Cold Fusion has made this video on the backstory of the $65 billion Ponzi scheme that was the largest in history.
Bernie Madoff founded his investment firm in 1960, where he pioneered the use of electronic trading. This enabled him to provide a lower cost for his services and it increased earnings for his clients. Eventually, 5% to 10% of trades at the New York Stock Exchange went through his firm.
In 1971, the Nasdaq was born during a wave of new innovations in electronic trading. Today, the Nasdaq is the second largest Stock Exchange in the world. Tech companies, like Microsoft, Apple, Amazon, Google and Facebook choose to trade their shares in the Nasdaq.
In the early 1990s, Bernie Madoff became the chairman of the Nasdaq. Twenty-five years later, he pleaded guilty to 11 felonies and will serve the rest of his life in prison.
The story follows Harry Markopoulos, a financial fraud investigator working as a portfolio manager at Rampart Investment Management in 1999, when his firm noticed that Madoff’s fund was consistently retaining a 1% to 2% profit per month.
Markopoulos was tasked with replicating and reverse engineering Madoff’s strategy at his firm, not realizing that he had just stumbled across the biggest financial scam Wall Street had ever seen.
Markopoulos says it took him five minutes of looking at Madoff’s revenue stream to realize that things just didn’t add up. Madoff’s returns were too consistent. They were unfazed by the market conditions and there was little to no fluctuation. He knew Madoff was either trading on insider information or it was all a giant Ponzi scheme.
But who would dare question the man who helped build the modern Wall Street?
Markopoulos couldn’t find a single transaction by Madoff on the Exchange. In reality, Madoff hadn’t made a single trade in over 6 years, since 1993 or perhaps even earlier.
In 2000, Harry Markopolos took his findings to the Securities and Exchange Commission (SEC) but that investigation ended in less than a year later for lack of evidence.
Markopoulos then discovered that Madoff was stealing from the Russians and from the Colombians, a very dangerous proposition.
In the end, it wasn’t anything that the SEC or Harry Markopolos did that caught Madoff out. It was December 2008 and almost everything on Wall Street was completely wiped out in the Nasdaq and after some elaborate attempts to cover his clients, Madoff decided to turn himself in. He didn’t try to run or hide. He knew that it was the end of the line and over $65 billion were gone.
Fearing that they’d become accomplices in their father’s crimes, his two sons called a lawyer and turned their father in. Within a few short years, both sons had died; one by suicide and the other by a fast-acting cancer. His wife no longer speaks to him and he doesn’t use the 15-minute allotted daily phone call because, he says he doesn’t have anyone to talk to.