M. was born in New York to a Jewish family. He is married to Ruth Madoff and has two sons, Mark and Andrew. He owns an ocean-front residence in Montauk since 1981; his primary residence, valued at more than $5 million, is on Manhattan's Upper East Side. He is listed as chairman of his Upper East Side building's co-op board. He also owns a home in France and a $9.3 million mansion in Palm Beach, Florida on the Intercoastal Waterway just north of Flagler Memorial Bridge. He is a member of the Palm Beach Country Club and owns a 55-foot (17 m) fishing boat named "Bull."

M. started his firm in 1960 with an initial investment of $5,000 that he said was earned from working as a lifeguard and installing sprinklers. At first, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange, the firm began to use information technology to disseminate its quotes. After a trial run, the technology the firm helped develop became the NASDAQ. 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. 

M.'s firm was the first prominent practitioner of "paying for order flow," in other words paying a broker to execute a customer's order through M., which has been called a "legal kickback." Using this method, the firm became the largest dealer in NYSE-listed stocks in the U.S., trading about 15% of transaction volume in these stocks. M. viewed the payments as a normal business practice, "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated." Academics have questioned the ethics of these payments. M. has argued that these payments did not alter the price that the customer received.

He brought several relatives into his business. His brother, Peter, was a senior managing director. Both of M.’s sons, Mark and Andrew, joined the team after finishing their education. Charles Weiner, a son of M.’s sister, also joined the firm, and Peter Madoff’s daughter, Shana, took a job with the company as a lawyer. His sons were apparently unaware of the imminent insolvency of Madoff Investment Securities. According to the authorities, the sons confronted their father, asking him how the firm could pay bonuses if it could not pay investors, prompting M.'s admission that he was finished, after which they reported him to the authorities.  

M. served as the Chairman of the Board of Directors of the Sy Syms School of Business at Yeshiva University, as well as Treasurer of its Board of Trustees. He resigned his position at Yeshiva University after his arrest. M. also serves on the Board of New York City Center and is a member of New York City's Cultural Institutions Group (CIG). He also did charity work for the Gift of Life Bone Marrow Foundation, and ran a $19 million private foundation that donated money to hospitals and theaters. M. has also contributed to many Jewish educational, cultural, and health charities. He was also a major contributor to the Democratic party.

M. worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach. He counted many prominent Jewish executives and organizations - Jeffrey Katzenberg, Eliot Spitzer, Yeshiva University, the Elie Wiesel Foundation, and charities set up by the publisher Mortimer Zuckerman and Hollywood film director Steven Spielberg. Among one of the most prominent Jewish promoters was J. Ezra Merkin, whose fund Ascot Partners steered $1.8 billion USD towards M.'s firm.

Fairfield Greenwich Group, based in Greenwich, Connecticut, whose Fairfield Sentry fund was one of several so-called feeder funds that gave foreign investors portals to M.. Fairfield in turn setup further feeder funds such as Lion Fairfield Capital Management in Singapore and Stellar US Absolute Return, all ultimately conduits to M., having directed a total of $7 billion USD. Several investors say M.'s main go-between in Palm Beach was Robert Jaffe. Mr. Jaffe is the son-in-law of Carl Shapiro, the founder and former chairman of apparel company Kay Windsor Inc. and an early investor and close friend of M. Jaffe attracted many investors from the Palm Beach Country Club.

The large sovereign wealth fund Abu Dhabi Investment Authority also indirectly invested $400 million USD with M.. M. also promoted in Asia, most recently targeting China, though by that time, he was advertising to anyone with money (contrary to his initial strategy when he handpicked investors). Many M. salesman were well-dressed, multilingual sales representatives in the financial capitals of Europe. M.'s fund was also considered exclusive, as he was initially very selective of which investors to take on, which is atypical of most ponzi schemes who welcomed anyone with wealth. M. had a remarkable track record of success year after year. Moderately-high consistent returns was a key factor in the perpetuation of his fraud for decades; other ponzi schemes paid out higher returns in the neighborhood of at least 20 percent and ended quickly collapsing. A hedge fund run by M., which described its strategy as focused on shares in the Standard & Poor's 100-stock index, averaged a 10.5 percent annual return over the past 17 years. Through November 2008, amid a general market collapse, the fund reported that it was up 5.6 percent year to date, while the year-to-date total return on the S&P 500-stock index had been a negative 38 percent. One investor said “The returns were just amazing and we trusted this guy for decades — if you wanted to take money out, you always got your check in a few days. That’s why we were all so stunned.”

The operation was conducted out of the floors 17 to 19 of the Lipstick Building, with 18 and 19 used for administration and stock-trading. The core of the business, the hedging, was taking place on the 17th floor, which was occupied by no more than 24 employees.

Outside analysts raised concerns with M.'s firm for years. Financial analyst Harry Markopolos complained to the SEC's Boston office in May 1999 telling the SEC staff they should investigate M. because it was impossible for the kind of profit M. claimed to have been made legally. Among the suspicious signs were the fact that M.'s company avoided filing disclosures of its holdings with the SEC by selling its holdings for cash at the end of each period. Such a tactic is highly unusual. M.'s use of a small auditing firm, Friehling & Horowitz, which has only one active accountant, is also highly unusual. Friehling & Horowitz has reported since 1993, in writing, to the American Institute of Certified Public Accountants that it doesn't conduct audits. David Friehling is a member of board of directors of Jewish Community Center of Rockland; President Elect of Rockland Chapter of New York State Society of CPAs.

