Bernie Madoff orchestrated one of the most infamous and devastating financial frauds in history. His crimes involved operating a Ponzi scheme, named after Charles Ponzi, in which he promised high returns to investors but instead used new investors' funds to pay returns to earlier investors, creating the illusion of a profitable enterprise.
2. Before the Crime
◦ Born: April 29,1938 (Queens, New York)
◦ Predominantly Jewish neighborhood [Laurelton]
◦ First jobs:
◦ Lifeguard
◦ Sprinkler installer
◦ Madoff’s parents (Ralph and Sylvia) weren’t considered “honest
people”
◦ Ran a broker-dealer operation out of their home
◦ Later got shut down by the SEC for “failure to file reports”
◦ Met his wife, Ruth Alpert, in junior high (Far Rockaway High
School)
◦ Graduated in 1956
◦ College:
◦ University of Alabama (one year) [swim or ROTC scholarship]
◦ Hofstra University- Bachelor of Arts in Political Science
◦ Brooklyn Law School (one year) —> founded Bernard L. Madoff
Investment Securities LLC
3. School of Lies
Ponzi Scheme:
“An investment fraud that pays existing
investors with funds collected from new
investors”
- U.S. Securities and Exchange Commision
How it works:
- Promise to invest your money and
generate high returns
- Little to no risk
- No investment happens
- Uses new investors’ money to pay back
existing investors
- NEED a constant flow of new money
Securities Fraud:
“misrepresenting information investors use
to make decisions”
Wire Fraud:
“financial fraud involving the use of
telecommunications”
Mail Fraud:
“use of the mail for the purpose of executing
a scheme to defraud the recipient”
Perjury:
“the offense of willfully telling an
untruth in a court after having taken an
oath”
Money
Laundering:
“the concealment of the origins of
illegally obtained money, typically by
means of transfers involving foreign
banks or legitimate businesses”
●Are the crime(s) high level and/or low level?
- Most fall under serious criminal offenses under the federal criminal law
4. Who's Who?
Who was involved?
• Madoff had claimed sole responsibility
• Frank DiPascali- Chief financial officer and ran Ponzi Scheme
operation/book-keeping
• Peter Madoff- Chief compliance officer oversaw daily operations
Ethical considerations?
• Madoff disregarded investor trust and jeopardized his family's and
employee's professional reputation.
Neutralized of costs?
• "These people are a little greedy too, they look just far enough."
• "They are in some way accomplices too."
Justification of the crime?
• "There was no innocent explanation", "always wanted to please people"
• Indicated he was coerced to start and just couldn’t stop.
Organizational nature/setting?
• Bernard L. Madoff Investment Securities LLC was the Ponzi Scheme
• Ironically the organization was self-investing; the more attention it had, the
greater influence to continue the crime.
5. Organizational Structure
Bernard L. Madoff Investment Securities LLC – company overview
o This organization was founded in 1960 by Bernard and his wife
Ruth. The company initially started off small with penny stocks.
Were there effective security matters and ethical standards in Bernie
Madoff company?
o No, there were no security matters regarding the crime. The
Securities and Exchange commission or SEC did not do enough
to prevent Madoff’s crimes.
o SEC had an on and off investigation on Madoff since 1992.
What was the company’s reputation like before Madoff was caught
committing fraud?
o Bernie Madoffs company had a very successful reputation,
which leads people to wonder why he did it.
o Madoff had no real reason to do what he did as his company
was doing well and his clients were happy.
o “Madoff’s legitimate brokerage business was wildly successful,
making him and his family extremely wealthy.” CFI
6. The Power of Friendship
How did this continue for 20
years?
• Madoff was chair of many financial
intermediates and committees
•He was appointed Committe chair of
NASDAQ after 1987 Stock Market
Crash furthering his credibility
He created the largest electronic
stock exchange system in the
world (NASDAQ)
• He was the government oversight
Jeff Picower, one of Bernie's
"Big 4" made over 7 billion
dollars
The SEC failed to uncover
Madoffs crimes from a lack of
due diligence
• Congress left the SEC to create a
competitive stock exchange market which
gave Bernie opportunity to exploit a new
system.
Bernie would attend meetings
with industry savants and
regularly prove to know more
than them.
His Ponzi scheme helped
introduce computers to the
Stock Market Trading world
He told SEC enforcement staff
prior to the investigation that his
investment strategy was so good
because of his "gut feeling"
He used "affinity fraud" to
evade suspicion from many of
his victims
8. Context: Political influences that advanced the
Bernie Madoff crime
◦ Bernie Madoff's position as a former NASDAQ chair and a pioneer in
electronic trading provided him the credibility and respectability he needed to
attract investors and maintain trust. His credibility, high returns, and claimed
legitimate strategy, made it easier for Bernie to deceive his investors and evade
detection for a while. Nonetheless, while there is no evidence that political
figures directly facilitated Madoff's fraudulent activities, the broader regulatory,
oversight environment, and the trust placed in Madoff due to his status and
political connections, may have indirectly allowed for Bernie Madoff to fulfill
his fraudulent schemes for as long as he did. Bernie Madoff's crimes were not
directly advanced by political influences; however, his engagement with the
political system through campaign contributions and his role as a respected
financier could have indirectly contributed to the environment in which his
Ponzi scheme could flourish. Bernie and his wife contributed in the donation
of several hundreds of thousands of dollars in political donations, and Bernie
was critical of the influence of money in politics, thus suggesting that
politicians would be better off without the need to engage with donors.
