One year ago today, Bernie Madoff made headlines. His investment firm was nothing more than a big (minor understatement) Ponzi scheme. One year ago today most people didn’t know what a Ponzi scheme was and, frankly, most had not heard of Bernie Madoff. My, what a difference a year makes!
Bernie Madoff, in record time, admitted his guilt in what is now known as the largest Ponzi scheme or fraud in history and was sentenced to 150 years in prison. Today, he is safely tucked away in Federal prison in Butner, NC. Having observed this type of activity for years I must admit I am amazed at the speed of the investigation, guilty plea and sentencing. But then again, Madoff set a standard of fraud at a time when the nation was beginning to feel the real impact of the economic recession, so it would stand to reason that if the outcome of his transgressions was delayed…there would be a public outcry.
Looking back the victims of Madoffs massive fraud had many common characteristics and today, in this blog, I’d like to review them. Maybe, just maybe, those who read will connect the dots and use this new found wisdom as a way to avoid being caught like so many of Madoff’s victims.
The victims seemingly all fell into what I have referred to as the PIT.
First, victims were PROMISED (that’s the “P”) something out of the ordinary. They were promised extraordinary returns – returns that the average “Joe” could not receive or would not have access to. NOTE: The first sign of a scam or fraud is the PROMISE that you’re getting something not readily available to others.
The second component of the scam is the ILLUSION (“I” in the slippery slope of the PIT). Madoff, like other Ponzi scheme fraudsters, created the ILLUSION that everything was as it should be. From fake statements to bogus reports from his puppet CPA firm, Madoff was able to convince even the SEC that what he was doing was legitimate. In retrospect…even some of the victims have said that something seemed a miss – yet with the kinds of returns they were receiving they were unwilling to investigate further. I guess we often don’t want to believe the truth -even when it is starring us in the face – especially if the truth is unfavorable to our position.
Lastly, Madoff relied on TRUST. As most of the victims know – they were lured into his fraudulent web – either by Madoff himself, or in later years by those who were trusted friends or investors in his fund. Madoff was brilliant in his approach to acquiring victims – he sought his friends first knowing that if he treated them “right” they would send others based on TRUST.
ON THE ONE YEAR ANNIVERSARY – here are some questions:
What have we learned?
If you’re a Madoff victim – looking back what would you do differently?
How has the Madoff fraud changed, if any, the way you invest?
Your comments are welcome!