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$50 Billion: Now You See It, Now You Don’t

arrest2.jpgA former Nasdaq stock market chairman was arrested on a securities fraud charge Thursday, accused of running a fraudulent investment business that lost at least $50 billion before he confessed to senior employees it was a “giant Ponzi scheme,” authorities said.

Bernard L. Madoff, was released on $10 million bail secured by his signature and that of his wife. He declined to comment as he walked out of U.S. District Court in Manhattan.

Madoff, 70, the founder of Bernard L. Madoff Investment Securities LLC – & Chairman of the Sy Syms business school, a division of Yeshiva University – maintained a separate and secretive investment-advising business that served between 11 and 25 clients and had a total of about $17.1 billion in assets under management, prosecutors said.

Late Thursday, the Securities and Exchange Commission announced a civil securities fraud charge against Madoff and said it was seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.

Andrew M. Calamari, associate director of enforcement in the SEC’s New York office, said the SEC was alleging “a stunning fraud that appears to be of epic proportions.”

A criminal complaint signed by FBI Agent Theodore Cacioppi said Madoff told at least three senior employees at his Manhattan apartment Wednesday that the investment adviser business was a fraud and had been insolvent for years, losing at least $50 billion.

To put that figure in perspective, the collapse of energy trading firm Enron in 1991–largely viewed to be the gold standard of financial fraud in modern times–involved the loss of $31.2 billion, according to the New York Post.

Cacioppi said he and another FBI agent arrived Thursday at Madoff’s apartment, where Madoff invited them in and acknowledged knowing why they were there.

“After I stated, ‘We’re here to find out if there’s an innocent explanation,’ Madoff stated, ‘There is no innocent explanation,'” the agent wrote.

Madoff told the employees he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie” and it was “basically, a giant Ponzi scheme,” according to the complaint filed in court.

The employees understood Madoff’s admission to mean that “he had for years been paying returns to certain investors out of the principal received from other, different, investors,” said the complaint, which did not identify the investors impacted by the scheme.

Cacioppi said one of the employees told him that Madoff was “cryptic” about the firm’s investment advisory business and kept its financial statements locked up. The FBI agent said another employee told him that Madoff last week had said clients had asked for about $7 billion in redemptions and he was struggling to meet those obligations but thought he could do so.

Cacioppi said two senior Madoff employees told him that Madoff said during the Wednesday meeting that he planned to surrender to authorities in a week but first wanted to distribute $200 million to $300 million he had left to certain selected employees, family and friends.

“Madoff stated, in substance, that he had personally traded and lost money for institutional clients, and that it was all his fault,” Cacioppi said.

The agent wrote that Madoff said he had “paid investors with money that wasn’t there” and that he was broke and insolvent and had decided that “it could not go on” and that he expected to go to jail.

Defense lawyer Dan Horwitz called Madoff “a person of integrity” and said he intends to fight the charge.

If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million.

(Source: NBC New York)

23 Responses

  1. “A maximum fine of 5 million dollars”.
    Beautifull. After completing8 years he will be released for age health and good behavior and have millions stashed away to enjoy while others have lost fortunes. It’s amazing that people invest such huge amounts of money without doing legal background checks with the sec.
    Does anyone know who the investors are.

  2. To all members of boards of Yeshiva’s, almonah funds.& tzedokah organizations- The Jewish community has lost hundreds of millions in this latest of many Ponzi schemes. This has occurred to us too many times. Please review your investments, you have a fiduciary responsibility, to all your donors, students and the community. I am in the Investment industry, and am constantly saddened by the inept management that many institutions have used for their endowements. Do you due diligence- dig deep into where the money is. In the long run, you will find it easier to just own U.S. Treasuries. (and gold)

  3. Madoff was funing a huge ‘fund'(scheme) and he had 1 little auditor in monsey newyork…. the name of the firm has jewish names. ( NOT SURE IF HE IS FRUM) but this guy MIGHT have been helping cook the books…. what a chilul hashem!!!


    Look, when the economy is growing, there is trust and crdit everywhere, and no one asks for “redemptions.” So the banks and investment firms can play with the money, and make more money (or lose some).

    When times get tough, and there is a loss of trust, people desperately want our, and they all simultaneously head for the exits. The system can’t deal with it, and it collapses.

    Madoff is just the latest domino to fall. The Government refused to bail him out, unlike Citibank and WAMU.

