.
On June 9th, 2008, the day Sam Israel III was supposed to report to prison to begin serving his 20-year sentence, his burgundy GMC Envoy was found abandoned on the Bear Mountain Bridge about 40 miles north of New York City. The keys were in the ignition, there was a bottle of pills in the console, and scrawled on the dusty hood of the vehicle were the words, "'Suicide is painless.'"
A jump from the 156-foot-high bridge almost always proved fatal. The rescue boats that combed the Hudson River looking for Israel's remains that day claimed they had recovered at least 30 bodies from the same spot during their careers. And usually, there was a witness to the deadly plunge, which wasn't the case with Salm Israel. And usually, there was a body floating lifelessly nearby. Salm Israel's corpse was nowhere to be found.
Is he dead or is he alive? Authorities the world over are joining the hunt for Sam Israel, the convicted hedge fund swindler who disappeared five days ago while on his way to begin a prison term. Now to the strange case of hedge fund swindler Samuel Israel. Last week, it appeared he might have killed himself rather than serve a long stretch in prison. But tonight, federal authorities think he staged the whole thing and they've launched a global manhunt.
Now Sam Israel is wanted again. They just don't know if he's dead or alive. I mean, I think it's highly unlikely knowing what we know about him that he jumped. He's been sort of a scam artist for the last eight or nine years. The clients that I've spoken to and former employees think it's very unlikely that he jumped. Finally, a skeptical eye, and they were correct. According to the surveillance footage of that day on the Bear Mountain Bridge, Sam Israel III did not jump.
Instead, another vehicle can be seen picking up Israel just seconds after he parked his SUV. That second vehicle belonged to Israel's girlfriend, Deborah Ryan. A few weeks later, Ms. Ryan was brought in for questioning and confessed that she had helped Sam escape. She told them she had dropped him off at the RV the couple had packed and stashed at a rest stop. Israel then drove the RV about 100 miles north to a campground in Granville, Massachusetts, where he lived for most of the month of June.
He rode around on a Yamaha scooter that he brought with him, using the alias David Clapp. He dropped the camper off, plugged in, and got his motorcycle out and he was gone. Deborah Ryan was arrested for aiding and abetting. She ultimately received a sentence of probation and house arrest.
On June 9th, she allegedly followed him in her car while he drove an RV to a highway rest stop near their home in Armonk, New York, about an hour outside Manhattan before both then drove back to their house. He never surrendered on June 9th. Instead, his SUV was found on a bridge with the words, suicide is painless, scrawled on the front hood. That was the theme song to the hit TV show, MASH.
After 23 days on the lam at 9.30 a.m. on July 2, 2008, thanks to the arrest of his girlfriend and some persuasion from his mother, Sam Israel rode his scooter 12 miles from the Granville campground to the police station in Southwick. He told the front desk his name and said he was supposed to go to prison. A nationwide manhunt ended today when a convicted hedge fund swindler who faked his own death turned himself in.
Samuel Israel walked into a police station in Massachusetts three weeks after faking his suicide on a bridge in New York. Israel had disappeared hours before beginning a 20-year sentence for scamming investors of almost half a billion dollars. Sam Israel was sent back to New York to face the same judge who handed down his original sentence. After a court-ordered psychiatric evaluation, he was given an additional two years for failing to surrender.
During the first few months of Sam's stay, his girlfriend Deborah Ryan was arrested again. She had tried to smuggle $300 cash to Israel in the folds of a magazine that she had mailed. "I guess I have too much empathy and trust in people," Ryan told Marie Claire magazine. "I should just see it at face value and say he fucked me and walk away, but I can't let go. Don't feel so bad, Debbie. Samuel Israel fucked hundreds of people."
Retirement funds and life savings vanished overnight. College funds, hopes, and dreams disappeared. Even those who thought they got out of the scheme at the right time had their profits clawed back and distributed evenly among all the losers. Every Ponzi scheme has the same ending. Nobody makes it out whole. The investors will receive checks very soon from the $116 million that the government has. They'll probably get more checks later.
By July 2013, more than $300 million of the $450 million had been recovered from Sam Israel's various bank accounts and sale of assets. Luckily, the members of the Bayou Group were apprehended before all the funds were blown on drugs, cars, and black market government bonds.
Still, the Securities and Exchange Commission was criticized for not taking action sooner. The Bayou Fund was screaming their name. Even Sam Israel said he was surprised he wasn't caught sooner. He said that the SEC inspected the hedge fund's trading records six months before it collapsed and determined that everything was satisfactory. Israel thinks that the agency simply lacked the manpower and the expertise to prevent fraud from occurring. It kind of makes you wonder what else the SEC was missing at the time.
A Wall Street legend orchestrates the largest Ponzi scheme in the world on this episode of Swindled.
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She also served during a really interesting time as superintendent of banking for the state of New York, basically right when the banking industry was first kind of coming to terms with this whole new world of financial markets. And a lot of banks were struggling with it. To her left is Bernie Madoff, who's the chairman of Bernhard L. Madoff Investment Securities, LLC, which he founded in 1960.
That name may not say a lot to you, but you go over to Madoff and you talk to Bernie and he mentions, oh, by the way, 10% of stocks traded in the United States are going through this firm right now.
It's one of those really important parts of our financial system that doesn't show up in the headlines, that most people outside of markets don't understand the role it plays. But it's a major factor in American and global financial markets today. Bernard L. Madoff founded Bernard L. Madoff Investment Securities LLC in 1960.
Legend has it that he started out trading penny stocks with $5,000 he had earned from working as a lifeguard and from installing sprinkler systems around Hofstra University during his summer breaks from school. After a year of law school, Bernie dropped out to dedicate all of his focus to trading. The market was enormous at the time and there was room to grow. It was the perfect time to buy in. Bernie Madoff's business prospered during its first decade of operation, but it wasn't easy.
