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Episode
167

Bernie Madoff: The Man Who Stole $65 Billion

Jun 15, 2021
Business
-
20
minutes
Fraud
Finance
Business
Wall Street
True crime
USA

He is, by many people's standards, the biggest fraudster in the world, responsible for the theft of $65 billion.

In this episode, we'll discover what he did, how he did it, and ask ourselves if we will ever know why.

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[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:22] I'm Alastair Budge and today is part three of our three-part mini-series on great American business frauds.

[00:00:31] In part one we learned about Enron, the energy company that spectacularly collapsed and ended in lengthy jail sentences for its top executives.

[00:00:42] Then in part two, it was on to Theranos, the blood testing company started by the Stanford dropout that promised to revolutionise healthcare, but turned out to be a huge fraud.

[00:00:57] And in part three, the last part of this mini-series, it is on to the biggest crook of them all, the biggest criminal of them all, Bernie Madoff, the man who stole, or lost, $65 billion dollars, and was sentenced to 150 years in prison.

[00:01:17] You might also notice that before this mini-series there was an episode on WeWork, which was another company that collapsed spectacularly, but it wasn’t really a fraud, it was more a case of everyone getting caught up by a charismatic leader, and some bad decisions being made. 

[00:01:37] But you can think of that one as a warm-up for this mini-series.

[00:01:43] OK then, without further ado, let’s learn about why a judge thought it necessary to sentence a 71 year old man to 150 years in prison.

[00:01:56] Bernard Lawrence Madoff, otherwise known as Bernie Madoff, grew up in Queens, New York City. 

[00:02:03] He was the son of Jewish immigrants, and his family came from Poland, Romania, and Austria.

[00:02:11] He didn’t grow up poor, but from a young age seemed to be motivated by making something of himself, by proving that he was worth something.

[00:02:22] A large part of this motivation is thought to have come from proving to his girlfriend’s father that he was good enough for her.

[00:02:32] He had met Ruth Alpern, who was later to become Ruth Madoff, his wife, while they were teenagers in high school. Her father was a wealthy accountant, and the young Bernie wanted to prove that he was worthy of his daughter.

[00:02:49] He did seem to have a knack for, a talent for, making money.

[00:02:55] He started his first business with savings from summer jobs, and by the early 1960s, when he was in his late 20s, he was starting to make a name for himself on Wall Street.

[00:03:09] His business, Bernard L. Madoff Investment Securities, was involved with trading what’s called ‘over the counter’ stocks, shares in companies that are not listed on a public exchange.

[00:03:24] The 1960s was boomtime for these kinds of stocks, and Madoff started to taste some early success. 

[00:03:34] His company would make a little bit of money every time one of these stocks was bought or sold, and as the market grew, so did Madoff’s company.

[00:03:45] By the 1980s he was one of the highest paid people on Wall Street, and his company was reportedly responsible for trading around 5% of all of the over the counter stocks at the time. 

[00:03:59] He was a very wealthy, respected financier, and had developed a reputation as a king of Wall Street.

[00:04:08] So, where did things start to go wrong?

[00:04:13] Alongside Madoff’s main trading business, Bernie Madoff had another business, where he would manage people’s money.

[00:04:21] If you had a chunk of money, perhaps retirement savings if you were an individual, or your store of donations if you were a charity, Bernie Madoff would invest it on your behalf.

[00:04:36] Because Madoff was considered to be such a financial expert, because he was so good at picking stocks, he would be able to deliver you a good return on your money, normally between 12 and 15% a year.

[00:04:51] So, if you had a million dollars invested with Madoff, the next year he might have made you $120,00, and so on.

[00:05:00] There are two important things to note about Madoff’s business.

[00:05:05] The first one was that the returns that he delivered investors were not huge, they were consistent, they were reliable

[00:05:15] There were other companies, especially in the boom years of the 1990s, who might be able to deliver 20 to 40% returns, making you much more money, but this was a lot more risky. 

[00:05:30] Bernie Madoff made you just enough money for it to be attractive, but not too much so that it was risky, or too good to be true.

[00:05:41] The idea behind putting your money with Madoff was that it was a safe bet, that you knew Bernie would look after it, and you knew you would make a good but not incredible return every single year, come rain or shine.

[00:05:57] The second point is that in the early days Bernie Madoff never advertised or promoted this service anywhere. 

[00:06:06] Indeed, to the general public, there was no option to invest with Bernie Madoff.

[00:06:13] You had to be invited by someone, you had to be vouched for by them, you had to have a connection to someone who could put in a good word, and only then would you be able to give money to Bernie Madoff to manage.

[00:06:28] Initially, the money almost exclusively came from the Jewish community in New York. 

[00:06:35] Bernie was Jewish, as was his wife, and he allowed several Jewish charities and wealthy Jewish families to invest with him. In return, they would recommend Bernie to their friends, saying “Let me see if I can find a way to get you in”, and the fund grew and grew.

[00:06:56] Unlike some other funds, which needed to advertise to find investors, the way Bernie Madoff positioned his fund was that he was almost doing you a favour by allowing you to invest in it.

[00:07:12] And for years, the fund delivered healthy returns. 

