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Breaking News Initiative: Revisiting the Largest Ponzi Scheme in History

Ryan Ruddock, Illicit Finance & Economic Threats

DATE April 16, 2021


Bernie Madoff: A Legacy of Fraud and Deception[1]

Location: Federal Medical Center, Butner, North Carolina, USA

Time: Unknown at Time of Report

Parties Involved: Bernie Madoff; Securities and Exchange Commission (SEC); US Senate Committee on Banking, Housing, and Urban Affairs; Gary Gensler; US President Joseph Biden


Event Summary:


On Wednesday, April 14, 2021, former investment manager, Bernie Madoff, died at the age of 82 from natural causes at the Federal Medical Center in Butner, North Carolina, USA. At the time of death, Madoff had been serving a 150-year sentence for committing the largest Ponzi Scheme in history.[2] A Ponzi Scheme is a type of financial crime that uses the investment money from one person to secretly pay another person’s investment return or profit. Madoff’s ability to engender trust and confidence resulted in his illicit acquisition of $20 Billion in assets from clients including retirees, pension funds, and individuals from varying socioeconomic backgrounds.[3] Amid the 2008 Recession, with financial markets in disarray and investors wary of losing money, Madoff’s Ponzi Scheme collapsed.


Recommendations:


In the aftermath of Madoff’s arrest, the SEC implemented a series of reforms that included improving auditing procedures, increasing investigative resources, improving internal controls, investing in additional staff, and specialized training.[4] While these reforms may have patched intelligence gaps, ethics experts have suggested that the scale and success of Madoff’s Ponzi scheme had more to do with a lack of enforcement, rather than a lack of rules.[5] The Counterterrorism Group (CTG) recommends the US Senate Committee on Banking, Housing, and Urban Affairs to continue to closely liaise and supervise the SEC in regards to their post-Madoff policy initiatives. Experts have claimed that “the SEC’s enforcement budget has not grown in proportion to the size and growth of the market,” [6] which suggests that individuals with similar aspirations to Madoff may be able to commit financial crimes. Since budgetary constraints are highly likely to impede the SEC in its duties, CTG recommends Gary Gensler, the chair of the SEC, to request President Joseph Biden, the Senate Banking Committee, and other policymakers to increase the SEC’s budget. The SEC should provide more analytical intelligence products which document ongoing and potential threats that may adversely affect Americans. Those products are highly likely to convey the severity of threats, which may compel policymakers to increase the SEC’s budget.

[1] "BernardMadoff" by U.S. Department of Justice, licensed under Public Domain

[2] Bernie Madoff, mastermind of largest Ponzi scheme in history, dies at 82, NBC News, April 2021, https://www.nbcnews.com/news/us-news/bernie-madoff-mastermind-behind-largest-ponzi-scheme-history-dies-82-n11398

[3] Bernie Madoff scam still cuts Lehigh Valley victims, The Morning Call, April 2021, https://www.mcall.com/news/local/mc-nws-bernie-madoff-lehigh-valley-20210414-4no2hibamjbxdc6xjxku2bza34-story.htm

[4] Madoff exploited weak oversight, but did regulators learn their lesson?, NBC News, April 2021, https://www.nbcnews.com/business/business-news/madoff-exploited-weak-oversight-did-regulators-learn-their-lesson-n1264094

[5] Ibid.

[6] Ibid.

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