After the collapse of Lehman Brothers, and in the midst of a crisis, the last thing the US financial sector needed was another scandal. But six years ago today, that’s exactly what they got, when billionaire financier Bernard ‘Bernie’ Madoff was arrested in New York City.
Madoff was charged with masterminding a long-standing Ponzi scheme, which at its peak, was worth around $65bn, and is thought to be the largest financial fraud in US history.
The scam hit the headlines after its widespread effects were seen. Hedge funds, banks, universities, as well as personal friends of Madoff were affected. Numerous celebrities were found to have lost substantial sums of money. Among those to lose were actors Kevin Bacon and John Malkovich, as well as Steven Spielberg, whose Wunderkinder charitable foundation lost a significant portion of its value thanks to Madoff.
Madoff was born in Queens, New York in 1938, and founded Bernard L Madoff Investment Securities in 1960. The firm began trading penny stocks using around $5,000 that Madoff had earned doing casual work as a sprinkler fitter and lifeguard.
His firm became highly successful, which allowed Madoff to launch an investment advisory arm within the business. By the end of the 1990s, the Ponzi scheme – in which investors are paid returns from the investments of other investors, rather than any real profits – had become extremely lucrative, and new investors clamoured to be involved.
Eventually, the scam was exposed, when during the financial crisis clients in Madoff’s firm began withdrawing money faster than he could bring in new funds. In December 2010, Madoff was forced to admit to his sons and brother (all of whom worked for the legitimate arm of Bernard L Madoff Investment Securities) that he was running a Ponzi scheme.
His sons immediately turned their father in to the authorities, who arrested him the next day. Madoff was tried, and, in early 2009, he pleaded guilty to all 11 charges brought against him. In June that year he was sentenced to 150 years in prison. He is currently incarcerated in the Butner Federal Correctional Complex in North Carolina.