Top 15 For 2008 (No. 8): Ponzi Scheme Renamed 'The Madoff'
StreetInsider.com has put together its 'Top 15 For 2008' which chronicles our view of the most significant news on Wall Street during the tumultuous year.
Number 8: Ponzi Scheme Renamed 'The Madoff'
We were nearly at the end of one of the worst years in stock market history, confidence in the system was running at an all time low, then - WHAM! Bernard Madoff, a well-respected money manager, confessed to running a Ponzi scheme of epic proportions.
On December 11th, Wall Street was shocked to learn that well-respected money manager Bernard Madoff was arrested for running a self-confessed "giant Ponzi scheme." In its complaint, the SEC alleged that Madoff told two high level employees that his business was a fraud. He told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." Madoff had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff estimated the losses from this fraud were at least $50 billion.
The tentacles from Madoff's scam proved far-reaching. Many fund of funds invested and collected fees from falsified returns. Wealthy families and charities, many in the Jewish community, also invested heavily with Madoff. Madoff also had large investments from international firms. The money is now mostly gone and they are hoping SIPC coverage and asset searches will get a little bit back.
Some big-names that lost money with Madoff included: Fairfield Sentry Fund, Tremont Group, Mort Zuckerman's Charitable Trust, Ezra Merkin's Ascot Partners, New York Mets owner Fred Wilpon, Steven's Spielberg Wunderkinder Foundation, NYU, Former Philadelphia Eagles owner Norman Braman, Carl and Ruth Shapiro.
Proving what a lying, cheating, narcissistic schmuck he was, Madoff was out raising more money to keep his scheme going until the bitter end. He knew full well that the people he was taking money from would never see it again.
Inexcusably, the Madoff scam happened right under the SEC's nose. A handful of whistleblowers tried to alert the agency to the suspected fraud years ago, but the agency didn't follow-up on the leads. Specifically, Harry Markopolos sent documents to the SEC as early as 1999 alleging fraud against Madoff Investment Securities, LLC.
Madoff's scam was another major blow to the already fragile U.S. financial system. Many were also left wondering how many other Madoff-like scams are waiting in the wings.
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