Bernie Madoff: The Largest Ponzi Scheme In Wall Street history.

Bernie Madoff

Bernard Lawrence Madoff claimed that he was running a legitimate financial business when in reality he was putting together one of the greatest Ponzi schemes of all time. This scheme duped investors out of approximately $50 billion.

How Madoff was able to get away with this scheme for so long? 

Obviously, he was eventually caught in 2008.  However, if we take his word as to how long he had been engaging in illegal activities, this means that he had been at it for about a decade and a half before he was actually caught by the proper regulatory agencies. 

If we take the word of the investigators that believe he had been at it at least in part since the 1970s, there are grounds to be very worried about how the different parts of the regulatory framework of the financial system within the United States are working.  So the question remains the same.  How exactly was Madoff able to get away with something so dishonest for so long?

Well, for starters, it is important to point out something about Madoff’s company that the media likely won’t tell you very often.  The fact of the matter is that if you go back roughly over the period of time that Madoff claims that he was engaged in illegal activities, what you are going to see is that Madoff was indeed investigated a lot by the regulatory agencies during that period of time. 

One of the feeder firms for Madoff Securities LLC known as Avellino and Bienes was investigated in 1992, supposedly before Madoff began the lion’s share of his illegal activities.  Also, the actual main firm of Madoff Securities was invested in 1999, 2000, 2004, 2005 and 2006. 

In fact, when you put together all of the different investigations into the Madoff firm, what you will see right away is that at least eight different investigations into the company took place over the course of time that Madoff claims he was actually involved in the illegal activities. 

The media doesn’t focus on that aspect of things because it is a lot easier to stoke anger by claiming that the authorities fell flat on their face on this one.  It is also a lot healthier for their television ratings.

Another thing that is worth pointing out but which the media frequently misses is the fact that a lot of different watchdog groups were taking a closer look at Madoff’s financial empire as time led up to his eventual collapse.  For example, there was a report released in 2007 by the Financial Industry Regulatory Authority that actually pointed out that Madoff Securities had different sections that did not seem to service any customers. 

At the same point in time, there were various red flags about the way in which Madoff was doing business that did seem to alert many of the other outside agencies as to the fact that fraud of some kind might be going on in his firm.  In fact, any way you look at it, it appears as though at any point in time, just a slightly heavier investigation into Madoff’s activities might have nipped this particular problem before it ever became the huge scandal that it currently is.

Of course, ‘if’ is a word that is used for hope and idealism, both of which are probably futile expenditures at this point in time.  The fact of the matter is that while Bernie Madoff was indeed investigated, he was never investigated to the point where any of the authorities felt that they could move on him. 

Because of this, the main question about the Madoff scandal remains exactly the same.  And that question is the question of why. 

Why, at the end of all that was said and done, was Madoff still able to get away with extraordinary levels of fraud and abuse for such a long time before he was actually caught?

Well, there are many reasons that have been forwarded in an attempt to answer this particular question.  You can take a look at all of them and then decide which, if any, you are going to believe.

Theory #1

One reason that has been put forward regarding the Madoff scandal being so successful for so long is that a lot of people did not really want to mess with Bernie Madoff.  Keep in mind the history of the man that was discussed at the start of this article. 

The fact of the matter is that if you take the last 15 or so years out of his career, he had a very distinguished one.  Being the developer and head of NASDAQ is something that Madoff will always be able to hold up as his greatest achievement. 

No matter how the current population thinks in regards to his reputation, history will definitely remember him as a mixed figure capable of extraordinary good and mind-blowing evil.  He was a financial giant even before he started the illegal activities and there are some that have suggested that this caused a lot of the investigative agencies responsible for policing the financial markets to go easy on him. 

Since Madoff was undoubtedly a financial genius, this would have made it a lot easier for him to evade detection if it is indeed something that is true.

Theory #2

Another theory that has been put forth is that Madoff was just that good.  This is one of the theories that is not very popular, but there are enough people that still have a high enough opinion of Madoff that the theory does get some play whenever people argue back and forth about what this man was or was not able to do. 

Essentially, there are some that believe that Madoff was such a high level financial genius that he really had the ability to understand implicitly what investigators would do and therefore plan accordingly. 

There are falsified financial statements from the firm to back this theory up, but the general consensus within the industry is that it would have taken a lot more than that in order to pull the wool over the eyes of both investigators and investors for such a long period of time.

Theory #3

Another thing that people point is relationship that Madoff’s family had with Washington.  There were multiple instances over the course of time when legislation that would have helped Madoff maintain his veil of secrecy over the operations of his firm was passed. 

He definitely had a lot of beneficial non-regulation thrown his way.  Whether that was because of his family’s relationship to Washington or just coincidental is another point of debate for many people.

Madoff was also able to get quite a few people to vouch for his operations.  There were many clients that he had that were willing to sing to the sky in terms of praising his excellence. 

Many large clients like Union Bancaire Privee and Fairfield Greenwich Group claimed that after taking a close look at his business practices, they did not see anything unusual with the way in which he did his business. 

So if clients with their own direct monetary interest at stake could not find anything wrong with him, many people wonder how the regulatory agencies could have done better.

Speaking of large clients, Madoff dealt a lot with them.  Rather than dealing with a huge number of smaller clients and promising huge returns to those clients, Madoff instead chose to deal with a smaller number of clients that collectively had a larger amount of money. 

By promising modest rather than overwhelming returns to that smaller number of larger clients, Madoff was able to run his Ponzi scheme with a slightly higher health level since the percentage gain that he was required to pay out to each successive person was a bit smaller.  This allowed him to prolong the life of the Ponzi scheme to the ridiculous proportions that have already been discussed earlier in this article on the Madoff scandal.

Theory #4

One final reason that has been suggested by some regarding the lengthy success of the Madoff Ponzi scheme was his investment in charities.  There were many different charities that Madoff had been involved with over the course of time. 

These types of investments are not policed as heavily as some of the others and for that reason there were many that felt that Madoff really did not have that much luck so much as he had the foresight to invest in places that he knew the authorities were not looking.  It is certainly an interesting theory and one that will be debated for a long time just like the other reasons mentioned above.

In the end, these are some of the reasons that have been proposed by people as to why the Madoff scandal scheme was able to work for as long as it did. 

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