‘Bernie! Bernie! He’s our man, if he can’t do it, no-one can!’ But in the end the former lifeguard turned ‘investment broker to the right kind of people’ couldn’t even save himself. Perched on the upper floors of the Lipstick Building in Midtown Manhattan, Madoff, the son of a Polish plumber-turned-stockbroker from the outer reaches of the borough of Queens, built a revered reputation as the reigning wizard of investment. With year-after-year return rates of 10 to 12 per cent (sometimes soaring to 22 per cent) there were a lot of satisfied customers. It didn’t matter what the markets did, Bernie delivered the goods. The rich and famous bowed and scraped to have Madoff take care of their ill-gotten gains. Slum landlords and sweatshop owners in the rag trade joined Hollywood celebrities and pro-Israel charities as star clients. Major banks, like Spain’s Santander and the Anglo-Chinese HSBC Bank, added heft and respectability to the client list. Even hedge funds were impressed, with two of the biggest – Man Group and Clermont – getting in on the action. All sounded too good to be true? It was.
Madoff’s magical investment system – a flurry of periodic instant trades of futures, currencies and stocks guaranteed to produce quick ‘no risk’ profits – was all just a myth. In fact, what the Madoff organization did with all that money was pretty straightforward: what they did not spend they simply deposited in a business account in the Chase Manhattan Bank. As word of Madoff’s financial acumen grew, investment funds continued to pour in and statements were duly issued claiming returns that did not exist. The trick was a balancing act between paying off those who wanted to see some of their returns and ensuring that enough new money was coming in to cover the losses. This is called a Ponzi scheme, named after the early 20th century Italian-American swindler, Charles Ponzi. Madoff, having swindled $50-65 billion, is secure as the holder of the Guinness World Record for the biggest such scandal in financial history.