Back in those days, to make an over-the-counter stock trade, independent traders had to flip through a phone book-sized directory and call each other on the telephone to strike a deal, unless they used a broker-dealer, such as Bernie Madoff, who would middleman the transaction and collect a small premium for his time. It made for a decent living, but the process was inefficient. The stock prices would change before the ink was even dry.
Madoff and other small firms found it difficult to compete with the big guys on Wall Street that occupied spots on the New York Stock Exchange's trading floor. But technology is the great equalizer. And when Bernie's younger brother, Peter Madoff, joined the firm in 1970, everything changed. We, in about 1971, uh...
Automation was, people were interested in technology. I mean, computers were basically just sort of showing up and being used at that time.
So we saw, meeting my brother and myself, that there was an opportunity to bring automation into the over-the-counter marketplace and create some visibility, transparency in the marketplace. So we came up with the concept of developing a screen-based trading mechanism where prices would appear on a computer screen.
And that was the start of NASDAQ. The Madoff brothers introduced a primitive computer system that displayed stock quotes, bids, and offers on a monitor. A decade later, NASDAQ, the National Association of Securities Dealers Automated Quotations, made it possible to trade using nothing but software.
The degree of involvement Bernie Madoff shared in its creation has been disputed, but Madoff would later become the chairman of Nasdaq in the early 90s, because by then Madoff Securities had become one of the most successful broker-dealers or market makers on Wall Street. Thanks to their bold leadership and innovation, the firm grew exponentially. At one point, Madoff Securities was responsible for processing 10% of all trades on the New York Stock Exchange.
Bernie was appointed to industry panels and private boards. He was glad-handing politicians. Bernie Madoff had become a major player, but not everyone was a fan. Madoff's push to modernize trading and level the playing field had ruffled the feathers of stock market traditionalists. Bernie was faster and cheaper, and the old-timers were losing business. Instead of charging a fee, Madoff actually paid firms a few cents of each transaction to trade through him.
Paying for this order flow reduced his profit margin but massively increased his trade volume. The practice was controversial and considered by some to be a legal kickback or a bribe. Bernie Madoff did not care.
In 2000, he told CNN that he viewed payments for order flow as a normal business practice. "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention, but is grossly overstated."
What's ironic about Bernie Madoff modernizing the market is that he despised technology. He never used a Blackberry. He wouldn't be caught dead wearing a Bluetooth headset. Bernie could barely turn his computer on, according to a former IT employee. He even abolished email for entire divisions of his company.
Maybe Bernie Madoff had something to hide. Or maybe it was just another one of his little quirks. The guy was notoriously particular about organization and cleanliness. He'd get down on all fours to straighten rugs, rip out sections of stained carpet and color in chipped paint with a felt-tipped pen.
He liked straight lines and symmetry. Window blinds had to be adjusted to equal heights. No blue pins allowed. Everything was black and gray, even the pushpins and employee cubicles. But by most accounts, Bertie Madoff was an affable man, though it largely depended on his mood.
Most employees loved working for him, apparently. Madoff was a charming and compassionate boss, they told Fortune magazine. One rookie trader recounted the time when he was hit by a car while training for the New York City Marathon. He said Bernie Madoff was one of the first people to arrive at the emergency room to check on him.
However, other workers described a more unpredictable and temperamental man. One former Madoff employee told Fortune that he left an office holiday party early one year because Bernie was staring daggers at him from across the room for no apparent reason. Also, a female staffer remembered a day when she told a colleague about a nightmare she had had where she had been raped. Bernie, who overheard the conversation, reportedly leaned in and said, "That's not a nightmare. That's a fantasy."
There was also that time when a group of Madoff employees had gathered to watch a news report about the death of a hedge fund manager in Palm Beach, Florida. When they asked Bernie if he had heard the news, he responded, quote, That's right. Bernie Madoff had better things to do. He spent his time and money on philanthropic goods. He and his high school sweetheart-turned-wife, Ruth, donated generously to bone marrow and cancer charities and Yeshiva University.
Madoff Securities even held a charity softball event at Shea Stadium where the Mets played. One of the owners of the New York Mets, Fred Wilpon, was a personal friend of Bernie Madoff's. Wilpon even let Bernie manage some of his personal wealth.
In addition to the trading division of Madoff Investment Securities, in the early 90s, Bernie Madoff launched an entirely separate hedge fund division where he personally would trade on behalf of his clients like Fred Wilpon. The Madoff hedge fund promised consistent returns in a boom or bust market, and it earned a reputation for delivering on that promise. Investors clamored to get in.
Being a member of the Madoff hedge fund was a privilege. The investors weren't sure what or how he was doing it, but every year, no matter what, a 12% return on investment. Bernie Madoff was a genius, everyone agreed. And everyone agreed to keep it a secret. His proprietary trading methods must be protected at all costs. To join, one must be invited or introduced or served up on a platter hoping that Mr. Madoff doesn't upend his nose at you.
Bernie only accepted a handful of select clients. Don't tell anybody. Country clubs were a decent introduction because Madoff loved golf. He was a member at a half dozen different courses including the Atlantic Golf Club, the Fresh Meadow Country Club, and the Palm Beach Country Club in Florida. Madoff was always happy to talk business over 18 holes.
Also, many congregants of the Fifth Avenue Synagogue in the Upper East Side of Manhattan were allowed to join the fun. And Ezra Merkin, the synagogue president, was happy to conceal the nuts and bolts of the operation by serving as a feeder fund. That's how most of the money Bernie Madoff managed came from people he had never met.
