Did Madoff Act Alone?Feb 24, 2009 | Parker Waichman LLP
Bernard Madoff must have had help in pulling off his alleged Ponzi scheme. That's the assertion of some securities fraud specialists recently interviewed by Bloomberg News.
The 70-year-old Madoff was arrested on one count of securities fraud on December 11. Madoff - once a chairman of the Nasdaq stock exchange - is the founder and primary owner of Bernard L. Madoff Investment Securities LLC. The firm is primarily known for its business in market-making, or serving as the middleman between buyers and sellers of shares. However, Madoff also oversaw an investment-advisory business that managed money for high-net-worth individuals, hedge funds and other institutions.
According to the FBI complaint against Madoff, that business was largely a Ponzi scheme. The FBI said Madoff “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 losses of approximately billions of dollars.” Some estimates say those losses could reach as much as $50 billion.
Last week, the federal trustee assigned to liquidate Madoff's assets told investors that a search of records going back almost to 1993 had found no evidence that any securities were bought for investors during that time. That, in spite of the fact that every single Madoff investor received detailed monthly statements during that time period. Apparently, those statements were just elaborate works of fiction.
According to James Ratley, president of the Association of Certified Fraud Examiners, that is evidence that Madoff lied to the FBI when he insisted that he had carried out his fraud alone.
"In order for him to have done this by himself, he would have had to have been at work night and day, no vacation and no time off,” Ratley said in an interview with Bloomberg News. “He would have had to nurture the Ponzi scheme daily. What happened when he was gone? Who handled it when somebody called in while he was on vacation and said, ‘I need access to money’?”
A securities lawyer told Bloomberg News that the meticulous way in which the alleged scam was run is another indicator that Madoff had help. This expert pointed out that detailed statements Madoff's investors received for decades would have required efforts on the part of several people at least.
"You would need office and support personnel, people who actually knew what the market prices were for the securities that were being traded,” the attorney said. “You would need accountants so that the internal documents reconcile with the documents being sent to customers at least on a superficial basis.”
So far, prosecutors investigating the alleged Madoff Ponzi scheme have not named anyone else as possible suspects, despite the fact that several of his relatives - including his sons, brother and a niece - were employed by his firm. As we reported earlier this month, federal prosecutors in Manhattan have interviewed two assistants who worked at Madoff’s investment business. The interviews might mean prosecutors are ramping up their investigation into who else may have been involved. The assistants are not charged with anything, and it is not known if they implicated anyone else.
Other individuals that could be targets of probes include so-called "middlemen" who recruited investors for Madoff.