Despite his criticisms, Bernie allowed for political campaign money to flow,
which could be seen as his own attempt to maintain a good image and keep
connections that could benefit his business and personal interests.
9. Cultural beliefs
and attitudes that
advanced the
Bernie Madoff
crimes
Cultural factors include a combination of glorification of rule-bending in entrepreneurial culture, rationalization
mechanisms among white-collar criminals, the use of affinity fraud, cultural misrecognition of the nature of financial
frauds, and broader attitudes towards white-collar crime. These cultural factors created a cultural and psychological
environment that allowed Bernie Madoff's crimes to advance and persist for as long as they did.
Entrepreneurial Culture and Ambition: The American entrepreneurial culture often glorifies success, even at the cost
of telling “little white lies”, bending the rules, or ignoring regulations. This attitude can create a slippery slope where
unethical actions may escalate into severe criminal activities. In Bernie Madoff's case, there is an extreme example of
how ambition and the desire for success can lead to unethical and illegal actions. While interviewed in prison, Bernie
Madoff reflects on his crime saying, "You can almost accomplish anything."
Rationalization of White-Collar Crime: Bernie Madoff, like many white-collar criminals, rationalized his own actions
by believing that his actions wouldn't harm anyone. This rationalization is a common psychological mechanism that
allows individuals to justify their unethical and/or illegal actions, thus making it easier for them to continue with their
fraudulent activities because in their minds they are not harming anyone.
Affinity Fraud and Exclusivity: Bernie Madoff exploited his reputation and religious affiliation to build trust within
the Jewish community, thus convincing many prominent individuals and charities to invest in his scheme. The aura of
exclusivity around Bernie Madoff's hedge fund made it seem more appealing to potential investors, both inside and
outside the Jewish community. This tactic of affinity fraud leverages shared identities or interests to create a false
sense of security and exclusivity among potential victims.
Misrecognition and Myopia: The media and cultural discourse around market breakdowns, including Madoff's Ponzi
scheme, often focus on short-sightedness and misrecognition rather than the strategic deception. This cultural
perspective often obscures the deliberately calculated nature of frauds, thus underestimating individuals like Bernie
Madoff in orchestrating fraudulent crimes.
Broad Cultural Attitudes Toward White-Collar Crime: The coverage and social construction of Bernie Madoff's
crime in the media reflects the broader cultural attitudes towards white-collar crime. These cultural attitudes can
influence how fraudulent crimes are perceived, discussed, and punished, potentially affecting the regulatory and
oversight environment.
Bernie Madoff Interviewed in Prison
10. Economic fluctuations that impacted the Bernie
Madoff crimes
◦ Economic fluctuations impacted Bernie Madoff's fraudulent crimes, specifically the eventual collapse of his Ponzi scheme.
◦ Economic conditions that influenced Madoff's fraudulent activities:
◦ - Reduced/Weak Oversight: Reduced, or weakened oversight may have allowed Bernie Madoff's scheme to continue undetected for as long as it did.
This is due to the fact that the weakening of external oversight of economic actors over the past few decades has been a major cause of the increase in
white-collar crime.
◦ - Financial Crisis of 2008: Bernie Madoff's arrest happened to coincide with the U.S. economy reeling from the financial crisis. The 2008 Financial
Crisis highlighted class inequities and created much frustration from Americans seeking a target, which one of those faces happened to be Bernie
Madoff. Bernie’s punishment provided some relief to the American public.
◦ - Loss of Trust: The Bernie Madoff scandal had a significant impact on trust in the financial system. Following the revelation of Bernie’s fraud, many
investors began to withdraw substantial amounts of money from their advisors, thus favoring the relative safety of banks. This led to several financial
advisors going out of business, especially those in areas affected by Madoff's scheme.
◦ - Market Conditions: During the recession in 2008, Bernie Madoff was unable to accommodate his investors requests for redemption, which led to the
exposure of his Ponzi scheme. The market conditions in the U.S. in 2008 made it difficult for Bernie to continue his facade of a profitable investment
strategy as he was running out of new investor funds to pay returns to his already existing investors.
11. Crime rates for
Bernie Madoff’s
type of crime
The crime rates for Bernie Madoff's type of
crime, white-collar crime, has evolved over time.
