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Bernie Madoff, who defrauded investors of billions, dies in prison

Bernie Madoff in 2009.
Bernie Madoff in 2009.BLOOMBERG NEWS

Bernard L. Madoff, the one-time senior statesman of Wall Street who in 2008 became the human face of an era of financial misdeeds and missteps for running the largest and possibly most devastating Ponzi scheme in financial history, died on Wednesday at the Federal Medical Center in Butner, N.C. He was 82.

The Federal Bureau of Prisons confirmed the death. Mr. Madoff, who was serving a 150-year prison sentence, had asked for early release in February 2020, saying in a court filing that he had less than 18 months to live after entering the final stages of kidney disease and that he had been admitted to palliative care.

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In phone interviews with The Washington Post at the time, Mr. Madoff expressed remorse for his misdeeds, saying he had “made a terrible mistake.”

“I’m terminally ill,” he said. “There’s no cure for my type of disease. So, you know, I’ve served. I’ve served 11 years already, and, quite frankly, I’ve suffered through it.”

Mr. Madoff’s enormous fraud began among friends, relatives, and country club acquaintances in Manhattan and Long Island — a population that shared his professed interest in Jewish philanthropy — but ultimately grew to encompass major charities including Hadassah, such universities as Tufts and Yeshiva, institutional investors, and wealthy families in Europe, Latin America, and Asia.

Buttressed by elaborate account statements and a deep reservoir of trust from his investors and regulators, Mr. Madoff steered his fraud scheme safely through a severe recession in the early 1990s, a global financial crisis in 1998, and the anxious aftermath of the terrorist attacks in September 2001. But the financial meltdown that began in the mortgage market in mid-2007 and reached a climax with the failure of Lehman Brothers in September 2008 was his undoing.

Hedge funds and other institutional investors, pressured by demands from their own clients, began to take hundreds of millions of dollars from their Madoff accounts. By December 2008, more than $12 billion had been withdrawn and little fresh cash was coming in to cover redemptions.

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Faced with ruin, Mr. Madoff confessed to his two sons that his supposedly profitable money-management operation was actually “one big lie.” They reported his confession to law enforcement and the next day, Dec. 11, 2008, he was arrested at his Manhattan penthouse.

The victims of his fraud, some of whom went overnight from comfortable wealth to frantic desperation, numbered in the thousands and were scattered from Palm Beach, Fla., to the Persian Gulf. The paper losses totaled $64.8 billion, including the fictional profits he had credited to customer accounts over at least two decades.

More than money was lost. At least two people, in despair over their losses, committed suicide. A major Madoff investor suffered a fatal heart attack after months of contentious litigation over his role in the scheme. Some investors lost their homes. Others lost the trust and friendship of relatives and friends they had inadvertently steered into harm’s way.

Mr. Madoff was not spared in these tragic aftershocks. His older son, Mark, committed suicide in his Manhattan apartment early on the morning of Dec. 11, 2010, the second anniversary of his father’s arrest. He was characterized by his lawyer, Martin Flumenbaum, as “an innocent victim of his father’s monstrous crime who succumbed to two years of unrelenting pressure from false accusations and innuendo.” One of Mark Madoff’s last messages before his death was to Flumenbaum: “Nobody wants to believe the truth. Please take care of my family.”

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In June 2012, Bernard Madoff’s brother, Peter, a lawyer by training, pleaded guilty to federal tax and securities fraud charges related to his role as the chief compliance officer at his older brother’s firm, but he was not accused of knowingly participating in the Ponzi scheme. In December 2012, he forfeited all his personal property to the government to compensate his brother’s victims and was sentenced to a 10-year prison term. And on Sept. 3, 2014, Madoff’s younger son, Andrew, died of cancer at the age of 48. He had blamed the stress of the scandal for the return of the cancer he had fought off in 2003.

Besides the human toll, professional reputations were destroyed. More than a dozen prominent hedge funds and money managers, including J. Ezra Merkin and the Fairfield Greenwich Group, had to admit that they had forwarded their clients’ money to Mr. Madoff and lost it all.

Swiss private bankers, global commercial banks and major accounting firms were dragged into court by clients who had relied on them to monitor their Madoff investments.

The Securities Investor Protection Corp., the industry-financed organization set up in 1970 to provide limited protection to brokerage customers, spent more on the Madoff bankruptcy than on all its earlier liquidations combined — and was fiercely attacked by victims who felt they had been wrongly denied compensation.

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And for the Securities and Exchange Commission, which unsuccessfully investigated more than a half-dozen credible tips about Mr. Madoff’s fraud scheme since at least 1992, it was the most humiliating failure in its 75-year history.

Bernard Lawrence Madoff was born in Brooklyn on April 29, 1938, to Ralph and Sylvia (Muntner) Madoff, both the children of working-class immigrants from Eastern Europe.

He grew up in Laurelton, at the southern edge of Queens near what is now Kennedy Airport. It was in Laurelton that he met and, in 1959 married, Ruth Alpern, whose father had a small but thriving accounting practice in Manhattan.

Before graduating from Hofstra University in 1960, he had already registered his own brokerage firm with the SEC, Bernard L. Madoff Investment Securities, which he founded partly with money saved from summer lifeguard duty and a lawn-sprinkler installation business he had run in school.

After an uninspired year in law school, he devoted himself full time to the business of trading over-the-counter stocks — an enormous market in an era when only the most seasoned US companies could win listings on the New York Stock Exchange and the smaller American Stock Exchange.

