Bernie Madoff and the Biggest National Investment Fraud

One man about escaped from one of the biggest bank schemes in the world totaling a cash amount of $13.375 billion dollars (SIPA). The name, Bernie Madoff, was one of the most talked about person during 2008 to 2009. He was arrested in late 2008 just on, “a criminal complaint alleging one count of securities fraud” (The United States Department of Justice). Although this at first seemed like it would be tax evasion or stealing a sum of money from just one customer, it turned into many account owners coming forward making statement about how they had something happen to their accounts as well. Bernie Madoff was involved in a Ponzi scheme which is a fraudulent money transfer system where customers invest money and instead of them gaining a profit, the people who originally invested gain their investment as a profit. Bernie Madoff started as an honest investment consultant, but later on had decided to get involved with a dishonest way of investing.

Bernie Madoff started off not being as interested in financial services or wanting to work with his parents in pursuing a job in the investment business they had developed. Later on after graduating in 1960 with a bachelor’s degree in political science, he had decided to open an investment firm, also known as Bernard L. Madoff Investment Security, LLC (Biography.com Editors). He could not do this task alone and had to get some assistance from his in-laws as well as from money that he had saved up over the span of his schooling and side jobs throughout the summer. Not only did he get money from his in-laws, but his father in-law had taken the liberty of gaining a position in his business since he was a former CPA (Certified Public Accountant). The editors at Biography.com explain how influential the business was stating, “the business attracted investors through word of mouth and amassed an impressive client list, including celebrities such as Steven Spielberg, Kevin Bacon and Kyra Sedgwick” (Biography.com Editors). It is quite intriguing seeing how fast word can travel between individuals when a company goes from being a small investment firm to one of the biggest talked about companies in America. Since Steven Spielberg is such a well known director it is even more confusing as to why Bernie Madoff would gain the attention of him and his financial opportunities. Another aspect of Bernie Madoff’s life I cannot comprehend is how he graduated with a bachelor’s degree in political science but decided to make an investment firm afterwards. Also, his in-laws took a huge leap of faith in giving him, “an additional $50,000 borrowed from his in-laws” (Biography.com Editors). From my personal experiences with borrowing money from family, I do not think I would have the courage to ask for thousands of dollars to make an investment firm that I would not have any knowledge about.

As Madoff’s business gained popularity, it starts to raise some questions as to how it is so profitable to be a customer in it. According to a biography, Madoff was known for having a reliable annual return of 10%, also trading within the 5% of the NYSE (New York Stock Exchange) (Biography.com Editors). The mass amount of returns and business his firm collected can become very intriguing to the government. The more business the company had attained, the more he started to involve his family into his firm. As the popularity grew, Madoff started to get involved in fraudulent activity. “Around the early 1990s, he stopped trading and started fabricating returns” (Volker). Whenever a person lies about what they actually make in a business, this becomes an issue within government and taxing the correct amount of money. One felony, false statements, can put a person in jail for quite some time if convicted. A sentence of 5 years is common among this certain law according to Title 18 United States Code, Section 1001. Cornell Law School describes breaking this law if a person, “falsifies, conceals, or covers up by any trick, scheme, or device a material fact” (Cornell). Another issue with falsifying a statement could be that a customer who is working with the financial agency does not know where there true money or profit is standing at. Intentionally stealing a person’s money is legally and morally wrong. The section also states that: administrative matters, including a claim for payment, a matter related to the procurement of property or services, personnel or employment practices, or support services, or a document required by law, rule, or regulation to be submitted to the Congress or any office or officer within the legislative branch… (Cornell).

As listed in law, all employment practices and/or administrative matter must be kept correctly on file. If a person were to change that information, they would be lying to the government. This would cause issues with taxation of the company as well as making sure the customers get their share of their financial gains.

