150 Years From Now (The Impact of Bernie Madoff)
As harsh as it was, the Madoff sentence does virtually nothing to protect investors on Main Street. What will? Cleaning up the banks is a good start.
By now it’s old news: Bernard Madoff sentenced to 150 years in jail. While news agencies and pundits debate ad nausea the deterrent effect and importance of this “symbolic sentence” (with good behavior Mr. Madoff will be released when he is 221 years old), a critical issue remains out of the public glare. What about the bank Madoff and company used to support the largest and longest-running Ponzi scheme in history? Remember that Madoff’s scheme relied upon him not buying any securities for his money management clients for over two decades. Let me say it again, Madoff did not buy any securities for his clients since 1986.
So what did he do with the billions flowing in from feeder funds and a worldwide network of well-heeled promoters from around the world? The simple answer is he put the money in the bank. Not just any bank, but one of the world’s largest and most respected financial institutions: JPMorgan Chase. Month after month, year after year, Madoff deposited billions. Surely if he was running a legitimate money management firm those deposits would have been a mere fraction of that amount. Why? Because the money would be needed to buy securities and stocks for investors. But he never bought those securities or stocks. Statements given to his clients were no more real than a romance novel. The stocks and bonds listed were never purchased, held or traded. It was all a big lie.
Did JPMorgan Chase ever hush a word of this to the SEC or other regulators? Did anyone say “this ain’t right”? Probably not—the bank had huge accounts to service and there was plenty of money to be made. Despite strict regulations placed on JPMorgan Chase by the Patriot Act, Anti-Money Laundering Act and Bank Secrecy requirements to be on the lookout for suspicious activity, the beat went on until the music finally stopped.
As harsh as it was, the Madoff sentence does virtually nothing to protect investors on Main Street. What will? Cleaning up the banks is a good start. Empowering regulators, prosecutors and private attorneys to go after the banks is a good start. Because without the banks' complicity, Madoff would have had no ability to take in billions every year. Even he could not have gotten away with accepting cash or banking at anything less than a large money center bank. Unless we clean up the banks, the chances are good, indeed certain, that we will see many more Ponzi schemes blossom before Mr. Madoff hobbles out of jail at the ripe old age of 221.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
Steven N. Berk has over twenty years of litigation experience spanning both the private and public sectors. His practice ranges from representing Fortune 500 Companies, to consumers. Steven is based in Washington, D.C. and founded Berk Law in May 2009....
