3 Thoughts on the Madoff Fraud

Here’s a recap of the Madoff case, from the Wall Street Journal:

Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called “a giant Ponzi scheme.”

The Securities and Exchange Commission, in a civil complaint, said it was an ongoing $50 billion swindle, and asked a judge to seize the firm and its assets. “Our complaint alleges a stunning fraud that appears to be of epic proportions,” said Andrew M. Calamari, associate director of enforcement in the SEC’s New York office.

In a separate criminal complaint, Federal Bureau of Investigation agent Theodore Cacioppi said Mr. Madoff’s investment advisory business had “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.”

Clusterstock has a pretty comprehensive list of Madoff’s victims. The case is still unfolding, but it’s big. Huge. More massive than Enron.

Not again. Three prominent things came to mind for me:

1. Wikipedia:

He has been active in the National Association of Securities Dealers (NASD), a self-regulatory organization for the U.S. securities industry. His firm was one of the five most active firms in the development of the NASDAQ, and he served as its chairman of the board of directors, and on its board of governors.

No wonder regulators didn’t catch him earlier in his scheme. He was one of their own.

2. The criminal complaint alleges that investors lost $50 billion because of the scheme.
He was charged with a single count of securities fraud. Madoff was released on the same day of his arrest after posting $10 million bail.

I feel sorry for the people whose $10 million he used to get himself out of jail.

3. He provided impossibly steady returns, but people kept investing with him anyway.

This gives insight into the nature of greed. Greed isn’t just limited to “I can get more? Great! Sign me up.” Greed is your friends calling you up and telling you that you have to put your money in a certain fund. Greed is knowing that it’s too good to be true, but thinking that fate will exempt you from consequences. Greed is thinking you have an inroad to privileged returns, without stopping to ponder where those returns are actually coming from. Greed goes hand-in-hand with ignorance and laziness. It’s culturally embedded.

No wonder so many people were misled.

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Written by Drea Knufken

Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.