[00:07:16] If you invested your money with Bernie Madoff, every year you would make more money, you would be sent statements showing the shares that Madoff had bought on your behalf, and you would see that you now had more money than you did a year ago.

[00:07:32] If you needed to take out some money, to buy a house, for a child’s college education, or for whatever reason, you could just request it, and your money would be returned.

[00:07:46] To the outside world, Bernie Madoff was an excellent custodian of people’s money. 

[00:07:52] He would make you money every single year, without fail, and if you needed to take out any money, he would return it to you promptly.

[00:08:02] But beneath the surface, it was all a huge lie. 

[00:08:07] It was what’s called a Ponzi scheme.

[00:08:11] Madoff wasn’t investing the money anywhere, he kept it all in a large bank account at JP Morgan Chase, a large New York bank.

[00:08:21] These returns that he showed investors, the returns that he was supposedly delivering every year, were fake. 

[00:08:30] He would send investors statements showing the shares that the fund had bought and sold, but the reality was that they hadn’t bought or sold anything.

[00:08:41] When writing these reports, he would look back at the share prices from a few days before, then choose the shares that had increased in price, and say that he had bought those ones.

[00:08:55] If investors wanted to take out their money, this wasn’t a problem for Madoff, because he would just take this money out of the bank account.

[00:09:04] As long as there was more money coming in, in the form of new investors, than was going out, the going was good, the fraud could continue. 

[00:09:15] But it couldn’t continue forever. 

[00:09:17] Nobody knows exactly when Madoff started it, but it is thought that it could have been as early as the 1980s. 

[00:09:27] He had been promising 12-15% returns every single year, and, given the power of compound interest, 12-15% a year for 30 years means that the amounts that investors believed that Madoff had for them were significantly larger than the cash that was actually in the bank.

[00:09:51] Madoff had to start finding more investors, and after initially being an exclusive investment opportunity for the Jewish community in New York, he began accepting anyone. 

[00:10:04] Large institutional funds invested, and money flooded in from all over the world: Abu Dhabi, Switzerland, China, everywhere.

[00:10:14] Throughout the 1980s, 1990s, and most of the 2000s, the going had been good for Bernie Madoff. 

[00:10:21] He had all of the trappings of a New York financier.

[00:10:25] The penthouse, the yachts, the expensive cars, clothes, holiday houses in the most desirable locations. He was a great philanthropist, he was on the board of several charities, and was a large donor to the Democratic party.

[00:10:41] All he needed to do was to keep enough money in the fund so that people wouldn’t realise it was a fraud, so they wouldn't realise it was a Ponzi scheme.

[00:10:51] When the times were good, when the stock market was healthy, this wasn’t a problem.

[00:10:56] But in the late 2000s there was an event that Madoff had not prepared for.

[00:11:02] The subprime mortgage crisis that started in 2007, and peaked in autumn of 2008, saw share prices drop dramatically, and investors panicked.

[00:11:15] Madoff’s investors trusted Madoff, but they didn’t trust the stock market. 

[00:11:21] They wanted their money out, and called up Madoff to ask for their money back.

[00:11:28] The problem was, there was no money, or at least there wasn’t nearly as much money as Madoff had said there was.

[00:11:35] For several weeks, Madoff spent every waking minute trying to find new investors, trying to find new suckers to invest money in his fund, with which he could pay back the people who had asked for their money back.

[00:11:51] His bank account, which at one point that year contained $5 billion, was down to a mere $234 million. With furious investors demanding their money back, Madoff had no choice.

[00:12:06] The game was up.

[00:12:09] On the evening of December 10th 2008, just under three months after the collapse of Lehman Brothers, Bernie Madoff asked his two adult sons to follow him to his apartment.

[00:12:23] And it was there that he confessed that it was, and I’m quoting, “one big lie”.

[00:12:30] Madoff’s sons were appalled

[00:12:32] They worked with their father, but in the legal trading part of the business.

[00:12:38] They had no idea that the man they had looked up to, the man who was a king of Wall Street, was the city’s biggest fraudster.

[00:12:48] The next day they called up a lawyer, and they reported their father’s crimes to the police. 

[00:12:55] Bernie Madoff was arrested in his penthouse apartment, the king of finance brought to his knees and his true self revealed to the world.

[00:13:06] As investigations continued, the true extent of the fraud started to be uncovered.

[00:13:13] It’s still not completely clear exactly how much was stolen, and there are disagreements about how to calculate it. 

[00:13:22] The highest number, which is $65 billion, factors in the ‘fake returns’ that Madoff had promised. 

[00:13:31] There are lower numbers, of between $10 and $17 billion, which just take into account the cash that was invested and not returned.

[00:13:41] As is the nature of a Ponzi scheme, not everyone lost money with Bernie Madoff. If you put money in early on, and withdrew it before it collapsed, you would have made a very nice return, around 12-15% a year. 

[00:13:58] It was only really the people who still had money with Madoff at the end who lost their money.

[00:14:05] But, of course, this was no consolation for those that lost money. 

[00:14:10] For many, they had trusted Madoff with their life savings, their inheritance, their children’s college funds. 

[00:14:18] For charities, Madoff had lost millions of dollars in donations.

