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Bernie Madoff’s House Of Lies

From humble beginnings as a lifeguard to a storied investment leader on Wall Street, Bernard (Bernie) L. Madoff has seen and done it all. Or, so he thought. Following Madoff’s arrest by federal agents last week for running a giant Ponzi scheme and losing at least $50 billion of his clients’ money, the next stop for the now-infamous hedge fund manager may be jail.

According to the criminal complaint, Madoff revealed his bogus investing business to his sons on Dec. 10. The two men, Andrew and Mark Madoff, then contacted their lawyer, as well as federal authorities. It was later revealed that Madoff apparently had been running the scheme since at least 2005, and only recently did problems surface when he became unable to meet redemption requests from clients for some $7 billion.

A Ponzi scheme is coined after Charles Ponzi, an Italian immigrant who swindled investors out of millions of dollars in the 1920s through a modern-day pyramid scheme in which early investors are paid with money from newer investors.

Madoff’s rise to Wall Street fame began innocently enough. He opened his investment firm in 1960, with $5,000 he had saved from working as a lifeguard during the summer. His star continued to rise over the next half century; his positions of authority included chief of the Securities Industry Association’s trading committee, vice chairman of the National Association of Securities Dealers and a member of the Nasdaq Stock Market’s Board of Governors and its Executive Committee.

To no one’s surprise, Madoff also did exceedingly well in his personal life, amassing a multimillion-dollar fortune that included mansions in New York and Palm Beach, as well as a 55-foot yacht ironically named “Bull.”

Prior to Madoff’s Dec. 11 arrest, there apparently had been several warning signs over the “fiscal soundness” of Madoff’s managed funds. Competing hedge fund managers had long questioned how Madoff was able to consistently generate exceedingly high returns year and year, while investors themselves regularly claimed that the account statements Madoff provided were too complex for them to understand.

Meanwhile, the SEC itself appears to have been asleep at the wheel regarding Madoff and the inner-workings of his so-called investment business. Nine years ago, the agency received a letter from Boston financier Harry Markopolos, who at the time warned that Madoff’s firm was the world’s largest Ponzi scheme. Markopolos went on to conduct his own investigation, turning his findings, which apparently were largely ignored by the SEC, over to agency’s New York and Boston bureaus.

Now the SEC’s inaction during the past nine years may well have shattered the last remaining remnants of investor confidence. As for Madoff, when FBI agents went to his Manhattan home at 8:30 a.m. Thursday morning to make their arrest, they asked if he had an innocent explanation for what had happened, according to statements provided in the criminal complaint. Madoff, dressed in a blue bathrobe and slippers, simply said: “There is no innocent explanation.”

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

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