2. Madoff’s Scam is Second in Size Only to the Enron Failure
With an estimated size of $64.8 billion by the federal government, Bernie Madoff’s huge Ponzi scheme is second only to the collapse of Enron, which was measured at approximately $78 billion in stock in 2001. The former president of Enron, Jeff Skilling, was given a 24-year sentence. Bernie Madoff, on the other hand, was given a sentence of 150 years. Third in size as far as dollar amounts are concerned was Lehman Brothers, which was the investment bank that started the worldwide financial crisis and the Great Recession.
Despite the $65 billion number associated with the Madoff scheme, he didn’t actually steal that much money. Rather, the figure is based upon the amount of money his investors earned while the Ponzi scheme was active. $65 billion is the dollar amount that investors lost and was based on the fictitious numbers Madoff created while his scheme was up and running. Charles Ponzi, the man for whom the scheme got its name, was the first man in the 20th century to make the investment scam popular. He spent seven months collecting money from around 30,000 investors that amounted to around $8 million.
Compared to Bernie Madoff’s scheme, it seems like small potatoes; however, it’s impressive that Ponzi was able to get 30,000 different people to invest in his scam. Although Madoff is probably the most famous perpetrator of a Ponzi scheme in the last several years, several fraudsters were working at the same time as Madoff to rip off investors. For example, Peter Lombardi ran a billion dollar Ponzi scheme under Mutual Benefits Company before being caught and celebrity businessman Tom Petters ran a Ponzi scheme for more than 13 years that siphoned more than $3.6 billion from investors.
1. Most of Madoff’s Victims Have Yet to Be Repaid
When the news about Madoff’s massive fraud broke, many famous names were cited as victims of Bernie Madoff’s Ponzi scheme. However, there were also countless victims who had a lot more to lose because they weren’t multimillionaires like Steven Spielberg. An article from the New York Times that was published in late 2013 revealed that the majority of Madoff’s victims hadn’t yet been repaid. Despite the years-long efforts of the court-appointed trustee to locate money for settlements, one of the issues slowing down the payments was the difference between actual assets lost and the total estimated value of the investments based upon Madoff’s fraudulent record keeping.
The court estimated that victims who put in a claim to the court or who sued Madoff for their losses could expect to collect just 54 cents for every dollar invested, but that was only for direct investors who lost money. One of the incredible things about the number of total investors defrauded by Madoff is that within 5 years, more than 16,000 claims had been made, but each of those claims had the potential to represent hundreds or thousands of people.
In addition to the many small investors who lost their life savings, other investors who made money over the years were also targeted for lawsuits by the court trustee who was seeking to reclaim profits from the Ponzi scheme to repay victims. Unfortunately, it didn’t matter if those small-time investors knew about the Ponzi scheme or not. They could expect to be served with a lawsuit that demanded money that would be reallocated to victims who lost investments. Whether someone made money or lost money with Bernie Madoff, it seems that everyone associated with him was a victim in some way.
The size and breadth of Madoff’s Ponzi scheme are so incredible that renaming “Ponzi scheme” to “Madoff scheme” might be appropriate. In the years since Madoff’s guilty plea, it’s become increasingly unclear as to the exact moment when Madoff’s investment firm turned corrupt. In various interviews, Madoff mentioned various dates in the late 1980s and early 1990s as the time when he started engaging in fraud. However, people appointed by the court to recover the billions of dollars Madoff stole have come to believe Madoff’s firm was never legitimate.
With most of his 150-year sentence remaining, Bernard Madoff would need to live until November 14, 2139 to walk out of prison a free man. As he lives out the rest of his days behind bars, Madoff will need to deal with the shame and mental anguish of destroying his family, causing his son’s suicide, and defrauding thousands of his investors.