Bernard Madoff $50 Billion Ponzi Scheme

[Jeff.Mitchell]

A LIFE BUILT ON 'BULL'
STOX REVOLUTIONARY'S RISE & FALL
By JEREMY OLSHAN

WALL ST. & EASY ST.: Bernie Madoff's high-flying business allowed him to shuttle between a mansion in Palm Beach (pictured)...

Last updated: 6:12 am
December 13, 2008
Posted: 1:12 am
December 13, 2008

Five decades and $50 billion later, Bernie Madoff is right back where he started - broke.

Before getting busted in what appears to be the largest Ponzi scheme ever devised, Madoff's fortune grew to include a $9 million waterfront mansion in Palm Beach mansion and a 55-foot yacht appropriately named "Bull."

The Queens kid who paid his way through Hofstra Law School by working as a lifeguard on Rockaway Beach once seemed like the embodiment of the American Dream.

MORE: Investor Furor Over '$50B Scam'

To those who hail him as an innovator who transformed the way stocks are bought and sold, it is baffling that Madoff, 70, would need to branch out into an illegal side business. Perhaps, they say, the American Dream was not enough.

"It is sad and shocking news," Robert Battalio, a professor of finance at Notre Dame who has studied Madoff's impact on the market, told The Post.

"Madoff was instrumental in bringing instantaneous trading to retail customers - and even now that he has many imitators, he still handles 5 percent of the market."

In the 1970s, Bernie and brother Peter set up Madoff Securities, which spent $250,000 to upgrade the technology in the largely unused stock exchange in Cincinnati. At their peak, they were handling 10 percent of all stock trades.

Madoff developed computer algorithms making it possible to automate the process of pricing and trading stocks.

His company was soon trading thousands of stocks at a time without ever having to pick up the phone, as well as during hours in which the markets were closed.

To entice brokers to steer their trades through his firm, Madoff offered them a one-cent-per-share payment, which critics decried as a "kickback."

Even after the market was flooded with imitators, this business made Madoff a multimillionaire many times over. By 1985, he was earning well over $6 million a year.

The company was always a family affair. He and his brother were eventually joined by his sons and nieces.

"What makes it fun for all of us is to walk into the office in the morning and see the rest of your family sitting there," Bernie's son, Mark Madoff, told Wall Street & Tech in 2000.

Ironically, it was Madoff's sons who turned him in.

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FLA. ELITE LOSES ITS JUICE
'WE JUST BECAME WHOLE LOT POORER'
By JULIE KAY, RICHARD JOHNSON and LUKAS I. ALPERT

BURNED BY BERNIE: Places like Boca Pointe Golf Club are reeling as members learn they were allegedly conned by Bernard Madoff.

Last updated: 6:10 am
December 13, 2008
Posted: 1:12 am
December 13, 2008

A financial chill swept through the Sunshine State yesterday as it emerged that many potential victims of the biggest Ponzi scheme in history live in South Florida.

"It was a very somber day here. Everybody was in shock. There were a lot of clients here," said an employee of the Palm Beach Country Club, where many of financial guru Bernard Madoff's investors were members.

As the scope of the scam that may have lost $50 billion comes to light, many Floridians said they had little hope of recovering their life savings.

MORE: Investor Furor Over '$50B Scam'

"I expect to get back zero," said former newspaper writer Susan Leavitt of Tampa. "When he tells the feds he has $200 million to $300 million left out of billions, what can you expect."

And one hedge-fund manager, Douglas Kass, estimates that "at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven.' "

Madoff's sons turned him in to authorities after he allegedly admitted his hedge fund was "all just a big lie" and "basically a giant Ponzi scheme."

His biggest investors appear to have been hedge funds and other institutional investors. But many more were individuals who had invested their family fortunes with a man they regarded as a financial genius.

"Palm Beach became a lot poorer in the last 48 hours," said a member at the Trump International Golf Club, where Madoff played regularly and where his brother Peter is a member. "Many, many people got wiped out."

Sources say Jerome Fisher, the founder of the Nine West women's shoe empire, was said to have lost $150 million, and Carl Shapiro, who founded the Kay Windsor garment company, reportedly lost $400 million.