    Stay tuned, more to come!

  5. He doesn’t seem to be frum (Palm Beach, country club lifestyle, the sons who turned him in had non-Jewish names,etc.). It appears that his fund at some point stopped making money and rather than admit loses, evolved into a Ponzi scheme (using new money to fake profits, and relying on incoming money to keep up the charade). He was a “hedge fund” operator, meaning you have to be filthy rich to invest with him (normal people aren’t allowed since the funds are unregulated).

  6. #8, your comments are not only immature and uncalled for, but also almost certainly lashon hara/motzei shaim ra. Stop spreading this sinas chinom! Is the lesson of the Mumbai massacre already forgotten?

  7. Shock and disbelief! Another mega-heist, and this time by a Jew. As if we don’t yet have enough on our plate.

    But this is not a black-hat guy! It seems that greed grows not only in chareidi ciccles, like many reshoim who comment on this website are so savvy to report.

    anyway, it hurts terribly that a Jew is involved in something dirty like this. Plus all the $$$ of yeshivos & tzedaka funds that go down with a gonnev like this.

    To # 1: The only lesson to learn is to contiue to teach “Lo Tignov!” repeatedly in all our institutions.

  8. Pashuteh Yid, you said it beautifully. I would just say that we shouldn’t be prepared to throw out our capital markets entirely. It is there that companies raise the funds they need to grow their ideas. But you are right, the capital markets do not create anything.

  9. #10

    “Is the lesson of the Mumbai massacre already forgotten? ”

    comments like that turn a tragedy into a trite platitude, especially when placed at the end of an angry rant.

  10. #14 -huh?

    He probably bungled and didn’t want to admit it.
    Since normal people can’t invest in hedge funds,
    it won’t have an impact unless some tsadkas were invested.

  11. #8:
    ..and the fact that he chaired a school in YU makes things any better? Or you suppose they will not say a word, other than “we lost $100m through Mr. Madoff”? I imagine that you think people are bashing YU, but nobody is bashing the institution on this level. R’ Aharon ZTL would not be able to stand hearing the two words together.
    p.s. I imagine that a nice % of people attending that school aren’t even Yidden, just enrolled in the “U”, nothing to do with the “Y”.

  12. #14, I’m not minimizing the tragedy at all. I’m making sure that the Mumbai Kedoshim didn’t die for nothing. If because of them Klal Yisroel finally comes together, it will only help both them and us. And since when is asking someone to stop saying lashon hara and spreading sinas chinom an angry rant?

  13. Many “normal” people will be effected by this scam. People who are retired, or near retirement may have to change their plans. Charities and those who benefit from them have lost funds. wealthy people who normally would donate to causes, many of them Jewish, will not. Institutions such as schools have lost money in their endowment. The effects of this catastrophe are widespread.

  14. Unfortunately we have to remember the three things that take us away from reality -kinah(jealousy),kovod(honor-respect) and taava(greed).
    When we daven and end the amida we should say the elokai nitzor with real kavana and know what we are saying.
    We also should be careful not to be swayed by things that look big. Remember the old saying “if it’s too good to be true then it’s not”.
    We had been looking into such picture luring real estate investments in Eretz Yisroel to have when we have the gutts to pick ourselves up from here.
    Boruch Hashem we met this lovely kollel yungerman who guided us with Siata Dishmaya. The salesman had a list of names who many of us are familiar in N.Y., who already invested. Well we paid a real estate lawyer much less than the investment and the whole thing ends up being not true. Meanwhile people are still buying and if you say something they think you don’t fargin them.
    Boruch Hashem, Hashem had always been good to us and we are not affected with the financial turmoil but we are also not affected by comments that we are stingy, sleep on money yet on the other hand quietly some people bentch and daven for us each day. Both my husband and myself and the children don’t flaunt and the women are not shoppers only when necessary!
    We follow Yaakov Avinu’s advice.

  15. Rav Yehuda said (Kiddushin 30b) that anybody who does not teach his son an “umnus” – a trade is equal to having taught him “listus” – robbery. The Gemoro says that this is true even if he taught his son business. Rashi explains that because there are times when he will not have what to do business with – and he will therefore steal to get the money.

    It’s time that Yeshivas started teaching our childrem an “umnus”. It is indeed the father’s responsibility, but today he has no Yeshiva to which to send his son where there is a semblance of an “umnus” taught.

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