Most of the Madoff Fund investors had zero access to the man himself. Their money was funneled through feeder funds managed by people like Ezra Merkin or René Thierry Magan de la Ville-Houlachet. The latter was a New York-based French nobleman who had access to some of Europe's most wealthy elite. De la Ville-Houlachet even invested his own fortune with the unmatchable Mr. Madoff. A man of dignity puts his money where his mouth is.
The feeder funds were eager to send money Madoff's way because he allowed them to keep a higher percentage of the fees that most hedge fund managers would usually keep for themselves, and the returns were great with low volatility, which kept the individual investor happy. There was not a good argument against investing with Madoff at the time if presented the opportunity. The risk was almost zero.
And is this something like when you're doing all this trading for other people, is that something that is just never fully understood? Is that a completely separate operation? Is there information going back between people who are doing the trades and the ones who are taking the bets? Well, yeah. I mean, there are so-called Chinese walls that are required to be established at every brokerage firm so that
what they call information barriers, a better term that most people would understand, to sort of wall off a brokerage firm from taking advantage of information that he has as to what clients are basically going to trade or not going to trade. So there are separate divisions within the firms, and it is very carefully enforced.
and surveilled. So that there are these various, it doesn't mean there are not abuses for sure, but by and large, you know, in today's regulatory environment, it's virtually impossible to violate rules when this is something that the public really doesn't understand. And if you read things in the newspaper and you see somebody, you know, violate a rule, you say, well, you know, they're always doing this. But
It's impossible for you to go undetected, for a violation to go undetected. Certainly not for a considerable period of time. Bernie Madoff's money management company operated out of the 17th floor of the Lipstick building on 3rd Avenue. The team consisted of about 20 people, including Mr. Madoff, and an IBM server from the 80s that housed client data.
The firm's computer programmers worked on the 18th floor of the building, and the separate trading arm of Madoff Securities, now managed by Bernie's adult sons Mark and Andrew Madoff, could be found on the 19th.
Bernie's wife, Ruth, worked as the company bookkeeper for some time. Bernie's brother, Peter, was the senior compliance officer. Peter's daughter, Shana Madoff, was the company's compliance lawyer. And Peter's wife, Marion, was also on the payroll earning well over six figures a year. Although, nobody is quite sure what she did. It was a family affair that afforded everyone in the family a lavish lifestyle.
Bernie and Ruth shared a penthouse apartment in Manhattan, an $11 million estate in Palm Beach, a $4 million beach house on Long Island, an apartment in France, private jets, power boats, and a yacht. Their oldest son Mark owned a $6.5 million beach house in Nantucket. Andrew, the youngest, had his own $4 million apartment in the city. It was a gift from his father.
To outside observers and investors, the Madoff empire was built on trust, integrity, ingenuity, and generosity. But a peek behind the curtain would reveal something else entirely. A peek behind the curtain would reveal that the foundation of Madoff Investment Securities was nothing like it seemed. The foundation of Madoff Investment Securities, more specifically the Madoff Hedge Fund, was nothing more than one gigantic lie.
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Well, it started in 2000. I was a derivatives portfolio manager for an asset manager in Boston. I was managing billions of dollars in equity derivatives portfolios, and I noticed that Madoff was a fraud because I was tasked to compete with him. My bosses wanted me to develop a competing product, and I knew that was impossible. Obviously, it was a fraud. Mathematically, nothing made sense.
In 1999, Frank Casey, the vice president of marketing at Rampart Investment Management Company, a Boston investment firm, became aware of Bernard L. Madoff. Casey's job was to develop and market new financial products to lure new investors into placing their money with Rampart.
once he heard about the man who couldn't lose from a prospective client. Frank Casey demanded that Rampart's resident math geniuses reverse engineer Madoff's hedge fund strategy and replicate his results in order to create a competing product. Harry Markopolos, a chartered financial analyst at Rampart, was assigned the task. Markopolos deemed Bernie Madoff's market performance impossible.
The chart included with the marketing materials by itself was a dead giveaway. The line ascended at roughly a 45 degree angle. Smooth and steady exponential growth. It was the kind of trend that simply does not exist in finance where prices constantly rise and fall on a whim. A logical explanation simply could not exist.
Secondly, Harry Markopolos was familiar with the investment strategy Madoff claimed to employ. It was a "split-strike conversion" or "caller" they called it. Madoff was bracketing the baskets of stock he purchased for investors with puts and calls, meaning he was betting that the stock prices would both rise and fall, which offered protection from any sudden devastating losses in the market, but also limited potential earnings by playing it so safe.
Yeah, Markopolos had seen this before. In fact, Rampart already offered similar products, but their performance was nowhere near as consistent as Madoff's. Bernie Madoff reportedly made his investors money regardless of the general market's behavior, which is not a typical result when utilizing a split-strike strategy. Markopolos noted that during an 87-month period, the market had 26 down months. During that same 87-month period, Bernie Madoff was only down 3.
pretty impressive as well as practically impossible. He had risk-return numbers that have been unachievable in prior recorded human history and they were so superior for such a long period of time that you knew they couldn't be real.
Furthermore, even if Bernie Madoff was using this split-strike conversion strategy as he claimed, Harry Markopolos calculated that there were not enough stock options in existence to hedge such a massive position. So if Madoff's purported returns were indeed real, they were coming from some other process than what was being advertised. Another red flag.
Marco Polos concluded that Madoff was either front-running, which meant that Bernie was using knowledge from the massive trading arm of his firm to benefit his hedge fund investors, or the entire operation was a Ponzi scheme.
Both are highly illegal activities. Both were worth investigating. Both were worth reporting to the Securities and Exchange Commission, which is exactly what Harry Markopolos did. In May 2000, the financial analyst submitted an eight-page memo outlining the red flags he had discovered to the SEC's office in Boston. The report began, quote,
In 25 minutes or less, I will prove one of three scenarios regarding Madoff's hedge fund operation. One, they are incredibly talented and/or lucky, and I'm an idiot for wasting your time. Two, the returns are real, but they are coming from some process other than the one being advertised, in which case an investigation is in order. Or three, the entire case is nothing more than a Ponzi scheme.
Markopoulos also noted that Madoff Investment Securities did not allow outside performance audits of its fund, which was the biggest red flag of all. While Harry Markopoulos did not have access to any internal Madoff documentation required to provide hard evidence of fraud, the SEC certainly possessed the powers to obtain it, but they never did. Instead, Harry Markopoulos' warnings were essentially ignored.
But Harry and his makeshift team of investigators that included Frank Casey and Neil Cello from Rampart and a journalist named Michael Okrant continued to dig in the weeds. And the more they searched, the more glaringly obvious it became that something was astray. Marco Polos resubmitted his report with additional analysis to the SEC in March 2001. But again, he got left on read. Yes, I resubmitted the case a second time to the SEC in March of 2001.
and it was discarded almost immediately, basically upon receipt. At the time, Harry Marko Polos and team estimated that Bernie Madoff's quote "hedge fund" was managing between 12 and 20 billion dollars from investors around the world.
So, at even the low end of the scale, it was undoubtedly the biggest hedge fund on the planet. And the entire operation was completely off the SEC's radar. When we first started the investigation, it was a 50/50. It could have been front running or it could have been a Ponzi. We didn't have enough information to weigh the evidence in favor of one cause or the other. But once I went to Europe and I met 14 different fund of funds,
all operating offshore, saying that they had a special relationship with Bernie Madoff and he took their money and only their money. So when you hear it the first time, you believe it. Right. When you hear it 14 times in two weeks, you know it's a Ponzi scheme because he needs more money to feed the beast. A Ponzi scheme needs an unending supply of new investors to pay the old investors because you're robbing Peter to pay Paul.
Those European meetings opened Harry Markopolos' eyes in two ways. For one, he was profoundly convinced that Bernie Madoff's hedge fund, or Ponzi scheme or whatever, was orders of magnitude larger than anyone could have imagined. And two, Harry Markopolos realized that if he continued pulling the Madoff thread, his life, and the lives of his family members, would be in imminent danger.
The offshore accounts meant that Madoff was playing with dirty money. The Russian mafia, Mexican drug cartels, who knows what else. Not only was Bernie playing with their money, but he was also presumably stealing it. If Marco Polis' hunch was correct, and he knew it was, that meant that he would ultimately be the bearer of bad news. Harry Marco Polis would be the name and the face responsible for zeroing out the accounts of some of the world's most notorious criminals.
From that point on, Harry Markopolos claimed he went to bed every night with a loaded gun by his side. He inspected the wheel walls of his car before cranking the ignition. Harry Markopolos couldn't rest until the problem went away. That problem was Bernard L. Madoff. The SEC could make Bernie disappear, but they had failed to act. Markopolos couldn't live like this forever, always watching his back. He decided he would drive to New York and kill Bernie Madoff himself if it came down to it.
chop off the head of the snake, and the body dies. By now, Marco Polis' team had determined that all of the feeder funds pushing money to Bernie either knew what he was doing or more likely did not care. The returns were good. Their clients were happy. Nobody wants to see how a hot dog is made.
Except that due diligence should be one of the primary responsibilities of an investment firm like the ones feeding Madoff money. Conduct a standard financial investigation. Determine that the numbers are real. Perform a simple background check. None of those things happened by any of the 339 feeder funds in 40 different countries. Maybe they tried, but Bernie Madoff would have never allowed it. And the money poured in anyway because of his credentials.
Bernie had been kicking Wall Street's ass for 30 years. Who needs to cheat with a reputation like that? Even Thierry de la Villeloucher at Access International could not conceive that Bernie Madoff was up to no good. Too many smart and important people spoke too highly of him. Thierry even exempted Madoff from the graphology analysis that he usually required.
Graphology is a pseudoscience that can supposedly determine from an individual's handwriting whether a person is honest. For Bernie Madoff, there was no need. People believed in him. And that terrified those who knew the truth. Harry Markopolos and team had their hopes replenished in May 2001, when one of their own published an article about Madoff in "MAR Hedge", an industry magazine. Michael Okrant wrote a story highlighting the lingering questions surrounding Bernie's operation.
Beaucrant was even able to interview the man himself.
In Harry Markopolos' book, No One Would Listen, Michael Okron described how that interview with Bernie Madoff unfolded. "He had an answer for everything. He said he did a lot of his trading over the counter, so it wouldn't necessarily show up on the exchange. He just dismissed the idea that somehow the volume was missing. He responded directly to every one of my questions, not always with an answer that made perfect sense, but in many instances, they had a degree of plausibility."
The apparent lack of volatility in the performance of the fund, Madoff told him, is an illusion based on a review of monthly and annual returns. On an intraday, intraweek, and intramonth basis, he said, the volatility is all over the place with the fund down as much as 1%. Those who believe there's something more to it and are seeking an answer beyond that are wasting their time.
What was exciting about the article, besides the fact that questions about Bernie Madoff were now being circulated in the news, was that for the first time anywhere, Bernie Madoff confirmed that he was running a hedge fund with as much as $7 billion, twice the size of the second largest hedge fund at the time, and nobody had a clue. Markopolos and company were convinced that that revelation would have the SEC knocking on Madoff's door.
and the team became even more convinced after a similar article titled Don't Ask, Don't Tell was published by Aaron Arvidlund and Barron's Magazine six days later. But again, nothing happened. Years passed. The Madoff Fund was larger than ever. The Markopolos Group was still tallying red flags. The Securities and Exchange Commission still had not lifted a finger.