[00:14:24] And, from some of the interviews of burnt investors, one of the worst things was the sense of betrayal

[00:14:33] Not only did they feel betrayed by a man they trusted, but for many of them they had also recommended Bernie Madoff to friends and family, who had also invested money and lost it all with them. 

[00:14:48] When he stood trial, a year later, Madoff pleaded guilty, and said he was solely responsible for the fraud. 

[00:14:56] He was 71 years old at the time, not a young man by any means. And the judge decided to make an example of him, to show that although this might have been a white collar crime, and Madoff didn’t physically injure anyone, it was an incredibly serious crime nonetheless.

[00:15:16] Madoff was sentenced to 150 years in prison, to never see the light of day again.

[00:15:23] And although listening to this story you might not have a huge amount of sympathy for Bernie Madoff the man, the Madoff family has suffered great tragedy since then.

[00:15:34] Both Madoff’s sons are now dead. 

[00:15:37] The older son, Mark, killed himself on the second anniversary of his father’s arrest. He said that he could not live with the shame.

[00:15:47] And Madoff’s younger son, Andrew, died of cancer in 2014. He had beaten cancer back in 2003, but said that the stress of his father’s crimes caused the cancer to return, and that was what killed him.

[00:16:04] Now, the question you might have about Bernie Madoff is...why?

[00:16:09] He was a very rich man, he had a successful business, and he didn’t need to commit this huge fraud

[00:16:17] Why did he do it?

[00:16:20] Madoff died earlier this year, in April 2021, and took his secret to the grave with him. 

[00:16:27] So we can only hazard a guess.

[00:16:30] It seems that Madoff hated the idea of letting people down, of disappointing them. 

[00:16:36] He had reportedly lost a little bit of money for investors in the 1960s, and had disguised this loss, he had hidden this loss by adding new client money. 

[00:16:49] Perhaps, he realised that this was a relatively easy thing to do, it was easier than having to provide someone with bad news, and so he continued.

[00:16:59] And then he continued and continued, it got too big to control, the power of compound interest meant that he couldn’t stop, and so he had to continue.

[00:17:10] He wasn’t engaging in the fraud to subsidise his lifestyle. 

[00:17:14] Unlike some other notorious fraudsters, Bernie wasn’t stealing this money and using it for himself. 

[00:17:21] Yes he had a luxurious lifestyle, but he could have had that anyway. 

[00:17:27] Indeed, even Bernie Madoff doesn’t seem to have really known why he did it. 

[00:17:34] During his trial he said, “I am responsible for a great deal of suffering and pain, I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created. I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren.”

[00:17:54] He might have accepted some kind of responsibility, but he never really explained why he did it.

[00:18:02] Of course, that is not really any consolation to the thousands of people who lost their life savings with Bernie Madoff, but there is perhaps some consolation in knowing that things finally caught up with him.

[00:18:16] The only truthful thing that Bernie Madoff seems to have said, is what he told his two sons on the night of his confession.

[00:18:24] “It was all one big lie”.

[00:18:28] OK then, that is it for today’s episode on Bernie Madoff, the man who stole $65 billion.

[00:18:37] And with that comes the end of this three-part mini-series on Great American business frauds

[00:18:45] As a reminder, part one was on The Enron Scandal, part two was on Theranos, and we had a related episode, a part zero if you like, on WeWork. 

[00:18:56] If there’s one moral of these stories, it’s that fraud doesn’t pay, and that if something sounds too good to be true, it probably is.

[00:19:05] As always, I would love to know what you thought of this episode, and of this mini-series. 

[00:19:11] Which of these frauds did you know about? Are there similar stories in your country? Of the crimes of Enron, Theranos, and Bernie Madoff, how would you think about them differently?

[00:19:24] Let’s get the discussion started. You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:19:36] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:19:41] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.


[END OF EPISODE]


Continue learning

Get immediate access to a more interesting way of improving your English
Become a member
Already a member? Login

[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:22] I'm Alastair Budge and today is part three of our three-part mini-series on great American business frauds.

[00:00:31] In part one we learned about Enron, the energy company that spectacularly collapsed and ended in lengthy jail sentences for its top executives.

[00:00:42] Then in part two, it was on to Theranos, the blood testing company started by the Stanford dropout that promised to revolutionise healthcare, but turned out to be a huge fraud.

[00:00:57] And in part three, the last part of this mini-series, it is on to the biggest crook of them all, the biggest criminal of them all, Bernie Madoff, the man who stole, or lost, $65 billion dollars, and was sentenced to 150 years in prison.

[00:01:17] You might also notice that before this mini-series there was an episode on WeWork, which was another company that collapsed spectacularly, but it wasn’t really a fraud, it was more a case of everyone getting caught up by a charismatic leader, and some bad decisions being made. 

[00:01:37] But you can think of that one as a warm-up for this mini-series.

[00:01:43] OK then, without further ado, let’s learn about why a judge thought it necessary to sentence a 71 year old man to 150 years in prison.

[00:01:56] Bernard Lawrence Madoff, otherwise known as Bernie Madoff, grew up in Queens, New York City. 

[00:02:03] He was the son of Jewish immigrants, and his family came from Poland, Romania, and Austria.

[00:02:11] He didn’t grow up poor, but from a young age seemed to be motivated by making something of himself, by proving that he was worth something.

