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The Monster Of Wall Street
The story of Bernie Madoff's ruthless scam.
I just finished watching The Monster Of WallStreet, an excellent multi-part Netflix documentary which tells the story of Bernie Madoff’s historic ponzi scheme scam which brought so many to financial ruin. If like me you never really knew the details of this epic tale of corruption, here’s your chance to get the story.
Let’s start with the trailer for the Netflix series.
If you’d prefer not to invest hours in watching the full documentary, here’s a review of what happened.
The story starts by telling us that Madoff’s father was a small time businessman whose projects never seemed to work out. Madoff entered adulthood determined to not repeat his father’s failures.
The Legal Operation
Madoff started with nothing, and eventually built a very successful, entirely legal, securities trading company which at one point was processing about 10% of all the transactions on Wall Street. He was a well respected member of the financial community that many admired and looked up to. Madoff had made it big, really big, and lived large in a luxury lifestyle.
The Scam Operation
Madoff ran his successful legal business from the 19th floor of the Lipstick Building in New York City. Two floors down on the 17th floor of the same building Madoff had a different crew of employees helping him run his ponzi scheme.
The scam was remarkably simple. Madoff built a network of family, friends and other contacts who trusted Madoff to manage their investments. He would take their money, and never invest it anywhere. He’d just keep the money.
The employees for Madoff’s scam operation would produce fake paperwork showing that those investing with Madoff were supposedly consistently making reliably high returns, year after year after year. There was never a bad year in the fantasy world that Madoff created.
Like the world class con man that he was, Madoff cleverly created an atmosphere of an exclusive club that only special people were allowed to benefit from. Like any skilled scammer, Madoff blinded his victims with their own greed.
Where Are The Cops?
One of the most fascinating themes of this story is how _spectacularly_ incompetent the government’s financial regulators were. This is what allowed the scam to go on for so long, grow so large, and suck in so many innocent victims.
At one point an outraged outside expert figured out that Madoff couldn’t possibly be generating his reported profits by legal means, and he presented the Securities Exchange Commission with a extremely detailed report laying out all the red flags that should be alerting regulators to Madoff’s illegal operation.
The expert adamantly presented his analysis to the SEC repeatedly, over and over again for a period of years, and every time they blew him off. They just couldn’t believe that such a respected Wall Street player like Madoff would be running a ponzi scheme. To the SEC, this sounded as silly as someone claiming that President Obama was stealing from the petty cash drawer at the White House.
When the SEC did finally get around to investigating Madoff’s operation they sent over two just out of college junior analysts to go up against an experienced Wall Street legend. Madoff managed to divert these junior SEC employees, because he knew more about what was happening at the SEC than they did.
And then, my favorite part of Madoff’s act. This guy had balls of steel.
Madoff was smart enough to not act like a guilty party who has something to hide. Instead, he cheerfully walks in to the SEC offices alone, without any attorneys or staff, and volunteers to answer any questions the SEC may have, because supposedly he is such a friendly cooperative guy etc.
The SEC staff ask for the number to Madoff’s bank account so that they can see his transactions for themselves. Madoff says, “Ok, sure, no problem”, and writes his real bank account number down on a piece of paper, and pushes it across the table with a big smile.
If the SEC had looked at the bank account that they asked for, Madoff’s lies would have been immediately apparent and the SEC would have had all the evidence they needed to convict Madoff of major financial crimes. But they never looked at the bank account they had asked to see. And so Madoff’s scam continued for even more years, sucking in ever more victims.
The Crash Of 2008
The government didn’t catch Madoff, and given their long record of inexcusable bumbling, probably never would have. What brought Madoff down was the financial crash of 2008.
In 2008 all of sudden investors everywhere were in a full blown panic and trying to cash out their investments. Madoff’s operation was overwhelmed with a tidal wave of requests from his clients wanting to sell their investments, and Madoff didn’t have enough cash on hand to meet the demand. It was like a bank run where all the bank’s customers show up at once trying to close their accounts.
The Crash Of Madoff
The game was up, and Madoff knew it.
Madoff pulled his sons aside to warn them of what was coming. His sons weren’t involved in the scam, and knew nothing about it, but they did run Madoff’s legitimate company. Madoff’s sons turned him in to the FBI because if they hadn’t done so they would have become part of the scam, and targets of investigation.
And it all goes downhill from there for the Madoff family.
Bernie Madoff was convicted and given a 150 year prison sentence. He spent the next decade or so in prison, where he died.
Madoff’s sons were not charged by the government, but the press and public were unforgiving and hounded them both mercilessly. One of Madoff’s sons committed suicide on the 2nd anniversary of the collapse of Madoff’s empire, and the other son died of cancer a few year later.
Madoff’s wife was also not charged, but the government took all of her assets, and she was last seen living out of her car. She has known Madoff since she was 13, he was her life. Madoff had taken his wife to the very top of society, and then to the very bottom too.
The government did manage to recover a substantial percentage of the money Madoff had stolen, but still many entirely innocent people were ruined when they lost their life’s savings in the scam.
A Shakespearean Morality Tale
This is such a classic tale of the dangers of greed that the story should be in the Bible.
Madoff was very smart. He had a successful Wall Street business. He was very wealthy from his legal operations alone, and could afford any lifestyle of his choosing.
But that just wasn’t enough for Bernie Madoff.
And so the ambitious young man determined not to repeat his father’s failures grew up to be an old man who repeated his father’s failures on a grand scale his father could have never imagined.
Today Bernie Madoff’s ashes sit in an urn on a shelf in his lawyer’s office.
Madoff’s ashes now reside in his lawyer’s office, because nobody among Madoff’s family, friends, or anybody else, was willing to take possession of what little remains of Bernie Madoff.
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