Despite the absolutely soul-crushing lack of action from the governmental agency tasked with protecting investors, Harry Markopolos prepared another submission. He outlined more than two dozen red flags across 21 pages about how the world's biggest hedge fund is a fraud. It was titled, The World's Biggest Hedge Fund is a Fraud.
In November 2005, Markopolos took that memo directly to Mike Garrity, a man Markopolos respected. He was the branch chief of the SEC in Boston. Garrity forwarded the report to the SEC's New York office since they held jurisdiction over Madoff's operations.
When Harry Markopolos followed up with New York Branch Chief Megan Chung about his submission, she seemed completely disinterested. As he describes it, almost immediately, the collaborative relationships turned confrontational. Harry never heard from Megan Chung again.
But unbeknownst to Harry Markopolos, the SEC did open an investigation into Madoff's security soon after. It spanned two years and ended with the issuance of some technical deficiency notices for minor violations, one for Bernie Madoff, whose hedge fund had not been registered with the SEC, and another to the Fairfield Greenwich Group, Bernie's largest feeder fund, for not disclosing Bernie Madoff's advisory role.
Bernie lied to the investigators. He lied straight to their faces and they caught him in the act. Yet the SEC found no reason to investigate further and reported that it had found no evidence of fraud. It was later reported that the SEC literally did not even find the 17th floor where the money management scheme was housed. Their investigators spent all of their time at the offices of the legitimate trading division on the 18th and 19th floors. The scheme was literally right under their noses.
A stack of paperwork and some reprinted brochures later, and Bernie Madoff was off the hook. We recommend closing this investigation, the SEC's report read, because both Bernardo Madoff and Fairfield Greenwich Group voluntarily remedied the uncovered violations, and because those violations were not so serious as to warrant an enforcement action.
By the time the investigation concluded, Bernie's niece, Shana Madoff, the company's compliance attorney, had begun to date and eventually marry Eric Swanson, a compliance official at the SEC. There's always this friction that goes on between the regulation side of the industry and the practitioners that say, okay, you know, where do you draw the line? You know, regulators would always, you know,
That was it. That was their best shot. And the SEC completely whiffed.
Harry Markopolos believed either the agency was willfully blind to Bernie Madoff or that it was composed of incompetent fools, probably a bit of both column A and B. Harry Markopolos also believed that Bernie Madoff's operation was in trouble. By 2007, he had heard rumors that Bernie had been shopping around Europe for loans, which could only mean one thing.
Bernie was having difficulty covering his client's redemptions in the suddenly shaky market, and not enough new cash was coming through the door. What Marco Polis did not know was just how correct his assumptions were. In fact, the Madoff Fund was on the brink of collapse in 2005 when the Bayou Group imploded. Those fucking amateurs had everybody with money in a hedge fund spooked. Investors were pulling their money out left and right. Bernie had to borrow money from his broker-dealer business just to stay afloat.
And now in 2008, Bernie Madoff was barely hanging on again. The housing bubble broke. Lehman Brothers shit the bed. The market was tumbling. Again, investors were skittish and were requesting their cash. All the while, the Madoff Fund was pumping out those monthly statements, claiming the returns were up in the down market. Please don't leave. Everything is fine. Good evening. This is an extraordinary period for America's economy.
Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen, and families and businesses have found it harder to borrow money. We are in the midst of a serious financial crisis.
By Thanksgiving 2008, Madoff Fund clients had submitted $7 billion in redemption requests. Bernie Madoff only had $234 million on hand to dish out. It doesn't take a Mark Apollos to do that math. The Ponzi scheme had come to an end. On December 4th, 2008, Bernie Madoff called Frank DiPascale into his office. Frank was the company's director of options trading and Bernie's right-hand man.
When DePascali entered the room, he saw tears in his boss's eyes. He had been staring out the window all day, Frank remembered. He turned to me and said, crying, I'm at the end of my rope, don't you get it? The whole goddamn thing is a fraud. On December 9th, Bernie told his brother Peter that the firm was dying. And the next day, he called a meeting with his sons, Mark and Andrew. Bernie tried to speak, but nothing came out.
He told them it would be easier if they could talk somewhere else. So they all met at the family apartment where Ruth Madoff was waiting for them. "I have a confession to make," Bernie announced. "I've been running a Ponzi scheme. I've been lying to you. I've been lying to myself. The firm is completely insolvent. Finished. Absolutely nothing left. I'm broke." Bernie started sobbing. Ruth Madoff asked, "What's a Ponzi scheme?" Mark and Andrew stormed out of the room.
Minutes later, Bernie and Ruth gathered themselves and attended the company Christmas party. They only stayed 30 minutes before returning home. Bernie Madoff figured he had about a week left to tie up 65 billion loose ends. He instructed his wife to transfer another 10 million from the brokerage account to her personal account, and he wrote checks to family and friends for the remaining balance of investor funds to be cashed at a later date.
The next morning, December 11th, 2008, at 8.30 a.m., two FBI agents knocked on Bernie Madoff's door. Mark and Andrew had turned him in. Mr. Madoff, is there an innocent explanation? The agents asked as he let them in. There is no innocent explanation, Bernie Madoff replied. It was all one big lie. Well, the questions just keep mounting in the Madoff securities fraud. Many people today trying to figure out just...
what happened here and unfortunately a lot of charitable organizations a lot of individuals a lot of well formerly what they thought were wealthy people finding out today that they've got no money left there's a look at mister made of seven years old arrested yesterday released on 10 billion dollars bail one has to wonder if these charges are true how this man was able to sleep at night people are just trying to
Catch their breath, figure out what to do from here. You know, Sam Israel, remember that case? Bayou? That was a $400 million hedge fund. Think about this. This was $17 billion connected into so many different lives. The magnitude is just staggering.
