The story of Bernie Madoff is one of extreme greed and a lack of regret. The financier, who had made quite a name as a market maker on Wall Street and had pioneered computerized trading, was executed for the largest Ponzi scheme. Bernie Madoff started his business by trading in Penny stocks. Madoff gained in popularity with the rise in computerized trading. While his legitimate business was a success, he started to parallelly run a shady investment advisory business. The business was never registered, making it an illegal trade. He fooled his clients for decades before being arrested in 2008 when the stock market crashed. The Netflix documentary “Madoff: The Monster of Wall Street” is a detailed account of Bernie Madoff’s journey from being the king of Wall Street to being sentenced to 150 years in prison.
‘Madoff: The Monster Of Wall Street’ Summary: Who Was Bernie Madoff?
Bernie Madoff was born to Jewish immigrant parents, and he grew up in Queens, New York. From a young age, Bernie realized that he needed to earn money to become successful. He had seen his father’s multiple businesses fail, and his family had gone through a difficult phase, making it all the more important for him to succeed. He married Ruth Alpern, the daughter of accounting businessman Saul Alpern. Saul did not believe that Bernie could make it big in life, making Bernie desperate to prove him wrong. He started working out of his father-in-law’s accounting office with $5000 and traded in over-the-counter stocks. Other than the over-the-counter business, Barnie wanted to start a side business as a financial investment advisor. Saul referred him to the clients he had done accounting work for. The clients’ money was pooled together, Bernie traded it in the market, and the profit was later shared among the pool. Even though they had over 20 clients, they did not register, making their business illegal from the get-go. Bernie made money by taking major risks but could not withstand the market crash in 1962. He lost the money his clients had invested, and he turned to his father-in-law for help. Instead of coming clean and admitting his failure, Bernie borrowed money from Saul and returned the money that his clients had originally invested. Even though Bernie had failed, he was a success to his clients because that was the image he had managed to build. While the entire market was suffering from losses, his clients were unaffected.
Barnie Madoff’s business as a market maker grew, and he shifted to a new office building, bringing in his brother, Peter, to the business. Madoff was able to adjust easily to the use of computers in trading, which helped him rise to the top. What was interesting is that even when his legitimate business was functioning in full swing, he continued with the illegal business as an investment advisor with the support of his relatives and friends. Barnie’s lifestyle changed with the success of his business; he moved with his family to a posh neighborhood and used the seaplane to commute to work. He moved his office to the uptown Lipstick building to impress his clients as well as employees and regulators. His employees remember how the atmosphere in the office was very family-oriented, considering how the people working there knew each other or were related to one another in some way or another. His two sons, Andrew and Mark, worked there as well. While Barnie was mostly kind and caring, he struggled with his temper at times. He tended to be a bully at times and tried to control those around him. He was obsessively particular about the way objects were kept in the office, and employees were not allowed to bring plants or place anything on the desk that did not complement the grey and black décor of the office.
During the market crash in 1987, Barnie was strict about buying stocks, and he kept a calm that helped his employees sail through the tough time. The Madoff firm functioned even when everything was falling apart; they stuck to their commitment as the market maker. This move helped him build the image of the trustable go-to guy. He was recognized by the SEC and the New York Stock Exchange. During that time, his advisory business was also booming, though it was kept under the rug. While initially, the returns to the investors were only 11%, they gradually grew as high as 15% to 19%. While they tried to keep their operations a secret, in 1992, their brochure reached the SEC. The brochure falsely stated that they offered a 100% safe investment. Something that is impossible in the stock market. The SEC was shocked to learn the amount of investment money the small business had collected, and they eventually reached out to Madoff. This was a difficult time for him, considering that he had never invested the money he had collected. While he promised his investors that he was investing their money and giving them huge returns, he never did so, and it was simply a Ponzi scheme. To prove his innocence and that the money was used in trading, he, with the help of Frank Di Pascali, generated false documents. After receiving the document, the SEC closed the case. What could have ended in its initial years continued for over another decade, ultimately destroying lives and families.
How Did Madoff Operate His Fraud Business? What Led To Barnie Madoff’s Downfall?
Even after the SEC investigation, Barnie did not register as an investment advisor. He turned to his foundational investors for help during the crisis, and they provided him with the money to pay back the other clients, but none wanted to take their money out. His clients were satisfied with the return he provided, and more and more retired professionals turned to Bernie for investment. The illegal trade was conducted from the 17th floor of the lipstick building, whereas the 19th floor was the place where the legitimate work was done. Frank Di Pascali was the main guy who overlooked the illegal business. What seemed strange to many employees was that Frank had not completed college and worked at a gas station before he was hired as the chief financial officer by Madoff. The portfolio manager, Annetta Bongiorno, was not well educated, but she handled the big clients and played an important role in the functioning of the 17th floor. These employees, who were not qualified for the roles they were hired for, were handed a good deal of money to afford a lavish lifestyle, raising the alarm.
The forged account statements were printed in the office and mailed to the clients. His computer programmers used programs that took information from fake trades and printed it on the customer statement, making it look absolutely real. His account supervisor, Jodi Crupi, maintained a tally for the Ponzi account and handed Barnie an update of the account daily so that he had an idea with regard to the cash that was available for withdrawal if any client demanded it. He kept his family, particularly his sons, away from the 17th floor. They were only involved on the trading floor on the 19th. And even though his sons often demanded to know how the 17th floor functioned to understand the entire business, Barnie chose to never talk about it. A great number of his clients were Jewish; they trusted him because he belonged to the same community. They believed that he would not betray his own community. With time, Bernie made connections in sophisticated circles, and he was introduced to the Fairfield Greenwich Fund. Madoff made them the most attractive deal by only taking a commission, and he refused to answer the complex questions to create a certain exclusivity. That was how he brought his first hedge fund client, Fairfield Greenwich Fund, on board. What seemed like a red flag to many was that Bernie Madoff wanted to be a secret money manager, and his clients refused to give his name.