The cause of the increase in white-collar crime in
some nations has been due to the weakening of
external oversight of economic actors over the
past 20-30 years. In the U.S., the Great Recession
of 2008 was preceded by the Savings and Loan
debacle of the 1980s, which also saw a surge in
white-collar crime. Nonetheless, it is important to
note that the detection and reporting of white-
collar crimes like Bernie Madoff's Ponzi scheme
can be influenced by many factors, including
changes in regulatory oversight, economic
conditions, and public awareness of these types
of crimes. Furthermore, fluctuations in the crime
rates for these types of offenses may not
necessarily reflect changes in the actual prevalence
of such crimes, but rather changes in their
detection and reporting.
12. Who pays? How were the victims impacted by the crime?
At least two victims died of suicide and many others lost their homes. In addition, one of his
sons committed suicide and Madoff did not attend the funeral.
How many victims were impacted?
There was close 40,000 victims that were impacted as of September 2021.
Were there unintended consequences that occurred because of the crime?
Yes, there was "public perception of the crime along with the criminal and public support for
resource allocation for investigators and criminal processes "Suicide was also an unintended
consequence that occurred due to the crime.
Were others impacted by the crime who were not directly victimized?
Yes, his friends and family, employees of Madoff's firm, his financial advisors and
charities/foundations
Was there physical destruction caused by the crime?
There was no physical destruction that was caused by the crime.
Was there environmental destruction caused by the crime?
There wasn't any environmental destruction caused by the crime
Was there financial loss caused by the crime?
Yes there was "as much as $20 billion in cash losses and $65 billion in paper losses"
Were new services created to help others avoid being a victim of the crime?
Yes, there was investor education programs made, due diligence services created, regulatory
reforms and fraud detection services.
13. Who's really in control?
Did the government respond to the crime and was the response effective?
§ The government did respond to the crime and helped recover $4 billion towards the claims that were made by
Madoff.
Was regulatory oversight established for future prevention?
§ Yes, it was aimed to improve accountability and create investor protection in the financial markets.
Were criminal sanctions applied to those that committed the crime?
§ There were criminal sanctions applied to Bernie Madoff, who was the primary individual responsible for the crime.
What type of sanctions were applied?
§ The types of sanctions that were applied to Madoff included prison sentence, specifically 150 years, forfeiture of assets, fines and civil
penalties including more fines.
Was a business, corporation, or government entity charged for the crime?
§ Besides Bernie Madoff, individuals from his investment firm Bernard L. Madoff Investment Securities LLC were charged for the crime.
Were the charges dismissed or downgraded?
§ Charges were not dismissed or downgraded based on the crime committed by Madoff.
Were there transnational organizations that committed or were part of the crime that operate outside the jurisdiction of governmental authority?
§ There wasn't any transnational organizations that committed or were part of the crime that operated outside the jurisdiction of governmental authority
Did the criminals or organizations attempt to help solve the negative impacts caused by the crime?
§ No one that was a part of this crime attempted to help solve the negative impacts caused by the crime. The government made an effort to try and people back but
Madoff or anyone from his investment firm attempted to help anyone affected by the crime.
During the FBI's investigation, Bernie Madoff continued to claim that he alone was responsible for the crime and no other individual had involvement; however, after further investigation, it was found that Peter Madoff, Bernie's brother and chief financial officer, was sentenced to 10 years in prison for falsifying information and knowingly participating in the crime. Frank Dipascali was the man who ran the dealings concerning the ponzi scheme, such as wire fraud, mail fraud, investment advisors fraud, tax evasion, money laundering, and similar crimes of that nature. Plead guilty and testified in court being sentenced to 125 years in prison.
When it comes to Bernie madoff and ethical considerations the landscape was barren, he spoke of having any ethical issues or moral stress about his actions and continued the crime for years, until the 2008 when the global financial crisis occurred. The event produced significant losses for investors and with many trying to withdraw their funds and save their money, the Madoff firm went under much scrutiny and pressure which eventually resulted in the discovery of the crime.
While in prison bernie madoff was interviewed which was shown in the film wizard of lies, say the quotes on slide. Many of the neutralizations made push much of the blame onto the victims like banks and investors
![Before the Crime
◦ Born: April 29,1938 (Queens, New York)
◦ Predominantly Jewish neighborhood [Laurelton]
◦ First jobs:
◦ Lifeguard
◦ Sprinkler installer
◦ Madoff’s parents (Ralph and Sylvia) weren’t considered “honest
people”
◦ Ran a broker-dealer operation out of their home
◦ Later got shut down by the SEC for “failure to file reports”
◦ Met his wife, Ruth Alpert, in junior high (Far Rockaway High
School)
◦ Graduated in 1956
◦ College:
◦ University of Alabama (one year) [swim or ROTC scholarship]
◦ Hofstra University- Bachelor of Arts in Political Science
◦ Brooklyn Law School (one year) —> founded Bernard L. Madoff
Investment Securities LLC](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)