By December 12, 2008, the news had spread that the largest Ponzi scheme in history had collapsed. According to the final client's statement stated November 30, 2008, more than $65 billion had vanished.
Truthfully, most of that money didn't exist. That number was based on imaginary returns from trades that never happened. Bernie Madoff never made a single trade with his investors' money. Instead, during the 20-year period that the scheme operated, he had stashed all $17 billion given to him into his business checking account at Chase Manhattan Bank and cut checks upon client redemptions. Bernie Madoff was arrested and released on $10 million bail all in the same day.
He returned home but surrendered his passport. He had a 7 p.m. curfew and was subject to electronic monitoring. People joked that the Madoffs were on penthouse arrest. How do you feel? Are you sorry?
Mr. Madoff, what would you say to all those people that want money? What would you say to them? Bernie, give me one nice shot, buddy. Bernie, turn around, buddy. Bernie, it's not too late to do the right thing. Jump, a sign read outside of the courthouse. Bernie Madoff had become public enemy number one. Society was disgusted by his actions. The economy was in free fall because of this kind of unchecked greed. No bailouts were waiting for his victims.
Bernie Madoff made sure to wear a bulletproof vest to his bail hearing. Not that Bernie Madoff had any interest in staying alive. Ruth Madoff later confessed that she and her husband attempted suicide a few weeks after his arrest on Christmas Eve. "I don't know whose idea it was, but we decided to kill ourselves because it was so horrendous what was happening," she told Morley Safer of CBS News. "We had terrible phone calls, hate mail, just beyond anything. And I said, 'I just can't go on anymore.'"
Both Bernie and Ruth swallowed a handful of Ambien and Klonopin and fell asleep waiting for Santa Claus to take them away. "I took what we had. He took more," said Ruth. "We took pills and woke up the next day. It was very impulsive, and I'm glad we woke up." The Madoff family weren't the only ones suffering in silence. As the days dragged on, it became more and more apparent that everything was gone.
Thierry de la Ville-Loucher, the founder of the Access International Feeder Fund, had lost $1.4 billion entrusted to him by the European aristocracy, including Thierry's own $55 million fortune. Thierry de la Ville-Loucher felt personally responsible. He wanted to atone for his sins. On December 23, 2008, Thierry told the cleaning crew at his Madison Avenue office to finish up before 7 p.m.,
The 65-year-old then locked the door, propped one leg onto his desk and slid his arm from wrist to bicep. Thierry, being the considerate gentleman that he was, had positioned a wastebasket underneath him to not bleed out onto the carpet. Security officers discovered a heavy trash can and his lifeless body the following day.
William Foxton, a 65-year-old highly decorated British soldier and Madoff investor, chose a similar fate. After losing his family's life savings in the fraud, Mr. Foxton laid down on a park bench in Southampton, England, put a gun to his temple and shot himself in the head.
Charles Murphy, a 56-year-old hedge fund executive with Fairfield Greenwich, lost nearly $50 million of personal wealth courtesy of Madoff.
Years later, he jumped from the 24th floor of the Sofitel Hotel in New York, shattering the concrete tiles below. It happened here at the luxurious Sofitel Hotel in Midtown Manhattan, just as many were leaving work. Stunned witnesses told police they saw a man in a dark business suit leap from the 24th floor, landing on a fourth floor terrace below. Those are just a few of Bernie Madoff's 4,800 clients whose lives were forever changed.
Multiple charities were forced to close their doors. Global banks and major accounting firms had their reputations ruined, most of them rightfully so. And normal people, just like you and me, saving for a more comfortable ride into the sunset, had it all stripped away by somebody for no other reason than he could.
Tierman took a job at a local grocery store after losing his entire life savings, more than $700,000, to disgraced Wall Street financier Bernie Madoff. If you haven't tried the soups, they're outstanding. Several household names were affected as well. Radio host Larry King, Holocaust survivor Elie Wiesel, Hall of Fame baseball player Sandy Koufax, just to name a few.
Also, Steven Spielberg's charity was reportedly missing approximately $340,000 because of the Madoff scandal. And actors Kevin Bacon and his wife Keira Sedgwick lost their shirts too. And I think that when the Madoff thing happened, we kind of went, oh shit, you know, let's, you know, let's, I don't know, let's have sex or something. I don't know. It's free. It's free.
How could this have happened? The United States government demanded to know. So the United States government held a series of House committee meetings to determine how the American people were so betrayed by the ineptitude of the United States government. We now know that our securities regulators have not only missed opportunities,
opportunities to protect investors against massive losses from the most complex financial instruments like derivatives, but they have also missed the chance to protect them against the simplest of schemes, the Ponzi scheme. Clearly, our regulatory system has failed miserably, and we must rebuild it now. When we talk about the Madoff scandal, it's really dealing with a crook.
We're dealing with an individual who took people's money and lost it. He's a crook. He deserves to go to jail. I want to know who is responsible for protecting the security investor, because I want to tell that person or those people whose job it is that they suck at it.
One person with intimate knowledge of how bad the security regulators sucked at their job was Harry Markopolos. He was invited to testify in front of the House Committee on February 9th, 2009 regarding his nine-year-long investigation into the Madoff Ponzi scheme and how he was utterly ignored by the Securities and Exchange Commission along the way. Thank you, Mr. Chairman. Good morning.