His business prospered in the boom years of the 1960s and weathered the downturns of the 1970s by catering to the expanding world of institutional investors, who were rapidly replacing retail investors as the dominant players on Wall Street.

After his brother, Peter, joined the Madoff firm in 1970, it began to build a reputation for harnessing cutting-edge computer technology to the traditional business of trading securities. It was one of the early participants in the fledgling electronic market that ultimately became the modern Nasdaq and was involved as an investor in several other platforms for computerized trading

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Mr. Madoff’s market leadership and his firm’s willingness to challenge Wall Street traditions made him a trusted adviser as federal regulators struggled to modernize the nation’s marketplace without jeopardizing its international stature. By age 70, he had become an influential spokesman for the traders who were the hidden gears of the marketplace.

Mr. Madoff, then chairman of Bernard L. Madoff Investment Securities, on the trading floor in New York, on Dec. 30, 1999.
Mr. Madoff, then chairman of Bernard L. Madoff Investment Securities, on the trading floor in New York, on Dec. 30, 1999. Ruby Washington/NYT

But it later became clear that he had started engaging in questionable practices soon after he arrived on Wall Street.

By the early 1960s, he had started accepting money raised for him by his father-in-law, Saul Alpern, and two young accountants who worked in the Alpern firm. At some point, the two accountants began to sustain this flow of Madoff-bound cash through the issuance of notes that they failed to register with the SEC, as required by law. The commission shut down that hidden money-management business in 1992, after Mr. Madoff had received almost $500 million from the accountants’ clients, who believed he was investing it for them.

Regulators filed civil charges against the two accountants, forcing them to shut down their note-sale operation but failed to follow the money beyond Mr. Madoff’s doorstep. And on the SEC’s order, all of the money was returned to customers — with cash Mr. Madoff took from one of his largest investor’s accounts, according to testimony in federal court cases related to the fraud. But the regulators later found that most of the money was almost immediately returned to Mr. Madoff by customers who had become accustomed to a steady, reliable rate of return on their supposedly conservative accounts.

By then, hedge funds, pension plans, and university endowments were entrusting hundreds of millions of dollars to Mr. Madoff — despite a business operation that was cloaked in secrecy, account statements that were suspiciously antiquated, and independent audits that were signed by a one-man firm in a suburban storefront office.

Financial scholars later theorized that Mr. Madoff’s Ponzi scheme lasted so long because it appealed more to his clients’ fear than to their greed: He promised them consistency in an increasingly volatile market, not eye-popping returns. And he delivered, honoring a redemption requests and not falling short of the profits he had forecast.

By the 1990s, a cottage industry of hedge funds and private partnerships had begun to serve as supposedly exclusive portals through which investors could benefit from Mr. Madoff’s investment genius. These funds collected billions of dollars that he used to pay promised profits to his early clients and cover withdrawals when necessary.

Meanwhile, the profits of his legitimate business — which at one time was one of the largest participants in the Nasdaq market — were being squeezed by the same technological advances he had helped bring about. By 2005, prosecutors later said, he was subsidizing his Wall Street firm with money siphoned from his fraud victims.

There was no sign of distress in the Madoff family lifestyle. While not conspicuously ostentatious by Wall Street standards, the Madoffs lived well. Besides a duplex penthouse, they owned a handsome beach house on Long Island, a vintage mansion in Palm Beach, and an apartment near the Mediterranean in the south of France; several large powerboats; and a share in a corporate jet.

They were respected philanthropists as well, contributing to cancer research and making major gifts to Yeshiva University, where Mr. Madoff was a trustee and the chairman of the Sy Syms School of Business. He had also served on the boards of several Wall Street organizations, including the National Association of Securities Dealer.

Never an effusive man, Mr. Madoff became even more impassive as he and his family were caught up in the media storm that followed his arrest. One tabloid labeled him the most hated man in the city. On at least one excursion to the courthouse before his guilty plea, a security consultant insisted that he wear a bulletproof vest.

Mr. Madoff, arriving at federal court in New York on March 12, 2009.
Mr. Madoff, arriving at federal court in New York on March 12, 2009. MICHAEL APPLETON/NYT

Before being sentenced on June 29, 2009, in a courtroom packed with spectators and victims, he read from a statement he had prepared with his defense lawyer, Ira Lee Sorkin.

“I am responsible for a great deal of suffering and pain, I understand that,” he told the court. “I live in a tormented state now, knowing of all the pain and suffering that I have created. I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren.”

Mr. Madoff leaves his wife, Ruth; his brother, Peter; his sister, Sondra M. Wiener; and several grandchildren.

He leaves nothing of his former wealth behind. As part of its criminal case, the government sought more than $170 billion in forfeited assets, a figure that apparently includes all the money that moved through Madoff bank accounts — for whatever purpose — during the years of the fraud.

Both Madoff’s lawyers and the court-appointed trustee liquidating his firm said that the forfeiture amount included money flowing into the legitimate business operations of the firm and the billions paid out to investors as part of the Ponzi scheme. The actual cash losses from his fraud, not counting fictional profits, were most recently estimated at between $17 billion and $20 billion — one of the largest financial frauds on record, and certainly the largest Ponzi scheme ever.

Through the bankruptcy process, some victims were able to recover all or part of the cash principal they invested with Mr. Madoff. Irving Picard, the court appointed trustee who has spent the past decade trying to recoup most of the money for investors, has to date recovered $14.4 billion from lawsuits and settlements — roughly covering all the money investors gave to the swindler. The recovered sums, of course, do not make up for the billions investors thought they had made over the years investing with Mr. Madoff.