[00:02:22] A large part of this motivation is thought to have come from proving to his girlfriend’s father that he was good enough for her.

[00:02:32] He had met Ruth Alpern, who was later to become Ruth Madoff, his wife, while they were teenagers in high school. Her father was a wealthy accountant, and the young Bernie wanted to prove that he was worthy of his daughter.

[00:02:49] He did seem to have a knack for, a talent for, making money.

[00:02:55] He started his first business with savings from summer jobs, and by the early 1960s, when he was in his late 20s, he was starting to make a name for himself on Wall Street.

[00:03:09] His business, Bernard L. Madoff Investment Securities, was involved with trading what’s called ‘over the counter’ stocks, shares in companies that are not listed on a public exchange.

[00:03:24] The 1960s was boomtime for these kinds of stocks, and Madoff started to taste some early success. 

[00:03:34] His company would make a little bit of money every time one of these stocks was bought or sold, and as the market grew, so did Madoff’s company.

[00:03:45] By the 1980s he was one of the highest paid people on Wall Street, and his company was reportedly responsible for trading around 5% of all of the over the counter stocks at the time. 

[00:03:59] He was a very wealthy, respected financier, and had developed a reputation as a king of Wall Street.

[00:04:08] So, where did things start to go wrong?

[00:04:13] Alongside Madoff’s main trading business, Bernie Madoff had another business, where he would manage people’s money.

[00:04:21] If you had a chunk of money, perhaps retirement savings if you were an individual, or your store of donations if you were a charity, Bernie Madoff would invest it on your behalf.

[00:04:36] Because Madoff was considered to be such a financial expert, because he was so good at picking stocks, he would be able to deliver you a good return on your money, normally between 12 and 15% a year.

[00:04:51] So, if you had a million dollars invested with Madoff, the next year he might have made you $120,00, and so on.

[00:05:00] There are two important things to note about Madoff’s business.

[00:05:05] The first one was that the returns that he delivered investors were not huge, they were consistent, they were reliable

[00:05:15] There were other companies, especially in the boom years of the 1990s, who might be able to deliver 20 to 40% returns, making you much more money, but this was a lot more risky. 

[00:05:30] Bernie Madoff made you just enough money for it to be attractive, but not too much so that it was risky, or too good to be true.

[00:05:41] The idea behind putting your money with Madoff was that it was a safe bet, that you knew Bernie would look after it, and you knew you would make a good but not incredible return every single year, come rain or shine.

[00:05:57] The second point is that in the early days Bernie Madoff never advertised or promoted this service anywhere. 

[00:06:06] Indeed, to the general public, there was no option to invest with Bernie Madoff.

[00:06:13] You had to be invited by someone, you had to be vouched for by them, you had to have a connection to someone who could put in a good word, and only then would you be able to give money to Bernie Madoff to manage.

[00:06:28] Initially, the money almost exclusively came from the Jewish community in New York. 

[00:06:35] Bernie was Jewish, as was his wife, and he allowed several Jewish charities and wealthy Jewish families to invest with him. In return, they would recommend Bernie to their friends, saying “Let me see if I can find a way to get you in”, and the fund grew and grew.

[00:06:56] Unlike some other funds, which needed to advertise to find investors, the way Bernie Madoff positioned his fund was that he was almost doing you a favour by allowing you to invest in it.

[00:07:12] And for years, the fund delivered healthy returns. 

[00:07:16] If you invested your money with Bernie Madoff, every year you would make more money, you would be sent statements showing the shares that Madoff had bought on your behalf, and you would see that you now had more money than you did a year ago.

[00:07:32] If you needed to take out some money, to buy a house, for a child’s college education, or for whatever reason, you could just request it, and your money would be returned.

[00:07:46] To the outside world, Bernie Madoff was an excellent custodian of people’s money. 

[00:07:52] He would make you money every single year, without fail, and if you needed to take out any money, he would return it to you promptly.

[00:08:02] But beneath the surface, it was all a huge lie. 

[00:08:07] It was what’s called a Ponzi scheme.

[00:08:11] Madoff wasn’t investing the money anywhere, he kept it all in a large bank account at JP Morgan Chase, a large New York bank.

[00:08:21] These returns that he showed investors, the returns that he was supposedly delivering every year, were fake. 

[00:08:30] He would send investors statements showing the shares that the fund had bought and sold, but the reality was that they hadn’t bought or sold anything.

[00:08:41] When writing these reports, he would look back at the share prices from a few days before, then choose the shares that had increased in price, and say that he had bought those ones.

[00:08:55] If investors wanted to take out their money, this wasn’t a problem for Madoff, because he would just take this money out of the bank account.

[00:09:04] As long as there was more money coming in, in the form of new investors, than was going out, the going was good, the fraud could continue. 

[00:09:15] But it couldn’t continue forever. 

[00:09:17] Nobody knows exactly when Madoff started it, but it is thought that it could have been as early as the 1980s. 

[00:09:27] He had been promising 12-15% returns every single year, and, given the power of compound interest, 12-15% a year for 30 years means that the amounts that investors believed that Madoff had for them were significantly larger than the cash that was actually in the bank.

[00:09:51] Madoff had to start finding more investors, and after initially being an exclusive investment opportunity for the Jewish community in New York, he began accepting anyone. 

