Madoff's operations 'just one big lie'

Bernard Madoff is charged with running a "giant Ponzi scheme" which lost investors up to £33 billion in what could be one of the largest fraud schemes in Wall Street history.

The former chairman of New York's Nasdaq stock exchange, who presented himself as a champion of transparency and integrity, told his employees that his operations were "all just one big lie", according to court documents.

The criminal investigation will also throw the spotlight on high-profile fraud cases as President George Bush and his aides consider whether to commute the six-and-a-half year sentence of Lord Black of Crossharbour for his role in a multi-million dollar fraud scheme.

A Ponzi scheme is a fraudulent investment vehicle which pays very high returns to existing investors which are paid for by money put into the scheme by newcomers.

Mr Madoff, an influential investor whose self-named securities firm cut a high profile in Wall Street circles, reported gains of roughly 1% a month for two decades in a scheme that sounded too good to be true - and was.

Investors, many of whom were Mr Madoff's friends, neighbours and country club investors, described a word-of-mouth allure with one after another recommending him as a sure thing, someone who took on new clients only reluctantly and as a favour.

They told how they never questioned his strategy as they were part of an exclusive invite-only club, which appeared difficult to join and which kept on posting profits.

Mr Madoff combined this exclusivity with secrecy and a reputation for throwing investors who asked too many questions out of his club - all of which helped him to evade the US federal regulators who will now come under intense scrutiny themselves.

Jake Walthour, a principal at the hedge fund consulting firm Aksia LLC, said his firm was hired to investigate Mr Madoff's business dealings by a potential investor several years ago.

The probe raised several red flags, he said.

Mr Madoff's returns were "abnormally smooth" from month to month and had none of the volatility usually associated with stock investments.

It also seemed impossible to replicate his investment strategy or verify his track record.

Mr Madoff claimed to be moving as much as 13 billion dollars (£8.5 billion) in and out of the market every month but "no one on the street could verify it or even see his footprints," Mr Walthour said.

"That organisation was incredibly secretive.

"We decided there are several scenarios here, one of which is: This could be a Ponzi scheme. None of our clients invested."

Mr Madoff issued only simple paper reports to investors, not detailed electronic data streams that indicate how investments are doing.

There were few if any outsiders involved in his business and his auditor was a tiny accounting firm in Rockland County, New York, that no one had ever heard of before.

Joyce Greenberg, a philanthropist and retired financial adviser in Texas, said her family began investing money with Mr Madoff in the 1970s after being introduced by a stepbrother who knew him from college.

She stayed with him after her husband, the Houston entrepreneur Jacob Greenberg, died in 1987, partly because Mr Madoff had been with them for so long, but mostly because he kept posting profits.

Like other investors, she said she never questioned his strategy.

"I hate computers, and I never tried to figure out what he was doing because the bookkeeping all added up," Ms Greenberg said.

She said she was still trying to figure out how much of her money was gone.

Investor Lawrence Velvel, dean of the Massachusetts School of Law, said he was introduced to Mr Madoff by a friend whose late mother began investing with him decades ago.

"I was told there was a small number of people who practically begged him to let them keep their money with him," Mr Velvel said.

"Older people living off their savings. These kinds of people and others practically begged him."

Travel
travel
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Jamie and Emily Pharro discovering their friend's prank
video
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Sport
Manchester United are believed to have made a £15m bid for Marcos Rojo
sportWinger Nani returns to Lisbon for a season-long loan as part of deal
News
news
News
i100
Arts and Entertainment
O'Toole as Cornelius Gallus in ‘Katherine of Alexandria’
filmSadly though, the Lawrence of Arabia star is not around to lend his own critique
Life and Style
fashion
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Senior Project Manager

£60000 - £90000 per annum + Bonus: Harrington Starr: Global leading Energy Tra...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Oil & Energy Business Anaylst

£45000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Harrington Sta...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment