10 Questions
In what year did the Madoff scandal break?
2008
Who turned Bernie Madoff in to the F.B.I.?
His sons
What kind of people were affected by the scandal?
A wide range of people, including philanthropists, country club members, and retirees
What is the title of Diana B. Henriques' book about Bernie Madoff?
The Wizard of Lies
When did Bernie Madoff start his career on Wall Street?
Early 1960s
What was the initial attraction of Madoff's investment scheme?
High returns with low risk
Why did Madoff start fudging the numbers in his investment reports?
To hide losses and recoup them later
What was the nature of Madoff's investment operation?
A Ponzi scheme
Why did Madoff build a fake investment operation?
To convince investors of his legitimacy
What was the key to the survival of Madoff's Ponzi scheme?
Constant growth
Study Notes
Madoff Scandal Overview
- The Madoff scandal broke in December 2008, shocking the public with the largest swindle in history.
- The scandal involved a wide range of victims, including Jewish philanthropists, wealthy individuals, and even figures from the Russian mafia and Colombian drug cartels.
Bernie Madoff's Background
- Bernie Madoff started on Wall Street in the early 1960s, building a successful broker-dealer firm.
- He began managing money for friends and family, achieving good but not spectacular results, never losing money (or so it seemed).
- His investment strategy involved using options to hedge portfolios, but remained mysterious to outsiders.
The Ponzi Scheme
- At some point, Madoff started fudging numbers to cover losses, eventually stopping investments and using new client money to pay off older clients.
- The scheme relied on exponential growth, and any slowdown or leveling off would have threatened the entire operation.
Investigation and Exposure
- Diana B. Henriques, a senior financial writer for The New York Times, has been reporting on Madoff and has unique insights into the fraud mechanics.
- Henriques' book "The Wizard of Lies" provides significant detail on the scandal, including Madoff's attempts to fool investors and regulators.
- Madoff's own sons turned him in to the FBI, adding a family tragedy dimension to the scandal.
Madoff's Scheme Mechanics
- Madoff created a fake investment operation with traders at fake terminals, bogus paper trails, and accounting reports to deceive investors and regulators.
- The scheme came close to collapsing on several occasions, highlighting the fragility of Ponzi schemes.
Learn about the Bernie Madoff Ponzi scheme, the largest swindle in history, and its impact on real people and institutions.
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