Bernie Madoff Ponzi Scheme

Bernard Lawrence “Bernie” Madoff’s massive Ponzi scheme defrauded investors from $65 billion U.S. with a promised return of 10%+ per year. At the time of his death, he was serving a 150-year prison term in federal prison for his offenses related to his Ponzi scheme. Bernie Madoff died in prison on April 14, 2021, at the age of 82.

Ponzi Particulars 

  • Theme: Bernard L. Madoff Investment Securities LLC, stock options strategy 
  • Fraud:$65 billion US 
  • Promised Return: 10%+ per year 
  • Investors defrauded: 2,500+ 
  • Date discovered: 2008 
  • Where: New York, New York 
  • Prison sentence: 150 years

Early Life and Education

Bernard Lawrence Madoff was born on April 29, 1938, in Queens, New York City. His father, Ralph Madoff, was a stockbroker and plumber, and his mother, Sylvia Muntner, was a housewife. His family is Jewish, and his grandparents came to America from Poland, Romania, and Austria. Sondra Weiner and Peter Madoff are his two siblings. 

He attended the University of Alabama after graduating from Far Rockaway High School in 1956. He joined the Tau Chapter of the Sigma Alpha Mu fraternity at Alabama, but only stayed for a year before transferring to Hofstra University in Hempstead, New York. In 1960, he earned a Bachelor of Arts in political science from Hofstra University. He briefly attended Brooklyn Law School before leaving to start his own Wall Street firm, Bernard L. Madoff Investment Securities LLC.

Early Career

Bernard L. Madoff Investment Securities LLC was founded by Madoff in 1960. He began as a penny stock trader, using $5,000 (roughly $43,000 today) of his own money saved from odd jobs—he had previously worked as a lifeguard and sprinkler installer. He expanded the business with the assistance of his father-in-law, accountant Saul Alpern. Alpern not only referred clients to Madoff, but also loaned him $50,000.

Investment Scandal and Crime

Madoff is well-known for committing the largest investment fraud in US history. According to CNBC, his admitted Ponzi scheme defrauded 37,000 people in 136 countries out of up to $65 billion over four decades. According to CNBC, Madoff stated that the fraud did not begin until the early 1990s, when the Great Recession made it impossible for the investor to make up the funds he lost.

The Players

Madoff claimed to have carried out his Ponzi scheme completely unaided. He might have wanted to shield his family (and more importantly, the family assets), but his attempt to protect others probably came with an ulterior motive. Maybe he hoped certain individuals would funnel funds back to his family after hearing of the seized assets. 

Despite Madoff’s initial claims, we now have confirmation that he received help from others, notably people in his accounting department. In fact, it was truly a team effort, with secrets passed on to replacement staff as people retired. 

Irwin Lipkin, Madoff’s very first employee, was hired in 1964 as a financial controller. He retired in 1998, but prior to that had falsified records. He also testified that Madoff continued to pay him for several years after he retired. 

Enrica Cotellessa-Pitz, who replaced Lipkin upon his retirement, admitted to falsifying accounting records and financial statements. Coincidentally, she also oversaw the company’s anti-money laundering program. Cotellessa-Pitz started working for Madoff’s firm thirty years ago, and admitted to altering records after she assumed the controller position. 

David Kugel, a supervisor in the firm’s proprietary trading area, helped create fictitious backdated trades by supplying historical prices to two other employees. These were then used as backup to the fabricated trades. 

Craig Kugel, David’s son, also worked at Madoff’s firm in human resources. While he wasn’t directly involved in the Ponzi scheme, he participated in other fraudulent activities, including paying people not actively working at the company and falsifying U.S. Labor department filings. He also charged personal expenses on his company credit card. 

Eric Lipkin, son of Irwin Lipkin, joined his father at Madoff’s firm and also falsified records. They also profited from working for Madoff, earning generous salaries, and holding investment accounts at the firm where they withdrew more money than they put in. 

