Market maker Bernard L. Madoff arrested in $50B ‘giant Ponzi scheme’
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Correction — January 10, 2009 This article incorrectly states that Mr Madoff attended Hofstra University Law School. His education was actually with Hofstra College, which he graduated from in 1960.
Friday, December 12, 2008
Top broker and Wall Street adviser Bernard L. Madoff, aged 70, was arrested and charged by the FBI on Thursday with a single count of securities fraud, also known as stock fraud and investment fraud. He allegedly told senior employees of his firm on Wednesday that his $50 billion business “is all just one big lie” and that it was “basically, a giant Ponzi scheme (since at least 2005).” Mr. Madoff faces up to 20 years imprisonment and a fine of up to $5 million. FBI agent Theodore Cacioppi said Mr. Madoff’s investment advisory business had “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in investors’ losses of approximately $50 billion dollars.”
The former chairman of the Nasdaq Stock Market is also the founder and primary owner of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. The firm is one of the top market maker firms on Wall Street. He founded his family firm with an initial investment of $5,000, after attending Hofstra University Law School. He saved the money earned from a job lifeguarding at Rockaway Beach in Queens and a part time job installing underground sprinkler systems.
A force in Wall Street trading for nearly 50 years, he has been active in the National Association of Securities Dealers (NASD), a self-regulatory organization for the U.S. securities industry. His firm was one of the five most active firms in the development of the NASDAQ, having been known for “paying for order flow,” in other word paying a broker to execute a customer’s order through Madoff. He argued that the payment to the broker did not alter the price that the customer received. He ran the investment advisory as a secretive business, however.
Dan Horwitz, counsel of Mr. Madoff, in an interview, said that “he is a longstanding leader in the financial-services industry with an unblemished record; he is a person of integrity; he intends to fight to get through this unfortunate event.” Mr. Madoff was released on his own recognizance on the same day of his arrest, after his 2 sons turned him in, and posting $10 million bail secured by his Manhattan apartment. Without entering any plea, the Court set the preliminary hearing for January 12.
Madoff’s hedge fund scheme may rank among the biggest fraud in history. When former energy trading giant Enron filed for bankruptcy in 2001, one of the largest at the time, it had $63.4 billion in assets. The scheme would dwarf past Ponzis, and it would further be nearly five times the telecommunication company WorldCom fraud and bankruptcy proceedings in 2002.
The Securities and Exchange Commission filed a separate civil suit on Thursday against Bernard L. Madoff Investment Securities and its eponymous founder Mr. Madoff. It was docketed as “U.S. v. Madoff,” 08-MAG-02735, by the U.S. District Court for the Southern District of New York (Manhattan). SEC, New York associate director of enforcement, Andrew M. Calamari, asked the judge to issue seizure orders on the firm and its assets, and appoint a receiver. The SEC pleads, among others, that “it was an ongoing $50 billion swindle; our complaint alleges a stunning fraud that appears to be of epic proportions.” It further accused the defendant of “paying returns to certain investors out of the principal received from other, different investors” for years. Madoff’s hedge fund business had previously claimed to have served between 11 and 25 clients and had $17.1 billion in assets under management. But virtually all of the assets were missing.
United States District Court for the Southern District of New York Louis L. Stanton on Thursday appointed Lee Richards, a Manhattan lawyer, as the firm’s receiver. A hearing is set for Friday, for a ruling on the SEC’s petition to grant plenary powers to the receiver over the entire firm, and an absolute asset sequestration.
Doug Kass, president of hedge fund Seabreeze Partners Management said that “this is a major blow to confidence that is already shattered — anyone on the fence will probably try to take their money out.”
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Death toll in Indonesian tsunami continues to rise
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Saturday, July 22, 2006
More than 650 people have now died after a tsunami hit the Indonesian island of Java on Monday afternoon. In the past few days, around 100 dead bodies have been recovered, and it is estimated that over 300 people are still missing. An underwater earthquake with a magnitude of 7.7 triggered the deadly wave which ravaged a 200km stretch of Java’s southern coast.
Thousands of people are continuing to camp in the hills. They are too apprehensive to return home due to fears of another tsunami, but according to Reuters, health officials are worried about the threat of disease among those who are still in refuge. “The risk of catching diseases is there because they live in an open area with limited tents and water,” said Rustan Pakaya, from the health ministry’s crisis centre. He added that people were being given injections to protect them from diseases like measles, tetanus and cholera.
Areas worst hit, like the small town of Pangandaran, are beginning to return to normal, and many businesses there have begun to open up again. “The market and many shops are already open today and although they are not operating fully, things are slowly returning to normal,” district spokesman Wasdi bin Umri told AFP.
Yesterday, Indonesia’s President, Susilo Bambang Yudhoyono toured Pangandaran and met people who were staying in a temporary camp. The Indonesian government has been criticised for failing to inform residents living on the coast that a tsunami was looming. After the underwater earthquake was detected, US and Japanese agencies issued warning notices, but the government has admitted it was unable to transmit the bulletins to coastal areas. Speaking yesterday, Mr Yudhoyono vowed to hasten efforts to build an early warning system planned after the 2004 Asian tsunami. “We want to expedite efforts to get infrastructure for the tsunami warning system in place,” AP quoted him as saying. “I will work with parliament to get the budget”.
