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“Assume fraud first until genius is proven.”

That’s what Harry Markopolos, the Boston accounting sleuth who rang alarm bells about Bernie Madoff long before the New York investor’s Ponzi scheme collapsed in 2008, wrote when he signed a copy of his book about the scandal for his friend Michael Trotsky.

It was 2010, and Trotsky, who had recently taken over as head of the state’s giant public employee pension fund, understood Markopolos’s adage all too well: When a money manager’s acumen seems to good too be true — Madoff claimed improbably consistent investment returns year after year after year — it’s probably a scam.


The way I see it, Madoff, whose death in prison was announced Wednesday, was a genius and a fraud, a stock market innovator who ended up squandering his considerable talents on propping up the largest Ponzi scheme in history.

His deceit ruined lives, rattled financial markets already consumed by crisis, and caused more than $65 billion in paper losses for his clients. His investors included the prominent Boston-area philanthropist Carl J. Shapiro, smaller nonprofits like the Lappin Foundation in Salem, school endowments, including Tufts University’s, and hundreds of locals, many recruited through Jewish religious and social networks.

“He was a financial psychopath,” said Mark Williams, an executive-in-residence and lecturer at Boston University’s Questrom School of Business. “He was successful because he was amoral. It didn’t matter who he took money from as long as it was green. And he had no remorse.”

Madoff, who was 82 when he died serving a 150-year sentence at a federal prison in North Carolina, understood early on the changes reshaping the world of stock trading beginning in the 1960s. After largely catering to individuals, brokerage firms were doing more and more business with institutional investors.


Madoff’s firm handled larger trades for these clients and was an early adopter of trading technology, including becoming a member of the Nasdaq, the first major electronic exchange. Madoff later served as the Nasdaq’s chairman, cementing his image as a wise man of Wall Street.

Managing money was something of a side business, but in the 1990s, as word spread of his steady returns — around 11 percent a year, in good markets and bad — investors pleaded with Madoff to take their money. Many saw his hedge fund as an alternative to bonds, a way to earn decent profits without taking the kind of risks usually associated with stocks.

And as his popularity grew, Wall Street found a way to profit, too, creating funds that funneled money to Madoff and taking a cut for themselves.

But Madoff hadn’t figured out how to win in up and down markets, at least over the long term.

Instead, he used money from some investors to make distributions to others, and cooked up phony statements that at one point showed his clients with $65 billion in their accounts. In actuality, about $20 billion in initial investments was lost after the 2008 financial crisis triggered a run on hedge funds. Unable to come up with the cash his investors thought they had, Madoff was turned in by his sons.

There were skeptics, including Markopolos, who doubted Madoff was really able to produce the returns he reported to investors. Markopolos even went to the Securities and Exchange Commission with an analysis that he said proved Madoff was a fraud. The SEC didn’t go after Madoff.


Many investors had friends or family members who also gave money to Madoff. Few considered the possibility he could be a crook.

“Who would have ever imagined that the former chairman of the Nasdaq was running a Ponzi scheme?” said Jonathan Davis, founder of the Davis Cos., a Boston real estate investment firm, who described himself as a “modest Madoff investor.”

“The number of people and institutions involved gave it a patina of credibility that persuaded many of us to suspend disbelief,” Davis said.

Shapiro, family members, and the Carl & Ruth Shapiro Family Foundation lost at least $545 million, including about $250 million that Shapiro had invested — at Madoff’s request — just weeks before the scandal was exposed.

The Lappin Foundation, whose programs strive to enhance Jewish identity, lost all $8 million in had and was forced to close for a time. But there was a rare happy ending: A backer offered $100,000 to help the nonprofit launch its first fund-raising campaign, and it has raised about $500,000 a year since.

“We were able to reopen, and we do amazing things,” said Deborah L. Coltin, president and executive director.

The Massachusetts pension fund had been burned by Madoff — through a hedge fund that had invested in Madoff — prior to Trotsky’s arrival, losing $12 million.

Trotsky, who worked at hedge funds before becoming executive director of Massachusetts Pension Investment Management, made numerous changes following the Madoff scandal.


“I was a hedge fund skeptic,” he said.

Trotsky chopped the number of hedge funds managing money for the state to about 25, from about 240. He brought in Markopolos to train the staff on conducting due diligence and expanded the fund’s risk-management team.

You’d think that after Madoff, investors large and small would avoid any money manager promising results that defy the laws of investing. But fraudsters doing just that get busted routinely, though nothing on the scale of Madoff. And risky investments like crypto-currencies and SPACs seem only to grow in popularity.

Markopolos declined to comment Wednesday, but in 2018, on the 10th anniversary of Madoff’s exposure, he did speak with me.

“In the short term, people learned the lessons of Madoff” — that is, if it’s too good to be true, it isn’t true, he said. “In the medium term, people slowly forget. In the long term, here we are and no one remembers anything.”

Well, we remember the names: Charles Ponzi. Bernard Madoff. Telexfree. It’s the important lessons we forget.

Material from previous Globe stories was used in this report.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.