Peter Madoff, his brother, was the firm’s Chief Compliance Officer. Peter’s daughter also served as Compliance Officer. Madoff’s two sons, Mark and Andrew, also worked at the firm, though both denied any knowledge of the fraud. Eldest son Mark committed suicide after the Ponzi scheme was exposed. 

Marion Madoff, Peter Madoff’s wife, had a “no show” job at the company. Despite not working at Madoff Securities LLC, she was paid an annual salary of $163,500. While many company owners do pay spouses a salary in perhaps questionable circumstances, Peter was not a part owner of his brother’s business. He was merely one of his brother’s highly paid and underqualified employees, albeit one that actually showed up at the office.

The Scheme

Madoff’s superior returns were the stuff of legend, and almost everyone wanted into his exclusive funds. His fund had consistently averaged a 12% return annually for decades. This result was remarkable, given several very sharp market corrections over the years his firm had been in operation. 

Madoff claimed to use a strategy called a split-strike conversion, also known as a collar. This strategy employs stock options to limit both the losses and the gains for an investment in a particular stock. A stock option is a bet on an underlying stock, giving you the right to buy or sell a stock at a particular price that may be higher or lower than the stock’s current trading price. A call option gives you the right to buy a stock. If the stock is trading higher than the call option’s exercise price, the call option becomes more valuable. 

In reality, instead of investing his clients’ money, Madoff simply deposited it in a Chase bank account and then paid off new customers with money from previous customers, according to CNBC. He forwarded to his clients falsified account statements claiming aggregate returns of up to $50 billion. According to CNBC, no trading occurred, and investors, including celebrities such as Steven Spielberg, Kevin Bacon, Fred Wilpon, Sandy Koufax, and Elie Weisel, lost millions.


Madoff’s scheme began to unravel in the first week of December 2008, when he needed $7 billion to make redemption payments to his investors. His usual mode of operation was to deposit funds from investors into his business account and withdraw funds from that same account when investors requested redemptions. His problem was that he only had $234 million in his account in late November, which was far insufficient to cover all of the outstanding redemptions he owed people. According to an FBI report, once Madoff realized he wouldn’t be able to pay off everything, he told his sons and brother about the Ponzi scheme in December 2008.

On December 10, 2008, Madoff’s sons told authorities that their father had admitted to them that his firm’s asset management unit was a massive Ponzi scheme, and they quoted Madoff as saying it was “one big lie.” The next day, FBI agents arrested and charged Madoff with securities fraud. The Securities and Exchange Commission (SEC) of the United States had previously investigated Madoff’s business practices but had not discovered this massive fraud at the time. 

Actually, a financial analyst named Harry Markopolos attempted to notify the SEC about possible fraudulent activity at Madoff’s firm. He had calculated that Madoff’s numbers were incorrect and suspected that the high returns he claimed to be capable of delivering were in fact false. He documents his ten-year effort to get the government, financial industry, and press to understand the fraud Madoff was committing in his 2010 book, “No One Would Listen” (co-authored with Gaytri Kachroo). Many others in the Wall Street trading industry were also concerned about Madoff. None of the major financial institutions invested with Madoff.


Madoff pleaded guilty to 11 federal felonies on March 12, 2009, and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors out of billions of dollars. Madoff claimed he started the Ponzi scheme in the early 1990s, but federal investigators believe the fraud started as early as the mid-1980s and may have started as early as the 1970s. 

It was estimated that approximately $65 billion was missing from client accounts, including fabricated gains. On June 29, 2009, Madoff was sentenced to the maximum allowed sentence of 150 years in prison. His release date was set for November 14, 2139.

The Aftermath

Madoff was sentenced to 150 years in federal prison for his Ponzi scheme. He was ordered to pay restitution of $170 billion.

Following allegations that the financial institution had failed to maintain adequate controls, JPMorgan Chase paid $2.6 billion to the US government and Madoff’s victims in 2014. Charges, however, were dropped, according to CNBC.

According to CNBC, Irving H. Picard, a trustee appointed to recover a portion of the funds, reached settlements with the estates of Madoff’s sons and had recovered more than $14 billion for investors as of last year, or approximately 75 cents on the dollar.

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