Thank you for inviting me here to testify before your committee today regarding my nine-year-long investigation into the Madoff Ponzi scheme. I look forward to explaining to Congress today and the SEC's Inspector General tomorrow what I saw, when I saw it, and what my dealings with the SEC were that led me to this case being repeatedly ignored over an eight-and-a-half-year period between May 2000 and December 2008. As today's testimony will reveal,
my team and I tried our best to get the SEC to investigate and shut down the Madoff Ponzi scheme with repeated incredible warnings to the SEC that started in May 2000 when the Madoff Ponzi scheme was only a $3 to $7 billion fraud.
We knew then that we had provided enough red flags and mathematical proofs to the SEC for them where they should have been able to shut him down right then and there at under $7 billion. But unfortunately, the SEC staff lacks the financial expertise and
and is incapable of understanding the complex financial instruments being traded in the 21st century. I gift-wrapped and delivered the largest Ponzi scheme in history to them, and somehow they couldn't be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority. If a $50 billion Ponzi scheme doesn't make the SEC's priority list, then I want to know who sets their priority.
a panel of senior SEC officials defended themselves by essentially reading the mission statement from their website. The agency refused to talk about the Madoff case citing an ongoing investigation. Gary Ackerman, the House member from New York, found their responses unacceptable. I am frustrated beyond belief. We're talking to ourselves and you're pretending to be here. I really don't understand what's going on. Previous witness said that you guys
as an agency, act like you're deaf, dumb, and blind. And I figured you were coming here, you were going to testify before Congress, and don't dare tell anybody you testified before Congress. You're going to be subjected to violation of false advertising lawsuits. All right? You've told us nothing, and I believe that's your intention. I figured you'd leave your blindfolds and your duct tape and your earplugs behind, but you seem to be wearing them today.
Instead of telling us anything you read from the preamble of your mission statement and broke it up into five segments What the heck went on? It seems to me a private with all of your investigators and all of your agency and everything that you all described one guy with a few friends and helpers Discovered this thing nearly a decade ago Led you to this pile of dung that is that is Bernie Madoff and stuck your nose in it and you couldn't figure it out
Noticeably, the branch chief of the SEC's New York office, Megan Chung, was not in attendance to hear the scolding that Harry Markopoulos thought she deserved. Ms. Chung was in charge of the enforcement division that botched the 2005 investigation of Madoff, even after Markopoulos had provided a thorough blueprint of his crimes. "If someone provides you with the wrong set of books, I don't know how you find the real books," Megan Chung later told a reporter, her eyes welling with tears.
Why are you taking a mid-level staff person and making me responsible for the failure of the American economy? I worked very hard for 10 years to make a career and a reputation, and that has been destroyed in a month." Meghan Chung left the SEC in September 2008 for matters said to be unrelated to Bernie Madoff. And all but one of the SEC panel members that defended the agency in front of the House committee had resigned. "I heard the click of the handcuffs, which pleased me greatly.
And I saw his expensive suit slightly creased as he reached behind his back. He was largely expressionless, as he always is. And he, I think, had mentally prepared himself for it.
A month later, on March 10th, 2009, the US Attorney for the Southern District of New York filed an 11-count complaint charging Bernard L. Madoff with 11 federal crimes: securities fraud, investment advisor fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, making false filings with the SEC, and theft from an employee benefit plan. Madoff pleaded guilty to all 11 crimes two days later.
On June 29, 2009, the 71-year-old orchestrator of the largest Ponzi scheme in history was sentenced to 150 years in prison and ordered to forfeit $170 million in personal property along with $17 billion in restitution.
In a prepared statement, Bernie Madoff addressed the court. He admitted to running a Ponzi scheme and expressed regret for his criminal acts. He said the scheme began sometime in the early 90s and that he felt pressured to satisfy his customers' demands. Madoff claimed he had every intention of ending it, but doing so proved, quote, difficult and ultimately impossible. Bernie Madoff knew this day would come.
U.S. District Judge Denny Chin handed down the prosecution's full recommended sentence because Bernie Madoff had not fully cooperated with authorities. He had mailed jewelry to family members while on house arrest in an attempt to save some of the fruits of his hard work. Mark and Andrew turned their father in again. Judge Chin also noted that Madoff had not received a single mitigating letter testifying to any good deeds. The absence of such support is telling, Chin said.
Furthermore, Madoff claimed that he operated completely alone. He never incriminated anybody else in the worldwide multi-billion dollar scheme. Everybody, including the judge, knew that could not be true. For the victims, seeing Bernie Madoff sent to prison for the rest of his life was the first step to recovery, but most were not satisfied. As usual, they wanted a little heftier return.
Ruth Madoff finally broke her silence after her husband was sentenced. She issued a statement, the red quote.
I am breaking my silence now because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie's crime, which is exactly the opposite of the truth. From the moment I learned from my husband that he had committed an enormous fraud, I've had two thoughts. First, that so many people who trusted him would be ruined financially and emotionally. And second, that my life with the man I have known for over 50 years was over.
Many of my husband's investors were my close friends and family, and in the days since December, I have read, with immense pain, the wrenching stories of people whose life savings have evaporated because of his crime. My husband was the one we, and I include myself, respected and trusted with our lives and our livelihoods, often for many, many years, and who was respected in the securities industry as well.
Then there is the other man who stunned us all with his confession and is responsible for this terrible situation in which so many now find themselves. Lives have been upended and futures have been taken away. All those touched by this fraud feel betrayed, disbelieving the nightmare they woke to. I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused.
The man who committed this horrible fraud is not the man whom I have known for all these years. In the end, to say that I feel devastated for the many whom my husband has destroyed is truly inadequate. Nothing I can say seems sufficient regarding the daily suffering that all those innocent people are enduring because of my husband, but if it matters to them at all, please know that not a day goes by when I don't ache over the stories that I have heard and read.
