Bernie Madoff and Mark Madoff’s suicide – the Reality of Prison! Choices and Consequences

December 13, 2010

Doing presentations on business ethics and fraud prevention, every presentation I begin starts with the statement – “Every choice has a consequence!”  No where is this more painfully obvious then the very public unfolding of the consequences begun many years ago by Bernie Madoff.

Two years to the day – the day Bernie Madoff admitted creating the largest Ponzi scheme in US history, his son, Mark Madoff, committed suicide.  Apparently the pressure of all that was taking place (as the Madoff saga is far from over) was far too much for Mark to bear.

Some might ask, well how would you know?  The answer is simple…I’ve been there.  Having created a Ponzi scheme (not something I am proud of, but it is a fact that I openly share), I know about the emotional pressures that come with the consequences of choices I made.  The magnitude of my crime is dwarfed by that of Bernie Madoff.  Yet, pressure is pressure and likely it is all relative.

I candidly feel for Mark Madoff – knowing that his “dark night of the soul” had to be very light less in order for him to elect to end his life.  Beyond that, the pain that Bernie Madoff must feel is, too, enormous.  Even as I write this I can almost hear readers shaming me for having some compassion for Bernie.  But, honestly, I do.  The pain a father must feel knowing that his actions contributed to a depth of depression that contributed to his son taking his life is great.  I cannot honestly imagine that pain.

According to Ira Sorkin, Bernie Madoff’s attorney, Madoff will not attend the funeral of his son, Mark, out of consideration for his daughter-in-law and grandchildren.

Housed in a medium security prison for the rest of his life, Bernie Madoff has had his life reduced to working for around 12 cents per hour and wearing simple prison clothing day in and day out.  His brilliance will not be remembered.  Rather he has become the butt of jokes – “Charles Ponzi created the scheme, but Bernie Madoff with all the money!”  What a sad legacy.

As I said…I know the feelings of loss, inadequacy, hurt and what I and others have described as a “dark night of the soul.”  My new book describes my experience well.  Perhaps this excerpt will give some insight into that feeling that comes from facing a consequence that seems so great that ending a life is the only option – at least at the time.

SECOND CHANCES – excerpt:

At 7:11 p.m. that evening, I grabbed the Yellow Pages and began calling clinics─anyone who I thought might help me. Frankly, I don’t recall what I was looking up. I do remember that there were no listings under “suicide”─in fact, that wasn’t a category. So I looked up physicians, psychologists, psychiatrists, anything that started with a “P”. Honestly, I don’t remember who I did call─a proctologist, as far as I knew. The only thing that flooded my mind was I needed help.

“You’ve reached the office of Drs . . . Our office hours are from 8:30 a.m. to 5:00 p.m. Our office is closed. But if you’ll leave your name and number, we’ll be happy to call you first thing in the morning. Have a nice day!” Somehow, when you’re thinking of ending your life, “have a nice day” just doesn’t seem appropriate. And unfortunately, that’s the message I got over and over.

Calling became an obsession. It was the one thing I could do, one action that I felt in life I had some control over. “Just one more dial,” I would say to myself as I pressed the buttons on the phone, listening to the ring, hoping for an answer.

“Dr. Benson’s office.” That was the second time that day I was stunned. After getting recording after recording, I was somewhat unprepared for the possibility that someone would answer. Yet someone did.

“I need to talk with someone. I’m from out of town,” I somehow stammered.

“Actually, our office is closed. I was just walking out the door and thought this was my wife. Give us a call in the morni . . . ”  Before he could finish his sentence, I blurted, “I’m thinking of committing suicide!”

Silence─then the voice said, “Let’s talk.”

For the life of me, I can’t recall what was said between us as I lay on that lonely hotel bed. We could have talked for two minutes, twenty minutes, or two hours. I just don’t remember. What I do recall is that this total stranger, a man who I had never met, took the time to help me see past the grand illusion I had created and uncover the real me inside.

That night was the darkest night of my soul. That call that I shared didn’t make it better. It didn’t eliminate the consequences. It didn’t remove the pain. Rather, it gave me hope, hope that if I could make poor choices that would, most certainly, bring painful consequences, I also possessed the power to make positive choices with positive results.

His comment to me still resounds in my heart today. He said, “You have made a terrible mistake, but YOU are not a mistake! The choices you make moving forward will define your life forever and provide the foundation for your children’s lives. Think carefully as you make this choice!”

When he said to me, “YOU are not a mistake,” it hit me─while the past cannot be changed, the life we are given and the choices we make moving forward are the only things that count. I felt a burden lifted. I could not change the past; all I could do was face the consequences.  It was within my power to make good choices, now and in the future, that would produce a fruitful outcome. That was my destiny!

For information on how to obtain a copy of SECOND CHANCES – visit www.secondchancesbook.com or Amazon.com


Jerome O’Hara and George Perez charged in Madoff scandal. Hush money for technical support!

January 8, 2010

Two computer programmers were charged for their role in helping convicted Ponzi schemer Bernard L. Madoff cover up the fraud at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 15 years.  According to the SEC investigation, Jerome O’Hara of Malverne, N.Y., and George Perez of East Brunswick, N.J.,  are alleged to have provided the technical support necessary to produce false documents and trading records, and took hush money to help keep the scheme going.

“Without the help of O’Hara and Perez, the Madoff fraud would not have been possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff’s scheme for so many years.”

According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, Madoff and his lieutenant Frank DiPascali, Jr., routinely asked O’Hara and Perez for their help in creating records that, among other things, combined actual positions and activity from BMIS’ market-making and proprietary trading businesses with the fictional balances maintained in investor accounts. O’Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate nonexistent trading. They assigned file names to many of these programs that began with “SPCL,” which is short for “special.”