[00:10:04] Large institutional funds invested, and money flooded in from all over the world: Abu Dhabi, Switzerland, China, everywhere.

[00:10:14] Throughout the 1980s, 1990s, and most of the 2000s, the going had been good for Bernie Madoff. 

[00:10:21] He had all of the trappings of a New York financier.

[00:10:25] The penthouse, the yachts, the expensive cars, clothes, holiday houses in the most desirable locations. He was a great philanthropist, he was on the board of several charities, and was a large donor to the Democratic party.

[00:10:41] All he needed to do was to keep enough money in the fund so that people wouldn’t realise it was a fraud, so they wouldn't realise it was a Ponzi scheme.

[00:10:51] When the times were good, when the stock market was healthy, this wasn’t a problem.

[00:10:56] But in the late 2000s there was an event that Madoff had not prepared for.

[00:11:02] The subprime mortgage crisis that started in 2007, and peaked in autumn of 2008, saw share prices drop dramatically, and investors panicked.

[00:11:15] Madoff’s investors trusted Madoff, but they didn’t trust the stock market. 

[00:11:21] They wanted their money out, and called up Madoff to ask for their money back.

[00:11:28] The problem was, there was no money, or at least there wasn’t nearly as much money as Madoff had said there was.

[00:11:35] For several weeks, Madoff spent every waking minute trying to find new investors, trying to find new suckers to invest money in his fund, with which he could pay back the people who had asked for their money back.

[00:11:51] His bank account, which at one point that year contained $5 billion, was down to a mere $234 million. With furious investors demanding their money back, Madoff had no choice.

[00:12:06] The game was up.

[00:12:09] On the evening of December 10th 2008, just under three months after the collapse of Lehman Brothers, Bernie Madoff asked his two adult sons to follow him to his apartment.

[00:12:23] And it was there that he confessed that it was, and I’m quoting, “one big lie”.

[00:12:30] Madoff’s sons were appalled

[00:12:32] They worked with their father, but in the legal trading part of the business.

[00:12:38] They had no idea that the man they had looked up to, the man who was a king of Wall Street, was the city’s biggest fraudster.

[00:12:48] The next day they called up a lawyer, and they reported their father’s crimes to the police. 

[00:12:55] Bernie Madoff was arrested in his penthouse apartment, the king of finance brought to his knees and his true self revealed to the world.

[00:13:06] As investigations continued, the true extent of the fraud started to be uncovered.

[00:13:13] It’s still not completely clear exactly how much was stolen, and there are disagreements about how to calculate it. 

[00:13:22] The highest number, which is $65 billion, factors in the ‘fake returns’ that Madoff had promised. 

[00:13:31] There are lower numbers, of between $10 and $17 billion, which just take into account the cash that was invested and not returned.

[00:13:41] As is the nature of a Ponzi scheme, not everyone lost money with Bernie Madoff. If you put money in early on, and withdrew it before it collapsed, you would have made a very nice return, around 12-15% a year. 

[00:13:58] It was only really the people who still had money with Madoff at the end who lost their money.

[00:14:05] But, of course, this was no consolation for those that lost money. 

[00:14:10] For many, they had trusted Madoff with their life savings, their inheritance, their children’s college funds. 

[00:14:18] For charities, Madoff had lost millions of dollars in donations.

[00:14:24] And, from some of the interviews of burnt investors, one of the worst things was the sense of betrayal

[00:14:33] Not only did they feel betrayed by a man they trusted, but for many of them they had also recommended Bernie Madoff to friends and family, who had also invested money and lost it all with them. 

[00:14:48] When he stood trial, a year later, Madoff pleaded guilty, and said he was solely responsible for the fraud. 

[00:14:56] He was 71 years old at the time, not a young man by any means. And the judge decided to make an example of him, to show that although this might have been a white collar crime, and Madoff didn’t physically injure anyone, it was an incredibly serious crime nonetheless.

[00:15:16] Madoff was sentenced to 150 years in prison, to never see the light of day again.

[00:15:23] And although listening to this story you might not have a huge amount of sympathy for Bernie Madoff the man, the Madoff family has suffered great tragedy since then.

[00:15:34] Both Madoff’s sons are now dead. 

[00:15:37] The older son, Mark, killed himself on the second anniversary of his father’s arrest. He said that he could not live with the shame.

[00:15:47] And Madoff’s younger son, Andrew, died of cancer in 2014. He had beaten cancer back in 2003, but said that the stress of his father’s crimes caused the cancer to return, and that was what killed him.

[00:16:04] Now, the question you might have about Bernie Madoff is...why?

[00:16:09] He was a very rich man, he had a successful business, and he didn’t need to commit this huge fraud

[00:16:17] Why did he do it?

[00:16:20] Madoff died earlier this year, in April 2021, and took his secret to the grave with him. 

[00:16:27] So we can only hazard a guess.

[00:16:30] It seems that Madoff hated the idea of letting people down, of disappointing them. 

[00:16:36] He had reportedly lost a little bit of money for investors in the 1960s, and had disguised this loss, he had hidden this loss by adding new client money. 

[00:16:49] Perhaps, he realised that this was a relatively easy thing to do, it was easier than having to provide someone with bad news, and so he continued.

