I’ve been totally amazed by the story of Bernard Madoff‘s astonishing investment scandal that spanned twenty years. It’s an absolutely incredible story of what is the world’s largest ever investor fraud committed by a single person, to the tune of $65bn, a staggering amount of money.
Madoff’s fraud is based on the amazingly simple Ponzi technique. All you have to do is to convince suckers to give you some money with the promise of a guaranteed return, and when that return is made you convince them to re-invest the return rather than withdraw it. Rather than sending money when the investment matures, you simply send a false statement. At some point, obviously, people will want to withdraw their money from the scheme, at which point you do all you can to convince them otherwise. The scheme collapses when more people insist on withdrawing their investments that can be covered by the actual funds, which is what happened to Madoff when the banking crisis kicked off.
How Madoff managed to keep this scam going for so long and grow it so large is absolutely staggering. Nobody else except Madoff have been indicted, but I find it hard to believe that he worked alone on something so big and that lasted so long. All the necessary fake paperwork was generated by an ancient computer system, housed on one floor of Madoff’s offices, never updated of course because to do so would require consultants to come in, risking exposure [source]. Somebody set up those computers in the first place. One also has to wonder if any of the investors questioned as to why the format of their fake paperwork didn’t catch up with the times; I expect they were just blinded by loyalty and trust.
What’s most alarming is that Madoff’s scam wasn’t detected by the authorities, namely the U.S. Securities and Exchange Commission, who investigated Madoff’s firm no less than eight times but found nothing. This means that either Madoff is the best con-man of all time, or that the SEC is quite spectacularly useless. Both may very well be the case, but regarding the latter, if I was an investor in the United States I would be very worried now about whatever investment scheme I was committed to, especially if it seemed to be doing consistently well for a number of years. You can be sure that Madoff’s isn’t the last.
The Devil acutely points out glaring comparisons between Madoff’s Ponzi fraud and National Insurance, which is essentially a state enforced, compulsory Ponzi scheme. One day it too will collapse. I hope I’m in the ground before it happens.
Madoff has been jailed for 150 years for what is clearly an unimaginably evil crime in every way.