On December 11, 2008 Bernie Madoff was arrested for fraud within his business. The first count he was arrested for was security fraud. It is thought that Madoff had started in this scheme as early as 1980 till 2008 (United States District Court 1). The scheme involved Madoff redistributing the customer’s investments towards his personal endeavors. This was not with just a simple thousand dollar, rather, he had stolen billions of dollars. Not only were the companies investments sent to his personal endeavors, they were also sent to his close family, workers in his business, and others he closely worked with. As also stated by the United States District Court, “In connection with this Ponzi scheme, BERNARD L.MADOFF, the defendant, accepted billions of dollars of investor money, cumulatively, from individual investors, charitable organizations, trusts, pension funds, and hedge funds, among others, and established on their behalf thousands of accounts at BLMIS” (United States District Court 6). I was well aware that Madoff had stolen from customers within his business but I did not know he had profited from charities as well. This explains how Madoff was able to gain so much wealth in an estimated 20 year span. He had notified investors that the money he had received was going to be used for common stock. The common stock would have came from the S&P Pool. Along with common stock, he had also promised individuals that he would use the rest of the percentage in hedge funds, limiting losses (United States District Court 9). Although hedge stocks do limit the risk of loss, they can also take quite some time to see a profit. Common stock usually has more risk compared to hedge funds since a person’s investment depends solely on the company they had purchased stock in. If a person were to invest in Apple, and their stock goes from a price of $200 to $100 in a week, they could have the potential of losing their money if they sell the stock that day. However, if they were to keep that money in the company and the company were to profit later on within the year, they could still gain a profit but end up having time wasted waiting on the stock to profit. All of the fraudulent acts that Madoff had used were also reinstated for his second felony charge, investment advisor fraud.

Madoff was also charged with mail and wire fraud. He was charged with this because he knowing and willingly sent false statements (Felony #1). Bernard Madoff was charged for a felony for, “...obtaining money and property by means of false and fraudulent pretenses, representations, and promises, for the purpose of executing such scheme and artifice and attempting so to do, did place in post offices and authorized depositories for mail matter, matters and things to be sent and delivered by the Postal Service…” (United States District Court 10). This had surprised me that he was accused of mail fraud because I had thought that this law was only for people who were tampering with other individual’s mail or packages. Since he had falsified documents and willingly sent them through a postal service, charges for his acts have been placed. He not only sent falsified statements for customers who used his services but also lied on the BLMIS (Bernard L. Madoff Investment Securities) account statement for a client in New York, New York (United States District Court 10). As the felony charges for Madoff are being stacked up, wire fraud is found among the abundance of felony charges he was accused of. He commited wire fraud by, “means of false and fraudulent pretenses, representations and promises, did transmit and cause to be transmitted by means of wire and radio communication in interstate and foreign commerce, writings, signs, signals, pictures, and sounds” (United States District Court 11). Wire fraud can be when someone calls a bank to get a customers money or setting up an unlawful scheme/act. Wire fraud can happen in many ways. It can also happen if a person describes a scheme and tries to lure people into it by calling them via telecommunications such as on a cell phone. It was also confirmed that Bernie Madoff had wired $2 million dollars from Minnesota to New York from investor funds (United States District Court 11). Money can be wired through a medium such as a credit union where all a customer would have to do is send money to a person’s account assuming that their money would be used for investments or the intent they thought it was being used for.

Along with these charges, Madoff was charged with three different types of money laundering charges as listed: International Money Laundering To Promote Specified Unlawful Activity, International Money Laundering To Conceal And Disguise The Proceeds of Specified Unlawful Activity, and Money Laundering. Madoff had knowingly wired money from his firm to his other firm which was located in London under the company called Madoff Securities International (MSIL). He would then transfer his funds that he received in his overseas account(s) back to his company in New York (United States District Court 12-13). Even though he had transferred this money overseas to make sure his money did not look dirty as his profits increased, he made a worse mistake and had sent that money from his international account back to his U.S account. This had caused the U.S government to be curious as to how his company profited so well. Madoff attempted to conceal and disguise the proceeds from the specified unlawful activity by:

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From at least in or about 2002, through on or about December 11, 2008, MADOFF caused funds to be wire transferred from BLMIS bank accounts in New York, New York, including the BLMIS Investor Account, to the MSIL Accounts in London, England, in the United Kingdom, and thereafter to be transferred from the MSIL Accounts in the United Kingdom to purchase and maintain property and services for the personal use and benefit of MADOFF, his family members and associates (United States District Court 14-15).