[00:16:59] And then he continued and continued, it got too big to control, the power of compound interest meant that he couldn’t stop, and so he had to continue.

[00:17:10] He wasn’t engaging in the fraud to subsidise his lifestyle. 

[00:17:14] Unlike some other notorious fraudsters, Bernie wasn’t stealing this money and using it for himself. 

[00:17:21] Yes he had a luxurious lifestyle, but he could have had that anyway. 

[00:17:27] Indeed, even Bernie Madoff doesn’t seem to have really known why he did it. 

[00:17:34] During his trial he said, “I am responsible for a great deal of suffering and pain, I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created. I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren.”

[00:17:54] He might have accepted some kind of responsibility, but he never really explained why he did it.

[00:18:02] Of course, that is not really any consolation to the thousands of people who lost their life savings with Bernie Madoff, but there is perhaps some consolation in knowing that things finally caught up with him.

[00:18:16] The only truthful thing that Bernie Madoff seems to have said, is what he told his two sons on the night of his confession.

[00:18:24] “It was all one big lie”.

[00:18:28] OK then, that is it for today’s episode on Bernie Madoff, the man who stole $65 billion.

[00:18:37] And with that comes the end of this three-part mini-series on Great American business frauds

[00:18:45] As a reminder, part one was on The Enron Scandal, part two was on Theranos, and we had a related episode, a part zero if you like, on WeWork. 

[00:18:56] If there’s one moral of these stories, it’s that fraud doesn’t pay, and that if something sounds too good to be true, it probably is.

[00:19:05] As always, I would love to know what you thought of this episode, and of this mini-series. 

[00:19:11] Which of these frauds did you know about? Are there similar stories in your country? Of the crimes of Enron, Theranos, and Bernie Madoff, how would you think about them differently?

[00:19:24] Let’s get the discussion started. You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:19:36] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:19:41] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.


[END OF EPISODE]


[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:22] I'm Alastair Budge and today is part three of our three-part mini-series on great American business frauds.

[00:00:31] In part one we learned about Enron, the energy company that spectacularly collapsed and ended in lengthy jail sentences for its top executives.

[00:00:42] Then in part two, it was on to Theranos, the blood testing company started by the Stanford dropout that promised to revolutionise healthcare, but turned out to be a huge fraud.

[00:00:57] And in part three, the last part of this mini-series, it is on to the biggest crook of them all, the biggest criminal of them all, Bernie Madoff, the man who stole, or lost, $65 billion dollars, and was sentenced to 150 years in prison.

[00:01:17] You might also notice that before this mini-series there was an episode on WeWork, which was another company that collapsed spectacularly, but it wasn’t really a fraud, it was more a case of everyone getting caught up by a charismatic leader, and some bad decisions being made. 

[00:01:37] But you can think of that one as a warm-up for this mini-series.

[00:01:43] OK then, without further ado, let’s learn about why a judge thought it necessary to sentence a 71 year old man to 150 years in prison.

[00:01:56] Bernard Lawrence Madoff, otherwise known as Bernie Madoff, grew up in Queens, New York City. 

[00:02:03] He was the son of Jewish immigrants, and his family came from Poland, Romania, and Austria.

[00:02:11] He didn’t grow up poor, but from a young age seemed to be motivated by making something of himself, by proving that he was worth something.

[00:02:22] A large part of this motivation is thought to have come from proving to his girlfriend’s father that he was good enough for her.

[00:02:32] He had met Ruth Alpern, who was later to become Ruth Madoff, his wife, while they were teenagers in high school. Her father was a wealthy accountant, and the young Bernie wanted to prove that he was worthy of his daughter.

[00:02:49] He did seem to have a knack for, a talent for, making money.

[00:02:55] He started his first business with savings from summer jobs, and by the early 1960s, when he was in his late 20s, he was starting to make a name for himself on Wall Street.

[00:03:09] His business, Bernard L. Madoff Investment Securities, was involved with trading what’s called ‘over the counter’ stocks, shares in companies that are not listed on a public exchange.

[00:03:24] The 1960s was boomtime for these kinds of stocks, and Madoff started to taste some early success. 

[00:03:34] His company would make a little bit of money every time one of these stocks was bought or sold, and as the market grew, so did Madoff’s company.

[00:03:45] By the 1980s he was one of the highest paid people on Wall Street, and his company was reportedly responsible for trading around 5% of all of the over the counter stocks at the time. 

[00:03:59] He was a very wealthy, respected financier, and had developed a reputation as a king of Wall Street.

[00:04:08] So, where did things start to go wrong?

[00:04:13] Alongside Madoff’s main trading business, Bernie Madoff had another business, where he would manage people’s money.

[00:04:21] If you had a chunk of money, perhaps retirement savings if you were an individual, or your store of donations if you were a charity, Bernie Madoff would invest it on your behalf.

[00:04:36] Because Madoff was considered to be such a financial expert, because he was so good at picking stocks, he would be able to deliver you a good return on your money, normally between 12 and 15% a year.

[00:04:51] So, if you had a million dollars invested with Madoff, the next year he might have made you $120,00, and so on.

[00:05:00] There are two important things to note about Madoff’s business.

