Background and career
Bernard Lawrence Madoff (; April 29, 1938 – April 14, 2021) was an American financier, con artist, and stock broker who was the admitted mastermind of the largest-known Ponzi scheme in history, worth an estimated $65 billion. He was at one time chairman of the Nasdaq stock exchange. Madoff's firm had two basic units: a stock brokerage and an asset management business; the Ponzi scheme was centered in the asset management business. Born in Brooklyn and raised in Laurelton, Madoff graduated from Hofstra University, and founded a penny stock brokerage in 1960, which eventually grew into Bernard L. Madoff Investment Securities. He was the company's chairman until his arrest on December 11, 2008. That year, the firm was the sixth-largest market maker in S&P 500 stocks. While the stock brokerage part of the business had a public profile, Madoff tried to keep his asset management business low profile and exclusive. At the firm, he employed his brother Peter as senior managing director and chief compliance officer, Peter's daughter Shana as the firm's rules and compliance officer and attorney, and his sons Mark and Andrew Madoff. Mark hanged himself in 2010, exactly two years after his father's arrest, Peter was sentenced to 10 years in prison in 2012, and Andrew died of lymphoma on September 3, 2014. On December 10, 2008, Madoff's sons Mark and Andrew told authorities that their father had confessed to them that the asset management unit of his firm was a massive Ponzi scheme, and quoted him as saying that it was "one big lie". The following day, agents from the Federal Bureau of Investigation arrested Madoff and charged him with one count of securities fraud. The U.S. Securities and Exchange Commission (SEC) had previously conducted multiple investigations into his business practices but had not uncovered the massive fraud. On March 12, 2009, Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme. The Madoff investment scandal defrauded thousands of investors of billions of dollars. Madoff said that he began the Ponzi scheme in the early 1990s, but an ex-trader admitted in court to faking records for Madoff since the early 1970s. Those charged with recovering the missing money believe that the investment operation may never have been legitimate. The amount missing from client accounts was almost $65 billion, including fabricated gains. The Securities Investor Protection Corporation (SIPC) trustee estimated actual direct losses to investors of $18 billion, of which $14.829 billion has been recovered and returned, while the search for additional funds continues. On June 29, 2009, Madoff was sentenced to 150 years in prison, the maximum sentence allowed. On April 14, 2021, he died at the Federal Medical Center, Butner, in North Carolina, from chronic kidney disease.
Madoff was born on April 29, 1938, in Brooklyn, New York City, to Ralph Madoff, a plumber and stockbroker, and wife, Sylvia Madoff (née Muntner). Madoff's grandparents were Jewish emigrants from Poland, Romania, and Austria. He was the second of three children; his siblings are Sondra Weiner and Peter Madoff. His family later moved to Queens, and Madoff graduated from Far Rockaway High School in 1956. Friends from his youth described him as a thin, outgoing boy who participated in community center activities and ate ice cream at the local five-and-ten. Madoff attended the University of Alabama for one year, where he became a brother of the Tau chapter of the Sigma Alpha Mu fraternity, then transferred to and graduated from Hofstra University in 1960 with a Bachelor of Arts in political science. Madoff briefly attended Brooklyn Law School, but left after his first year, using money he had saved working as a lifeguard and running an irrigation sprinkler business to start Bernard L. Madoff Investment Securities LLC.
In 1960, Madoff founded Bernard L. Madoff Investment Securities LLC as a broker-dealer for penny stock with $5,000 (equivalent to $54,000 in 2025) that he earned from working as a lifeguard and irrigation sprinkler installer and a loan of $50,000 from his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families; Carl J. Shapiro was one such early customer, investing $100,000. Initially, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate its quotes. After a trial run, the technology that the firm helped to develop became the National Association of Securities Dealers Automated Quotations Stock Market (Nasdaq). After 41 years as a sole proprietorship, the Madoff firm incorporated in 2001 as a limited liability company with Madoff as the sole shareholder. The firm functioned as a third market trading provider, bypassing exchange specialist firms by directly executing orders over the counter from retail brokers. At one point, Madoff Securities was the largest market maker at the Nasdaq, and, in 2008, was the sixth-largest market maker in S&P 500 stocks. The firm also had an investment management and advisory division, which it did not publicize, that was the focus of the fraud investigation. Madoff was "the first prominent practitioner" of payment for order flow, in which a dealer pays a broker for the right to execute a customer's order. This has been called a "legal kickback". Some academics have questioned the ethics of these payments. Madoff argued that these payments did not alter the price that the customer received. He viewed the payments as a normal business practice:
If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow was an issue that attracted a lot of attention but was grossly overrated. Madoff was active with the National Association of Securities Dealers (NASD), a self-regulatory securities-industry organization. He was chairman of its board of directors, and a member of its board of governors.
