A Ponzi scheme is fraudulent investment operation that pays returns to investors
from their own money or money paid by subsequent investor rather than from any
actual profit earned.
Bernard Lawrence “Bernie” Madoff (born April 29, 1938) is an American
businessman and former non-executive chairman of the NASDAQ stock exchange
who was convicted of operating a Ponzi scheme that has been called the largest
investor fraud ever committed by a single person. On March 12, 2009, Madoff pled
guilty to an 11-count criminal complaint, admitting to defrauding thousands of
investors. Federal prosecutors estimated client losses, which included fabricated
gains, of almost $65 billion. He had been confined to his Manhattan penthouse
apartment during the investigation, and was subsequently incarcerated after his guilty
plea. There was no plea deal with prosecutors. He faces spending the rest of his in
prison, and up to $170 billion in restitution.
Madoff founded that Wall Street firm Bernard L. Madoff Investment Securities
LLC in 1960, and was its chairman until his arrest on December 11, 2008. The firm
was one of the top market maker businesses on Wall Street, ( the sixth-largest in 2008),
which bypassed “specialist” firms, by directly executing orders over the counter from
retail brokers. The firm also had an investment management and advisory division
that was the focus of the fraud investigation.
According to the original federal complaint, Madoff claimed his firm had
“liabilities of approximately US$50 billion.” Prosecutors increased their estimate of
the size of the fraud from $50 billion to $64.8 billion, based on the amounts in the
accounts of Madoff’s 4,800 clients on November 30, 2008. It is claimed that he
confessed to his sons first on December 10, 2008 that the asset management arm of
his firm was a giant Ponzi scheme--- as he put it, “one big lie.” They then passed his
information to authorities. The following day, Federal Bureau of Investigation
agents arrested Madoff and charged him with one count of securities fraud. Five
days after his arrest, Madoff’s assets and those of the firm were frozen, and a receiver
was appointed to handle the case. The SEC conducted several investigations into
Madoff’s business practices since 1999, which critics contend were incompetently
handled.
Madoff was a prolific philanthropist. He and his wife gave campaign
contributions mostly to the Democratic Party, but also to the Republican Party.