[00:05:05] The first one was that the returns that he delivered investors were not huge, they were consistent, they were reliable

[00:05:15] There were other companies, especially in the boom years of the 1990s, who might be able to deliver 20 to 40% returns, making you much more money, but this was a lot more risky. 

[00:05:30] Bernie Madoff made you just enough money for it to be attractive, but not too much so that it was risky, or too good to be true.

[00:05:41] The idea behind putting your money with Madoff was that it was a safe bet, that you knew Bernie would look after it, and you knew you would make a good but not incredible return every single year, come rain or shine.

[00:05:57] The second point is that in the early days Bernie Madoff never advertised or promoted this service anywhere. 

[00:06:06] Indeed, to the general public, there was no option to invest with Bernie Madoff.

[00:06:13] You had to be invited by someone, you had to be vouched for by them, you had to have a connection to someone who could put in a good word, and only then would you be able to give money to Bernie Madoff to manage.

[00:06:28] Initially, the money almost exclusively came from the Jewish community in New York. 

[00:06:35] Bernie was Jewish, as was his wife, and he allowed several Jewish charities and wealthy Jewish families to invest with him. In return, they would recommend Bernie to their friends, saying “Let me see if I can find a way to get you in”, and the fund grew and grew.

[00:06:56] Unlike some other funds, which needed to advertise to find investors, the way Bernie Madoff positioned his fund was that he was almost doing you a favour by allowing you to invest in it.

[00:07:12] And for years, the fund delivered healthy returns. 

[00:07:16] If you invested your money with Bernie Madoff, every year you would make more money, you would be sent statements showing the shares that Madoff had bought on your behalf, and you would see that you now had more money than you did a year ago.

[00:07:32] If you needed to take out some money, to buy a house, for a child’s college education, or for whatever reason, you could just request it, and your money would be returned.

[00:07:46] To the outside world, Bernie Madoff was an excellent custodian of people’s money. 

[00:07:52] He would make you money every single year, without fail, and if you needed to take out any money, he would return it to you promptly.

[00:08:02] But beneath the surface, it was all a huge lie. 

[00:08:07] It was what’s called a Ponzi scheme.

[00:08:11] Madoff wasn’t investing the money anywhere, he kept it all in a large bank account at JP Morgan Chase, a large New York bank.

[00:08:21] These returns that he showed investors, the returns that he was supposedly delivering every year, were fake. 

[00:08:30] He would send investors statements showing the shares that the fund had bought and sold, but the reality was that they hadn’t bought or sold anything.

[00:08:41] When writing these reports, he would look back at the share prices from a few days before, then choose the shares that had increased in price, and say that he had bought those ones.

[00:08:55] If investors wanted to take out their money, this wasn’t a problem for Madoff, because he would just take this money out of the bank account.

[00:09:04] As long as there was more money coming in, in the form of new investors, than was going out, the going was good, the fraud could continue. 

[00:09:15] But it couldn’t continue forever. 

[00:09:17] Nobody knows exactly when Madoff started it, but it is thought that it could have been as early as the 1980s. 

[00:09:27] He had been promising 12-15% returns every single year, and, given the power of compound interest, 12-15% a year for 30 years means that the amounts that investors believed that Madoff had for them were significantly larger than the cash that was actually in the bank.

[00:09:51] Madoff had to start finding more investors, and after initially being an exclusive investment opportunity for the Jewish community in New York, he began accepting anyone. 

[00:10:04] Large institutional funds invested, and money flooded in from all over the world: Abu Dhabi, Switzerland, China, everywhere.

[00:10:14] Throughout the 1980s, 1990s, and most of the 2000s, the going had been good for Bernie Madoff. 

[00:10:21] He had all of the trappings of a New York financier.

[00:10:25] The penthouse, the yachts, the expensive cars, clothes, holiday houses in the most desirable locations. He was a great philanthropist, he was on the board of several charities, and was a large donor to the Democratic party.

[00:10:41] All he needed to do was to keep enough money in the fund so that people wouldn’t realise it was a fraud, so they wouldn't realise it was a Ponzi scheme.

[00:10:51] When the times were good, when the stock market was healthy, this wasn’t a problem.

[00:10:56] But in the late 2000s there was an event that Madoff had not prepared for.

[00:11:02] The subprime mortgage crisis that started in 2007, and peaked in autumn of 2008, saw share prices drop dramatically, and investors panicked.

[00:11:15] Madoff’s investors trusted Madoff, but they didn’t trust the stock market. 

[00:11:21] They wanted their money out, and called up Madoff to ask for their money back.

[00:11:28] The problem was, there was no money, or at least there wasn’t nearly as much money as Madoff had said there was.

[00:11:35] For several weeks, Madoff spent every waking minute trying to find new investors, trying to find new suckers to invest money in his fund, with which he could pay back the people who had asked for their money back.

[00:11:51] His bank account, which at one point that year contained $5 billion, was down to a mere $234 million. With furious investors demanding their money back, Madoff had no choice.

[00:12:06] The game was up.

[00:12:09] On the evening of December 10th 2008, just under three months after the collapse of Lehman Brothers, Bernie Madoff asked his two adult sons to follow him to his apartment.

[00:12:23] And it was there that he confessed that it was, and I’m quoting, “one big lie”.

