From penny stock trading philanthropist to America’s best known fraudster: Bernie Madoff’s ‘legacy of shame’

Bernie Madoff was once known as a financial wizard who pioneered computer trading on Wall Street, was chairman of the Nasdaq for three years, and leader of a successful investment fund that gave healthy returns to an exclusive pool of investors.

That image of him crumbled on 11 December 2008 when he was arrested by federal officials at his Manhattan penthouse after being reported to authorities by his two sons.

Madoff, a respected figure in the world of finance and keen supporter of medical research and Jewish philanthropic causes with a lavish lifestyle, had been running the largest Ponzi scheme in history.

His victims — celebrities, institutional investors, charities, and ordinary people hoping to retire with the money they believed they had set aside — lost everything they had invested with him.

The fraud was a classic Ponzi structure, using money from new investors to pay returns to those who had invested for longer. In theory, it could have gone on indefinitely but was derailed as the global financial crisis hit Wall Street in late 2008.

Madoff founded the firm Madoff Securities in 1960 after graduating from Hofstra University on Long Island, which he attended after just one year at the University of Alabama.

Having married his wife Ruth the previous year, he started the new venture with a loan from his in-laws and money he had saved up working as a lifeguard.

Beginning as a penny stock trader, he built his client base through family and friends and their recommendations. As the business grew it helped develop innovative computer technology for trading, which after a trial run, became the Nasdaq.

While the firm focused on directly executing trades from retail brokers as a third-market provider, making it the sixth-largest such firm on Wall Street by 2008, it also had an investment management and advisory division that later became the focus of the fraud investigation.

Over the decades, Madoff served on financial regulatory boards relating to securities, as did his brother Peter, who worked for the firm as the chief compliance officer.

There were suspicions among Wall Street firms that Madoff’s reported gains were not credible, and attempts to recreate the numbers he reported failed to do so. Financial analyst Harry Markopolos flagged this to the US Securities and Exchange Commission on numerous occasions but was ignored.

Madoff was actually taking money from investors, depositing it into a Chase business account, and then making withdrawals every time an investor requested a redemption. Two back office members of staff would falsify trading reports to align with returns to investors as worked out by Madoff.

The scheme went undetected for so long because instead of paying outlandish returns to investors, he reported more modest numbers — though healthy enough to continue to pull in new money through smaller firms and other intermediaries.

Madoff claimed he began the scheme in 1991, but investigators date it back to before the 1980s and even as far back as the early days of the firm, in one form or another.

The calibre of his clients and the exclusivity of being welcomed in to invest with Madoff were often the biggest selling point. Among those who invested money with him were film director Steven Spielberg, actors Kevin Bacon, Kyra Sedgwick and John Malkovich, broadcaster Larry King, and Holocaust survivor Elie Wiesel.

Recommendations to invest with Madoff often came from family members and trusted business associates who likewise had unwittingly bought into the scheme. Reputations and relationships were destroyed in the aftermath of the scandal.

After managing to scrape together the funds to pay out to investors one final time on 19 November 2008, Madoff realised the end was near. As clients continued to demand redemptions, he simply did not have the money to pay out and the delicate house of cards came crashing down.

The Madoff family was heavily involved in the firm — not just his brother Peter, but his niece Shana worked in compliance, and his two sons Mark and Andrew were traders.

Madoff confessed the scheme to his sons at his Upper East Side apartment with wife Ruth also present. Mark and Andrew then reported him to federal authorities on the advice of lawyers. He was arrested and charged with securities fraud on 11 December 2008.

At the time of Madoff’s arrest, fake account statements told clients they had holdings worth $60bn — these figures were fictitious.

While his sons’ roles at the firm were separate from Madoff’s investment part of the company, it has never been entirely clear what they knew and when they knew it. There has always been much speculation about what Ruth knew as well.

Two years to the day after his father’s arrest, Mark died by suicide aged 46. His younger brother passed away from cancer four years later aged 48.

Peter pleaded guilty to federal tax and securities fraud in 2012 and spent eight years in jail for his part in the scheme.

Having posted $10m in bail, Madoff remained under house arrest in his penthouse apartment until 12 March when bail was revoked as he was deemed a potential flight risk due to his age and wealth and the prospect of spending life in prison.

A judge ordered forfeiture of all $170m of Madoff’s assets, with Ruth agreeing to give up her claim to half, leaving her with $2.5m in cash.

According to a filing by Madoff at the time, he and his wife were worth up to $126m, plus an estimated $700m for the value of his business interest. Other assets included a $7m yacht, more than $2m in jewellery, and homes in Manhattan, Montauk, Palm Beach, and Cap d’Antibes, estimated at a total of $22m in value.

At his sentencing in June 2009, Madoff read a statement to a packed courtroom. “I am responsible for a great deal of suffering and pain, I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created,” he said.

“I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren.”

He was sentenced to 150 years in prison and transferred to the Federal Correctional Facility Butner Medium in North Carolina.

Ruth did not attend the sentencing but issued a statement: “I am breaking my silence now because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie’s crime, which was exactly the opposite of the truth.”

She added: “I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused. The man who committed this horrible fraud was not the man whom I have known for all these years.”

Ruth now lives in a one-bedroom apartment in Greenwich, Connecticut, and must disclose any financial transaction she makes above $100.

A court-appointed trustee has since recovered more than $14bn of an estimated $17.5bn that investors put into Madoff’s scheme.

The scandal ruined lives, destroyed families, and further damaged trust in financial services even at the height of the financial crisis when opinions of Wall Street were already at historic lows.

Lawsuits continued for years and several suicides have been attributed to the fallout from the scandal.

In 2019, Madoff asked then-president Donald Trump for a reduced sentence or pardon, but the White House did not publicly respond.

In February 2020 his lawyers asked for him to be released due to terminal chronic kidney failure. The request was denied.

He died on 14 April 2021.