Bernard Madoff

The Biggest Ponzi Scheme

The Scandal
Started as a brokerage firm dealing in penny stocks in 1960
Began by investing money for family and friends without any license
Transformed into an investment fund in 50 years
Offered consistent 20% returns on investment
During recession in US, investors requested $7 Billion in withdrawals
Actually a $50 Billion Ponzi Scheme
Largest accounting fraud in American history
Sentenced to 150 years in prison
What worked in his favor
Commission incentive scheme to investment advisors for investing in his firm
Efficiency and speed of his operations
Long track record of successful investing
Was at the forefront of the computerization of stock trading
One of the first 5 brokers to join NASDAQ
Served on SEC advisory committees
Part of NASD advisory council
Ex Non Executive Chairman of NASDAQ
Bernies personality
Played hard to get
The Victims
The Disguise Split Strike Conversion
Step 1
Purchased common stock from a pool of 35 to 50 S&Ps 100 Index
companies whose performance paralleled overall market
performance.
Step 2
Sell call options at a strike price above the current index.
Limit gains, generate cash.
Step 3
Buy put options at the current index value or very close to it using
the call option premium cash.
Pay off if the index falls, limiting or preventing losses.
The Reality- Ponzi Scheme
Secret Apex of Hedge funds
Marketed his investment fund to feeder hedge funds
Paid feeder hedge fund managers a commission instead of charging them fees
Didnt allow them to mention his name in their marketing materials

Cohmad
Securities
hedge fund
Faireld
Greenwich
Group
Ascot
Partner
Bank Medici
of Austria