Both of the practices Madoff used to money launder would also fall under the felony of money laundering. In order to have a financial gain, Madoff had tried to gain a profit from using customer finances, intended for investments, be sent to his international business and then sent back disguised as a profit he would have made from his international business.

The next two felony charges that Bernie Madoff was charged with was false statements and perjury. False statements were being made by himself as well as his company in his elaborate Ponzi scheme. According to the court case, “On or about January 7, 2008, BERNARD L. MADOFF, the defendant, filed and caused to be filed an ADV with the SEC (the 'BLMIS ADV'). The BLMIS ADV was signed by MADOFF, who certified, under penalty of perjury under the laws of the United States, that the information and statements made therein were true and correct, and that he was signing the BLMIS ADV as a free and voluntary act” (United States District Court 16). The SEC was examining his business and had sent documents to Mr. Madoff notifying him that he is not to lie about any information of his company and sign that if he were to lie there would be consequences. On account of signing the form knowing he would be tried for perjury under U.S law, he was accused of perjury as another felony charge. Perjury is when a person claims that they are telling the truth through a statement under, oathe or documentation, but in reality they are lying (England). Following Madoff falsifying documents and lying under oath, the felony charges are stacking upon each other. It seems as if when Madoff is being charged with one felony, another one seems to follow the past charge. Also, I would have that that the false statements charge would have been the same as his first charge which was security fraud. Although the charges seem similar, there is a difference. False statements could be anything from falsifying tax documents to lying to a consumer about how much money they actually profited. Security fraud would be knowing and willingly stealing a consumer’s investment by leading them on to believe false information the investor has told the client. The two charges are closely connected because most of the time when someone commits security fraud, they are probably going to falsify some sort of official document in order to hide their crime.

Count ten of Bernie’s charges is false filing with the Securities and Exchange Commision (SEC). Madoff’s goal of hiding his Ponzi scheme not only digs him a deeper hole than he can climb out of, but it makes him lie more and more. He was already too deep into his scheme that if he were to tell the truth to a judge and go to court pleading guilty, he would have received the same sentence as he would currently. Bernie Madoff unwillingly and unlawfully sent applications, reports, and documents that the SEC would posses and later review and analyze with a close eye. Not only did the laws/regulations of the SEC state that he could not lie within the documents, but he could be reprimanded for breaking the laws listed by the SEC (United States District Court 21-22).

The last felony charge Madoff received was theft from an employee benefit plan. This charge can commonly be found with embezzlement crimes such as taking money from retirement plans/401K. Madoff had: embezzled, stole, abstracted and converted to his own use, and to the use of others, moneys, funds, securities, premiums, credits, properties, and other assets of employee welfare benefit plans and employee pension benefit plans and funds connected therewith, to wit, on or about September 24, 2008, MADOFF failed to invest as promised approximately $10 million in pension fund assets sent to BLMIS by a master trust on behalf of approximately 35 labor union pension plans, and instead converted those funds to his use and the use of others (United States District Court 22).

Morally, it is wrong for someone to steal from someone, whether it be from your family or friends. It is unimaginable to know that someone had not only falsified everything his business, but to steal employees within his business taking away money from their retirement plans and pensions.

After all of the felony counts were listed, the United States proceeded to freeze all of his assets and any property he was able to purchase with the money he had made from the scheme. Forfeiting these previous purchases was provided as a consequence from the following counts: Count One, Three, Four, and Eleven (United States District Court 23).