[00:12:30] Madoff’s sons were appalled

[00:12:32] They worked with their father, but in the legal trading part of the business.

[00:12:38] They had no idea that the man they had looked up to, the man who was a king of Wall Street, was the city’s biggest fraudster.

[00:12:48] The next day they called up a lawyer, and they reported their father’s crimes to the police. 

[00:12:55] Bernie Madoff was arrested in his penthouse apartment, the king of finance brought to his knees and his true self revealed to the world.

[00:13:06] As investigations continued, the true extent of the fraud started to be uncovered.

[00:13:13] It’s still not completely clear exactly how much was stolen, and there are disagreements about how to calculate it. 

[00:13:22] The highest number, which is $65 billion, factors in the ‘fake returns’ that Madoff had promised. 

[00:13:31] There are lower numbers, of between $10 and $17 billion, which just take into account the cash that was invested and not returned.

[00:13:41] As is the nature of a Ponzi scheme, not everyone lost money with Bernie Madoff. If you put money in early on, and withdrew it before it collapsed, you would have made a very nice return, around 12-15% a year. 

[00:13:58] It was only really the people who still had money with Madoff at the end who lost their money.

[00:14:05] But, of course, this was no consolation for those that lost money. 

[00:14:10] For many, they had trusted Madoff with their life savings, their inheritance, their children’s college funds. 

[00:14:18] For charities, Madoff had lost millions of dollars in donations.

[00:14:24] And, from some of the interviews of burnt investors, one of the worst things was the sense of betrayal

[00:14:33] Not only did they feel betrayed by a man they trusted, but for many of them they had also recommended Bernie Madoff to friends and family, who had also invested money and lost it all with them. 

[00:14:48] When he stood trial, a year later, Madoff pleaded guilty, and said he was solely responsible for the fraud. 

[00:14:56] He was 71 years old at the time, not a young man by any means. And the judge decided to make an example of him, to show that although this might have been a white collar crime, and Madoff didn’t physically injure anyone, it was an incredibly serious crime nonetheless.

[00:15:16] Madoff was sentenced to 150 years in prison, to never see the light of day again.

[00:15:23] And although listening to this story you might not have a huge amount of sympathy for Bernie Madoff the man, the Madoff family has suffered great tragedy since then.

[00:15:34] Both Madoff’s sons are now dead. 

[00:15:37] The older son, Mark, killed himself on the second anniversary of his father’s arrest. He said that he could not live with the shame.

[00:15:47] And Madoff’s younger son, Andrew, died of cancer in 2014. He had beaten cancer back in 2003, but said that the stress of his father’s crimes caused the cancer to return, and that was what killed him.

[00:16:04] Now, the question you might have about Bernie Madoff is...why?

[00:16:09] He was a very rich man, he had a successful business, and he didn’t need to commit this huge fraud

[00:16:17] Why did he do it?

[00:16:20] Madoff died earlier this year, in April 2021, and took his secret to the grave with him. 

[00:16:27] So we can only hazard a guess.

[00:16:30] It seems that Madoff hated the idea of letting people down, of disappointing them. 

[00:16:36] He had reportedly lost a little bit of money for investors in the 1960s, and had disguised this loss, he had hidden this loss by adding new client money. 

[00:16:49] Perhaps, he realised that this was a relatively easy thing to do, it was easier than having to provide someone with bad news, and so he continued.

[00:16:59] And then he continued and continued, it got too big to control, the power of compound interest meant that he couldn’t stop, and so he had to continue.

[00:17:10] He wasn’t engaging in the fraud to subsidise his lifestyle. 

[00:17:14] Unlike some other notorious fraudsters, Bernie wasn’t stealing this money and using it for himself. 

[00:17:21] Yes he had a luxurious lifestyle, but he could have had that anyway. 

[00:17:27] Indeed, even Bernie Madoff doesn’t seem to have really known why he did it. 

[00:17:34] During his trial he said, “I am responsible for a great deal of suffering and pain, I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created. I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren.”

[00:17:54] He might have accepted some kind of responsibility, but he never really explained why he did it.

[00:18:02] Of course, that is not really any consolation to the thousands of people who lost their life savings with Bernie Madoff, but there is perhaps some consolation in knowing that things finally caught up with him.

[00:18:16] The only truthful thing that Bernie Madoff seems to have said, is what he told his two sons on the night of his confession.

[00:18:24] “It was all one big lie”.

[00:18:28] OK then, that is it for today’s episode on Bernie Madoff, the man who stole $65 billion.

[00:18:37] And with that comes the end of this three-part mini-series on Great American business frauds

[00:18:45] As a reminder, part one was on The Enron Scandal, part two was on Theranos, and we had a related episode, a part zero if you like, on WeWork. 

[00:18:56] If there’s one moral of these stories, it’s that fraud doesn’t pay, and that if something sounds too good to be true, it probably is.

[00:19:05] As always, I would love to know what you thought of this episode, and of this mini-series. 

[00:19:11] Which of these frauds did you know about? Are there similar stories in your country? Of the crimes of Enron, Theranos, and Bernie Madoff, how would you think about them differently?

[00:19:24] Let’s get the discussion started. You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:19:36] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:19:41] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.


[END OF EPISODE]