After the plea, after the feds seized her home, Ruth Madoff dyed her hair red and hid out in Florida. As part of Bernie's sentencing, she agreed to keep only $2.5 million of her claim of more than $80 million in assets. Ruth Madoff was forced to give up the rest of her possessions. Of course I feel the shame. I could barely walk down the street without worrying about it.
Mark and Andrew Madoff's assets were also in question, even though the two sons claimed they were just as surprised as everybody else to learn that their father was a crook. The brothers professed their innocence, and they were never criminally charged. After the day he confessed to them, Mark and Andrew never saw their father again. In fact, Mark, the oldest son, stopped speaking with his mother as well. He begrudged the fact that Ruth stood by Bernie's side throughout it all.
Mark Madoff begrudged his own name. He was 46 years old and couldn't find a job. He could hear the whispers on the subway, and now articles were coming out about how the court-appointed trustee was planning to sue him for everything he was worth. Mark Madoff couldn't live with the torment anymore. On the second anniversary of his father's arrest, Mark Madoff was found hanging by a dog leash from a ceiling pipe in his Soho loft. His two-year-old son was sleeping in the next room.
Mark's widow and two children have since changed their last name. The story of Wall Street swindler Bernie Madoff took a grim and tragic turn this weekend. Police found his older son, Mark, dead in his New York apartment on Saturday. Police said Mark Madoff committed suicide by hanging himself on the two-year anniversary of his father's arrest, while his own two-year-old son was in the next room.
Andrew Madoff, the surviving son, died a little less than four years later in 2014 after a second bout with lymphoma. Before his death, Andrew shared with People magazine how his father's arrest had affected his health. Quote, One way to think of this is the scandal and everything that happened killed my brother very quickly, and it's killing me slowly. My father, what he did was...
Ruth Madoff all but disappeared from the public eye after her son's death. She reportedly lives in Connecticut with Mark's first wife and drives a Prius. Ruth never divorced Bernie, but she stopped riding and visiting. After Mark's suicide, she told her husband, quote, Let me go.
In June 2017, the liquidation and recovery effort led by Irving Picard stripped the Madoff sons' estates of all assets, cash, and other proceeds to recoup $23 million. Picard and his team had pursued family, friends, feeder funds, banks, and anybody else that had profited from Bernie Madoff's fraud. JPMorgan Chase paid $1.7 billion to Madoff victims for ignoring numerous red flags related to the crime.
The list goes on.
Irvin Picard also filed lawsuits against the Ponzi scheme's biggest winners like Stanley Chase. Beginning in 1995, Chase's family had reaped more than $1 billion from the Madoff Fund. He averaged a 40% annual return.
And with a return like that, Picard alleged that Stanley Chase must have suspected something. The recovery initiative eventually settled with the 84-year-old's estate six years after his death for $277 million, which equated to, quote, However, the largest single amount recovered from a single individual came from Jeffrey Picower and his wife Barbara of Palm Beach, who owned two dozen accounts in the Madoff Fund.
Authorities surmised that Jeffrey Picower was substantially involved. For example, in 1999, Picower's accounts provided a 950% annual return. That's about 940% greater than the average stock market return. Criminal charges were in the works. But then the 67-year-old man died of a heart attack and sank to the bottom of his backyard swimming pool.
On December 17, 2010, Barbara Picower settled with the U.S. Attorney's Office for $7.2 billion. It was the largest single forfeiture in American judicial history. In total, as of July 23, 2021, the Madoff Recovery Initiative reports that it has recovered more than $14 billion of the estimated $17.5 billion that was invested with Bernie. More than $13 billion of that has already been distributed among the victims.
And even though he tried, Bernie Madoff did not go down alone. His brother Peter was sentenced to 10 years. His accountant pleaded guilty to multiple charges. Former employees like Daniel Bonventre, Joanne Krupe, Jerome O'Hara, George Perez, and Enrique Codelessa-Pitts were all charged with crimes and sent to prison. Madoff's director of options trading, Frank DiPascali, died of lung cancer while awaiting sentencing. He missed out on all the fun.
because prison wasn't so bad, according to Bernie Madoff. Early in his stay, he responded to a letter from his pre-widowed daughter-in-law. Bernie wrote that Butner Prison, where he was housed, felt like a college campus. Quote,
I have loads of friends to talk to, even if most are covered with tattoos. You would fit right in. As you can imagine, I am quite the celebrity and am treated like a mafia don. They call me either Uncle Bernie or Mr. Madoff. I can't walk anywhere without someone shouting their greetings and encouragement to keep my spirits up.
Bernie reported that he had been walking the track every day, and he had also, quote, started pumping iron.
At the end of his letter, Bernie responded to Stephanie's concerns about his son Mark. He wrote,
But circumstances were beyond my control, and someday I'll explain this to him. I can only hope he remembers me as the loving father I am, and not the person I'm characterized as now.
Just coming at us now, the Federal Bureau of Prisons says Bernie Madoff has passed away. In February of this year, his attorney appealed for his early release, saying he was dying of kidney failure. Madoff had pleaded guilty to orchestrating the largest Ponzi scheme in history. Bernie Madoff was 82 years old. Got that.
Swindled is written, researched, produced, and hosted by me, a concerned citizen, with original music by Trevor Howard, a.k.a. The Former, a.k.a. The Hedge Fund. For more information about Swindled, you can visit swindledpodcast.com and follow us on Instagram, Facebook, and Twitter at Swindled Podcast, or you can send us a postcard at P.O. Box 6044, Austin, Texas 78762. But please, no packages. We do not trust you.
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