Bernie Madoff’s life started to fall apart when Frank Casey, a former executive at Rampart Investment Management Company, met Thierry Magon de la Villehuchet, an investor and investor conduit to some of the richest clients in Europe. Casey learned that Villehuchet had a hedge fund manager who brought him a monthly profit of 1%. The name of the company and the manager were hidden, and he mentioned that if he disclosed the name of his manager, he would no longer work for Villehuchet. Casey could not suppress his curiosity; he knew it was impossible to make a general steady profit every month, and when Villehuchet left the room, Casey took the opportunity to check the name, and he learned that the manager was Bernie Madoff. Casey was under pressure to deliver a similar strategy that would attract Thierry to his company, but the profit Madoff was delivering was impossible to compete with. He discussed the issue with the portfolio manager of the company, Harry Markopolos.
Being the math guy, Harry knew instantly that it was a fraud and possibly a Ponzi scheme. Harry Markopolos first submitted an inquiry to the SEC in March 2000. But the SEC was hesitant to doubt Bernie Madoff because they relied on him for information on Wall Street. Ignored by the SEC, Markopolos tried contacting newspapers, hoping that they would be interested in the story, but none wanted to risk their relationship with Madoff. Luckily, Casey met an investigative reporter on financial fraud who immediately decided to pursue the story, and an article was finally published questioning Madoff’s operation. The SEC decided to investigate the case again, but it was perhaps one of the most reluctant investigations conducted where the person committing the crime was asked about the nature of his crime. Naturally, Madoff dismissed having any hedge funds, and the case was closed. Soon, 9/11 shook the world, and attention shifted from Madoff’s business to the ongoing crisis.
What Led To Bernie Madoff’s Arrest? What Happened To His Family?
Bernie Madoff could not put up with the 2008 market crash. His clients demanded to withdraw money, but Madoff did not have enough money in his account to pay it back to them. Even though Madoff tried to convince his faithful clients to not withdraw money, it did not work. While Madoff only had $300 million in his bank account, his clients’ withdrawal requests added up to $1.5 billion. Bernie decided to distribute the remaining money and proceeded to write checks to his long-term faithful clients, his employees, and extended family members. Bernie knew this was the end, and he decided to finally come clean with his family after all these years. His two sons, Mark and Andrew, were devastated upon learning the truth, while his wife, Ruth, could not comprehend the scheme her husband had come up with. Mark and Andrew consulted with their lawyer, who advised them to report their father because the checks that he was planning to write for them would be labeled as the ill-gotten gains of the fraud, and they would have to face the consequences for it.
On December 11, 2008, the FBI arrested Bernie Madoff from his penthouse. Bernie explained to the FBI that he was the lone operator of the Ponzi scheme, which seemed impossible to believe considering the vastness of his operation. Many of his small clients, mostly retired professionals, lost everything since they had invested all their money solely based on their trust in Madoff. People felt betrayed, and they gathered in front of his office, calling him a monster. Thierry Magon de la Villehuchet committed suicide after he lost $1.5 billion of his client’s money as a result of Madoff’s scheme. Bernie pleaded guilty, and the judge sentenced him to 150 years imprisonment. The FBI started an investigation into his sons and wife in relation to the fraud business. Even if his sons might have wondered what happened on the 17th floor, Bernie never allowed them to get close to that aspect of his business. Mark could not deal with the constant media scrutiny and the mass outrage, which ultimately led to his suicide. Andrew and Ruth grew close after Mark’s death, but Andy soon passed away as a result of cancer. In one way or another, they could not escape the sins of their father. Ruth was left without any assets and was homeless. She lost her husband and her sons and was living out of a car. The members of the SEC had to face Congress, where Harry Markopolos charged them with incompetence, and they were called out for failing at their jobs and ruining lives that they could have saved had they paid attention. Even though many believe that the big four investors in Madoff Securities were also indirectly associated with the fraud, they were not held accountable.
Barnie Madoff died at the age of 82 while serving his sentence in prison. He is remembered for being a sociopath who never felt ashamed of the crimes he committed. His legitimate business was enough to finance his lavish lifestyle, yet he chose to orchestrate a Ponzi scheme as a result of extreme greed and simply because he had the capacity to do it, and he enjoyed getting away with it all these years. Madoff was a narcissist who only cared about his image; more than being sad about losing his family, he regretted losing the respectable image in front of his sons that he had built over the years. In the end, Barnie Madoff lost both money and family. He died alone in prison, and his ashes remain in his lawyer’s office because his family refused to collect them. “Madoff: The Monster of Wall Street” not only provides an insight into how Madoff operated his fraud business but also delves deep into his psyche and tries to answer the reason why he committed the biggest scam in history. While Madoff celebrated his wins by buying multiple properties, boats, and yachts, in the end, he was blamed for the deaths of his sons, and he died an unglamorous death without the love and support of his family.
“Madoff: The Monster Of Wall Street” is a 2023 Documentary series streaming on Netflix.