Who is Mr.Madoff?

Recently, many would have heard about the Madoff scandal which amounted to $50 billion. This would not have timed better, especially during this turbulent times. But, this scandal cannot be exposed when the money is flowing regularly, so is the nature/model of the scandal.

Bernard Madoff is a former chairman of NASDAQ stock exchange and founder of a wall-street based investment firm Bernard L. Madoff Investment Securities LLC. Madoff roped in investors to his firm, citing the regular strategy of investing in stocks and indexes. Madoff firm’s was able to give consistent returns (rather than voluminous profits) that made investors to think it as a safe investment. Investors include major European banks, celebrities and independent firms. Everything was going fine until the suspicion rose to its peak, when he paid his investors with consistent profit, even during the year 2008, when the markets were bleeding. So investigators started drilling him and that’s when they uncovered a historic scandal in the financial Industry.

So what is the scandal?

His strategy/scandal is something similar to Ponzi Scheme. A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. Madoff tweaked the Ponzi scheme to suit the securities sector. When an investor pays money to Madoff to invest in certain stocks, he will use the investor’s money to buy shares under his firm’s name. If the stock fails miserably, he will show them as a loss to investor. In case, the investor requires money and demands Madoff, he will use other investor’s money to pay him. Although, he will manipulate the customer’s report to disguise that the stock are invested under their name.
This scandal will not be exposed unless the investment is less than the payments demanded by the clients. Moreover, he maintained his investment strategy as a secret and would not divulge it. Investors did not care much, as they got the required money whenever demanded. But the light was heavy on him and he looked odd, when his investors got consistent profit at the time of market going south. This led to investigation, arrests etc..

Analysts are unable to predict on when exactly Madoff started to adopt this scandalous scheme. There are speculations that he was too good with the profits in the early days, that he don’t want to loose down and it’s when he started to manipulate the money flow.


This scandal was not exactly unnoticed. According to NY times, Mr. Markopolos wrote to US Security Exchange commission (SEC) that “Madoff Securities is the world’s largest Ponzi Scheme.” SEC’s cursory investigation pronounced him free of fraud. Thought, now SEC defends that, its primary role is to protect investors and not regulation.

By the way, Ponzi scheme is something you can vaguely relate to Multi-level marketing!

Read the Economist article