Bernard Madoff: Story of a Disgraced Financial Manager

Disgraced financial manager and scam artist Bernard Lawrence "Bernie" Madoff is the ex-Chairman of The NASDAQ Stock Exchange and Founder of the Bernard L. Madoff Investment Securities LLC.

Mr. Madoff is alleged to have operated the largest "ponzi" scam in US history losing over $50 billion of his client's money in a scam that was so simple yet no SEC employees caught on for almost 30 years.

Legal Problems

He is currently under house arrest and is expected to plead guilty to this massive and heartless fraud on Thursday March 12, 2009.

The FBI arrested Mr. Madoff after an investigation on December 12, 2008. His assets both personal and business have been seized and await a judge's decision on their disposition.

Mr. Madoff was a well-known philanthropist and served on many foundation boards, mostly Jewish, who utilized his services to invest their assets. They lost everything when Mr. Madoff was arrested and also await the judge's decision concerning the remaining assets.

Investment Strategy

Mr. Madoff's strategy included purchasing stocks from the S & P 100 then selling call contracts in the option market, which was designed to increase the return. He then simultaneously bought put contracts to protect the portfolio from downside action eroding the value of the portfolio.

Lots of people have tried to mimic this strategy but could not duplicate the returns that Mr. Madoff maintained. As a matter of fact there has long been speculation that something was amiss (such as front running) and that because of who he was the SEC overlooked the possibility of fraud or misappropriation of assets to some degree.

The Fraud

Mr. Madoff was able to maintain this strategy for as long as he did because of his targeting foundations. The reason this worked so well was because foundations are required to pay out a minimum of 5% of their assets every year. So in order to maintain a long-term standing in the community that the foundations worked with they rarely if ever liquidated large amounts of investments allowing Mr. Madoff the freedom of working with all but 5% of their funds for his personal enjoyment.

Mr. Madoff did not advertise high rates of return but modest returns but made his firm very exclusive to Jews, well-healed Jews. A lot of his investors declined to take much or any money out because of the fear that couldn't get back in at a later date. This was a well-oiled machine that would be near impossible to duplicate ever again.

The Results

The results of this strategy were the almost total loss of all the funds leaving a lot of prominent Jewish foundations and investors totally worthless. This also affected the grantees and ultimately those indirectly that counted on the funds from these foundations to fill the gaps in necessary income and services. Also several billionaires are now bankrupt.

The Sentence

Mr. Madoff's sentence or ultimate guilt is still not certain but on Thursday he is expected to plead guilty to the largest investment fraud in history.

PS: He also wears a bulletproof vest.

Cite:
http://www.trentonian.com/articles/2009/03/10/news/doc49b697766fcfe085000496.txt

http://en.wikipedia.org/wiki/Bernard_Madoff