Madoff was a philanthropist, who was on boards of nonprofit institutions, many of which entrusted his firm with their endowments. The collapse and freeze of his personal assets and those of his firm affected businesses, charities, and foundations around the world, including the Chais Family Foundation, the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation which were forced to close. Madoff donated approximately $6 million to lymphoma research after his son Andrew was diagnosed with the disease. He and his wife gave over $230,000 to political causes since 1991, with the bulk going to the Democratic Party. Madoff was the chairman of the Sy Syms School of Business at Yeshiva University, and treasurer of its board of trustees. He resigned his position at Yeshiva University after his arrest. Madoff also was on the board of New York City Center, a member of New York City's Cultural Institutions Group (CIG). He was on the executive council of the Wall Street division of the UJA Foundation of New York which declined to invest funds with him because of the conflict of interest. Madoff undertook charity work for the Gift of Life Bone Marrow Foundation and made philanthropic gifts through the Madoff Family Foundation, a $19 million private foundation, which he managed along with his wife. They also donated money to hospitals and theaters. The foundation contributed to many educational, cultural, and health charities, including those later forced to close because of Madoff's fraud. After Madoff's arrest, the assets of the Madoff Family Foundation were frozen by a federal court.
From 1991 to 2008, Bernie and Ruth Madoff contributed about $240,000 to federal candidates, parties, and committees, including $25,000 a year from 2005 through 2008 to the Democratic Senatorial Campaign Committee. The committee returned $100,000 of the Madoffs' contributions to Irving Picard, the bankruptcy trustee who oversees all claims, and Senator Chuck Schumer returned almost $30,000 received from Madoff and his relatives to the trustee. Senator Chris Dodd donated $1,500 to the Elie Wiesel Foundation for Humanity, a Madoff victim. Members of the Madoff family have been leaders of the Securities Industry and Financial Markets Association (SIFMA), the primary securities industry organization. Bernard Madoff was on the board of directors of the Securities Industry Association, a precursor of SIFMA, and was chairman of its trading committee. He was a founding board member of the Depository Trust & Clearing Corporation (DTCC) subsidiary in London, the International Securities Clearing Corporation. Madoff's brother Peter did two terms as a member of SIFMA's board of directors. He and Andrew received awards from SIFMA in 2008 for "extraordinary leadership and service". He resigned from the board of directors of SIFMA in December 2008, as news of the Ponzi scheme broke. From 2000 to 2008, the Madoff brothers donated $56,000 directly to SIFMA, and paid additional money as sponsors of industry meetings. Bernard Madoff's niece Shana Madoff was a member of the executive committee of SIFMA's Compliance & Legal Division, but resigned shortly after the arrest. Madoff's name first came up in a fraud investigation in 1992, when two people complained to the SEC about investments they made with Avellino & Bienes, the successor to his father-in-law's accounting practice. For years, Alpern and two of his colleagues, Frank Avellino and Michael Bienes, had raised money for Madoff, a practice that continued after Avellino and Bienes took over the firm in the 1970s. Avellino returned the money to investors and the SEC closed the case. In 2004, Genevievette Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations (OCIE), informed her supervisor branch chief Mark Donohue that her review of Madoff found numerous inconsistencies, and recommended further questioning. However, she was told by Donohue and his boss Eric Swanson to stop work on the Madoff investigation, send them her work results, and instead investigate the mutual fund industry. Swanson, assistant director of the SEC's OCIE, had met Shana Madoff in 2003 while investigating her uncle Bernie Madoff and his firm. The investigation was concluded in 2005. In 2006, Swanson left the SEC and became engaged to Shana Madoff, and in 2007 the two married. A spokesman for Swanson said he "did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship" with Shana Madoff. While awaiting sentencing, Madoff met with the SEC's inspector general, H. David Kotz, who conducted an investigation into how regulators had failed to detect the fraud despite numerous red flags. Madoff said he could have been caught in 2003, but that bumbling investigators had acted like "Lt. Columbo" and never asked the right questions. He said "They never even looked at my stock records," and that it "would've been easy for them to see" if they'd checked with the Depository Trust Company; "if you're looking at a Ponzi scheme, it's the first thing you do." Madoff said in the June 17, 2009, interview that SEC Chairman Mary Schapiro was a "dear friend", and SEC Commissioner Elisse Walter was a "terrific lady" whom he knew "pretty well". After Madoff's arrest, the SEC was criticized for its lack of financial expertise and lack of due diligence, despite having received complaints from Harry Markopolos and others for almost a decade. The SEC's inspector general, Kotz, found that since 1992, there had been six investigations of Madoff by the SEC, which were botched either through incompetent staff work or by neglecting allegations of financial experts and whistle-blowers. At least some of the SEC investigators doubted whether Madoff was even trading. Due to concerns of improper conduct by Inspector General Kotz in the Madoff investigation, Inspector General David C. Williams of the United States Postal Service was brought in to conduct an independent outside review. The Williams Report questioned Kotz's work on the Madoff investigation, because Kotz was a "very good friend" of Markopolos. Investigators were not able to determine when Kotz and Markopolos became friends. A violation of the ethics rule would have taken place if the friendship were concurrent with Kotz's investigation of Madoff.
