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Quick Hits: The $50 Billion Ponzi Scheme


Brief scrutiny of today's headlines.

It's often said that the apple doesn't fall far from the tree, but that's not true in the case of accused fraudster Bernard L. Madoff.

His sons turned him in for what Madoff said was a "giant Ponzi scheme," the Wall Street Journal reports.

Madoff, 70, is the founder and primary owner of Bernard L. Madoff Investment Securities, a company he launched in 1960 with money he made as a lifeguard. Madoff's investment advisory business managed money for high net worth individuals, hedge funds and some institutions.

He is accused in civil and criminal complaints of defrauding investors of billions of dollars. The alleged fraud may total $50 billion, or about 5 times larger than the amount that drove WorldCom into bankruptcy in 2002 and resulted in lengthy prison terms for its top officers.

Madoff wanted to pay company bonuses this month - much earlier than usual; Madoff also couldn't answer questions about the timing or the company's recent activities.

The criminal complaint says 2 senior employees at the company told the FBI that Madoff kept financial statements locked up and was "cryptic" about its investment business.

The FBI didn't name the 2 employees, but the Journal, citing "people familiar with the matter," says they're Madoff's sons. Mark Madoff served as the firm's senior managing director and compliance officer. Andrew Madoff served as the director of trading.

Madoff allegedly told his sons that he planned to turn himself in, but first wanted to pay selected employees from the $200 million to $300 million remaining in the company's coffers.

FBI agent Theodore Cacioppi said Madoff's investment business had "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars."

In a civil complaint, the Securities and Exchange Commission asked a judge to seize Madoff's company and its assets.

"Our complaint alleged a stunning fraud that appears to be of epic proportions," Andrew M. Calamari, associated director of enforcement in the SEC's New York office, said.

Madoff didn't enter a plea Thursday and was released after posting a $10 million bond secured by his Manhattan apartment. A preliminary hearing to determine if he will stand trial on the criminal charges in scheduled for January 12.

Madoff's attorney, Dan Horowitz, declined to comment on the charges.

It sounds like a made-for-TV movie - except to those who allegedly lost huge amounts of money.
No positions in stocks mentioned.
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