While hedge funds typically hold their portfolio at a securities firm that acts as the fund's prime broker (typically a major bank or brokerage), allowing an outside investigator to verify their holdings, M.'s firm was its own broker-dealer and supposedly processed all its trades. Although M. was a pioneer of electronic trading, he refused to provide his clients online access to their accounts. He sent out accounting statements by mail, whereas most hedge funds email statements and allowed them to be downloaded via computer for easier analysis by investors. 

Improbably steady investment returns despite exceedingly volatile markets was another red flag. The SEC conducted two inquiries of M. in the last several years and did not find major problems. An SEC statement detailed that inspectors examined M.'s brokerage operation in 2005, finding three violations of rules requiring brokers to obtain the best possible price for customer orders, while in 2007, SEC enforcement staff completed an investigation and did not refer the matter to the SEC commissioners for legal action. 

M. also operated as a broker dealer with an asset management division. Early indications that M. may have been in trouble emerged in 2007. The scheme began to unravel when, in 2008, clients wanted to withdraw $7 billion from the firm and M. was struggling to raise $7 billion to cover redemptions. On December 10, 2008, he suggested to his sons that the firm pay out several million dollars in bonuses two months ahead of schedule. Then at his apartment, he admitted to his sons that his firm was a fraud. M. was arrested by the FBI on December 11, 2008 on criminal charges of securities fraud, turned in by his sons after he allegedly told them that his business was a giant ponzi scheme. The criminal complaint alleges that investors lost $50 billion because of the scheme. He was charged with a single count of securities fraud. M. was released on the same day of his arrest after posting $10 million bail. He faces up to 20 years in prison and a fine of $5 million if convicted. Bernard and Ruth M. have surrendered their passports, and Bernard is subject to travel restrictions, a 7 p.m. curfew at his co-op, and electronic monitoring as a condition of bail. Individual investors have filed civil suits against M. 

Some leaders in the Jewish community are expressing shock and anger at the role played by J. Ezra Merkin, a prominent investment guru who appears to have misled at least some investors. Merkin informed investors in his $1.8 billion Ascot Partners fund on Dec. 11 that he was among those who suffered substantial personal losses when it crashed, since all of its dollars were invested with M.. But while he has portrayed himself as a victim, Merkin is being criticized as having misled institutional and personal investors, including those wary of M.'s secretive and suspiciously successful earnings streak. Several people said that while they were reluctant to invest with M., they trusted Merkin completely, not knowing that he in turn was taking their investment in his Ascot Partners and putting it into M.'s fund. 

The victims of M.'s fraud have been exploring the possibility of recovering at least some of their investments. One legal option available is the use of the doctrine known as fraudulent conveyance. With this option, investors who withdrew their money long before the fraud was revealed, may be forced to return their profits or even part of their initial investments. The current statute of limitations on cases involving fraudulent conveyance is six years. This means that clients who withdrew their investments from M.'s firm more than six years ago would not be subject to any bankruptcy proceedings. Clients who withdrew their funds less than six years ago may be liable to bankruptcy proceedings and may have to return some or all of their investments.

Investors may also have access to funds from the Securities Investor Protection Corporation(SIPC), which offers assistance to investors of failed brokerage firms. Investors may receive a maximum of $500,000. However, it could take several years before investigations into the scandal are concluded. Only then will investors be able to file claims for restitution. Additionally, victims have filed suit to have taxes, already paid on fictitious income, restored to them.

The investors with the largest potential losses include:

* Fairfield Greenwich Advisors, $7.50 billion
* Tremont Capital Management, $3.30 billion
* Banco Santander, $2.87 billion
* Bank Medici, $2.10 billion
* Ascot Partners, $1.80 billion
* Access International Advisors, $1.40 billion
* Fortis, $1.35 billion
* Union Bancaire Privée, $1.00 billion
* HSBC, $1.00 billion

The potential losses for these nine investors total $22.32 billion. Other investors, with potential losses between $100 million and $1 billion include Natixis SA, Carl J. Shapiro, Royal Bank of Scotland Group PLC, BNP Paribas, BBVA, Man Group PLC, Reichmuth & Co., Nomura Holdings, Aozora Bank, Maxam Capital Management, EIM SA, and AXA SA. The potential losses for these investors total $4.02 billion. Twenty-three investors with potential losses of $500,000 to $100 million were also listed, with total potential losses of $540 million. They included Bramdean Alternatives run by Nicola Horlick, for example. The grand total potential losses is $26.9 billion.

Jewish charities and foundations which invested through Madoff were also hard-hit. These include: The Carl and Ruth Shapiro Family Foundation ($145 million invested), Yeshiva University ($100-$110 million), the Elie Wiesel Foundation ($37 million), The Jewish Federation of Greater Washington ($10 million), the Ramaz School ($6 million), North Shore-Long Island Jewish Health System ($5.7 million), and the SAR Academy ($3.7 million).

Letzte Änderung / Last update: 20.12.2008 

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