They did not return calls for comment.

Madoff primarily worked the so-called "Jewish circuit" in both New York and Florida, where he used his position with prominent organizations to win confidence.

Places like Palm Beach Country Club and the Boca Pointe Golf Club in Boca Raton were filled with deep-pocketed targets.

The club counts high-profile members - including New England Patriots owner Robert Kraft and New York real-estate magnate and Miami Dolphins co-owner Steven Ross. There is no evidence either was victimized.

Many victims were reluctant to speak out of shame.

"They don't want to read their names in the newspaper. They're too embarrassed already," said a source who knew many of the victims.

"Every big guy was his client," a club member told The Palm Beach Post.

"There are a lot of people who lost a whole lot of money with this guy. But no one will admit to it in public."

Leavitt said many were drawn to Madoff because of his reputation for exclusivity.

"He had a closed fund, which is why people put more money into it, instead of diversifying," she said. "You couldn't just come in off the street and plunk down $100,000."

She said that in addition to her personal funds, she allowed Madoff to manage money for a family philanthropy.

"That is gone," she said. "We were very philanthropic. Those days are over." With Post Wire Services

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ALARM BELLS IN 1999 IGNORED
By JEREMY OLSHAN

GREED DRIVEN: Disgraced Wall Street financier Bernie Madoff gets a chauffeured ride from his East 64th Street home yesterday.

Last updated: 6:09 am
December 13, 2008
Posted: 1:12 am
December 13, 2008

"Madoff Securities is the world's largest Ponzi scheme."

That's was Harry Markopolos' conclusion in a 1999 letter to the Securities and Exchange Commission - an alarm that he sounded 10 years before Bernie Madoff was arrested for running just that.

Prosecutors, who now say Madoff pulled of a $50 billion Ponzi scheme, cannot explain why it took so long to respond to the warnings.

MORE: Investor Furor Over '$50B Scam'

Experts are baffled that investors and regulators did not wise up to the ruse sooner.

"I'm shocked investors turned a blind eye to returns that were too good to be true, constant, steady, small, positive returns," said Jim Vos, of the hedge-fund consulting firm Aksia LLC.

But Madoff apparently made them an offer that was too good to be scrutinized.

Madoff was single-handedly managing billions of dollars in offices he kept separate from the rest of his firm, said Vos, who steered clients away from the fund.

The only oversight was conducted in a Rockland County accounting office only slightly larger than a cubicle.

And Madoff, who made his fortune embracing the latest and best technology, forbade investors to get online access to their accounts, insisting instead on paper printouts.

"When something is too good to be true, it probably is," Vos said.

For well over a decade, competitors and experts said they found Madoff's track record suspicious. He seemed immune to any volatility in the market and, no matter what was happening in the economy at large, managed to finish each month with almost identical profits.

Markopolos, who worked for a Madoff competitor when he made the charge of fraud, continued to cry foul for years, to little avail.

Madoff dismissed these attacks as envy and said critics simply did not understand the complexities of his strategies.

Some 11 to 25 investors at a time, it seems, were willing to play along - at least before the economic meltdown in recent months persuaded them to pull out.

They told Madoff they wanted to liquidate their assets, not realizing Madoff had already vaporized them.

Aksia LLC was hired to investigate Madoff several years ago, said principal Jake Walthour. The probe only increased the concerns about the fund. Madoff's returns were "abnormally smooth" from month to month, and it seemed impossible to replicate his investment strategy or verify his track record.

Madoff claimed to be moving as much as $13 billion in and out of the market every month, but "no one on the street could verify it or even see his footprints," Walthour said. "That organization was incredibly secretive."

When they staked out the tiny accounting firm no one had ever heard of, investigators concluded something was amiss.

"We decided there are several scenarios here, one of which is, this could be a Ponzi scheme," Walthour said. "None of our clients invested."

Those who have invested in the fund have told investigators that withdrawing cash from it was an arduous process that involved faxes and inexplicable delays.

That's because in a Ponzi scheme, money from new investors is used to pay those seeking to withdraw their money.

With Bloomberg and Post wire reports

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