A separate computer internally known as “House 17” was used to process BMIS investment advisory account data at the direction of Madoff, DiPascali and others. The SEC alleges that O’Hara and Perez knew that the House 17 computer was missing a host of functioning programs necessary for actual securities trading and reporting. According to the SEC’s complaint, they recognized that the trades being entered into House 17 and the account statements and trade confirmations being sent to investors did not reflect actual trades.

So here’s the scoop according to the SEC – “O’Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O’Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records.”

AND WHAT DID THEY GET FOR THEIR EFFORTS?  A salary increase of 25% and a $60,000 bonus.  That’s right.  Now when I read that I was amazed.  A multi billion dollar scheme and the result is a pay raise and a bonus.

Further, the SEC alleges that they stated to DiPascali, a Madoff lieutenant, at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O’Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves.

This goes beyond an ethics violation.  It is so far removed from ethical behavior that it isn’t funny.  What is now coming to light is what has been suspected for some time – Madoff wasn’t in this alone.  As an ethics and fraud prevention speaker, there is no way that one person could create and effect this fraud.  Bernie Madoff may be the point person, but the collapse in the house of cards has just begun.  More will fall as the investigation continues.

Here’s what I don’t get.  The three components of fraud are: NEED – OPPORTUNITY and RATIONALIZATION.  Now, it didn’t seem at the outset that NEED was obvious.  Unless there is something that hasn’t been reported, these fellows weren’t gaining initially from the efforts of their work.  So how did they RATIONALIZE that their behavior was legitimate, ethical or normal?  Most frauds tie their three components together, but in the case of O’Hara and Perez it seemed that they were just part of the group and became, at least initially, brainwashed into believing that what they were doing was right.

If you have a connection to either O’Hara or Perez and have some insight feel free to comment.

COMMENTS ARE WELCOME!


Charles Ponzi Created the Scheme, but Bernie Madoff with All the Money! A Look Back by Business Ethics Speaker Chuck Gallagher

December 11, 2009

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!


Bernie Madoff – The Human Tragedy. Is Compassion Possible?

March 14, 2009

At the end of the movie – Saving Private Ryan – Ryan, as an old man speaks these words to his wife who walks up to his side:

“Tell me I’ve have led a good life.  Tell me I’m a good man.”

I must say that, although I’ve seen that movie many times, I am always brought to tears.  I am touched knowing that others come into our lives for a reason and, through their efforts, we find that our lives are shaped.  In Ryan’s case, his concern was living up to the sacrifice made for him and on his behalf.  Ryan wanted to know if the life he lived and the legacy he left was worth the price.

As the movie ended, I could not help but feel sadness for the tragedy that came to light some four months ago when Bernie Madoff admitted that his work wa nothing but a ponzi scheme.  As those words were spoken – lives were changed and, at least for now, not for the better.  The reality of lost investments came to light, financial futures were changed and Madoff’s legacy was forever etched in history.

THE HUMAN TRAGEDY:

From the standpoint of those who were victimized the loss is great.  But the tragedy goes much deeper than lost money.  I do not wish to minimize the loss bernie-madoffof treasure, but it is – afterall – just money.  Money can be made and often is lost.  The question is how do we react to that loss?

I heard one of Madoff’s victims on a radio clip Thursday the day Madoff was sentenced.  She said, “My life is over…”  I cringed when I heard her comments.  I, too, (admittedly for different reasons) lost everything material.  I know the feeling of loss and despair, but LIFE IS NOT OVER.  In fact, while life will most certainly change, she still has her freedom and the ability to make choices to improve her life.

One part of the human tragedy is the natural feeling of anger that lost trust naturally brings.  That anger and the negative emotion that is a part of what we hear about Madoff does little to promote joy and healing.  Perhaps over time that will come.

There is grief over loss.  In this case the loss is not only the obvious – the investments that didn’t exist, but the grief over loss is the trust that forever is gone.  Many people have come to learn the pain of betrayed trust, and that is hard to heal from.  As I have talked with victims from other similar scams, many have said that they have a hard time trusting anyone.

MADOFF’S LEGACY:

Beyond the victims, I have to say that I feel for Madoff.  I do not condone his actions – they are abhorent.  But, I feel for the man.  Imagine for a moment the feeling inside as Madoff once again crawls into his prison bed.  As a child, as a teen as a young man, never would he have imagined that the end of his life would be spent in prison.  In his early years he was able to use his intellect to benefit others and himself.  Madoff is not dumb and certainly has a vast compentency.  Unfortunately, he elected to miguide his brilliance.

Again, at the risk of offending his victims, I do not express my feelings for Madoff in support of his actions.  He has earned every night he spends in prison.  The empathetic feelings I have are for him as a human being.  How tragic that his actions have not only hurt those whom he was entrusted with investments, but his actions have harmed his family and others closely connected to him.

As a human being, it is difficult to find your life relegated to the structure and environment of prison.  Here’s a man who has a brilliant mind, who now will wake at 6ish each day, eat prison food at designated times and eat only what is offered.  He will eventually be assigned a location which will likely be a medium to minimum security facility.  It is NOT “Club Fed” – the days are filled with counts, structure and work.  You quickly lose the feeling for the outside world as contact is kept to a minimum and while you may read the newspaper, you find that reading or TV is no replacement for contact that free people have with each other.

As time goes on as he languishes away in prison, those close to him will die – but, he’ll find himself disconnected.  He will have gone from high flying financier to just another inmate.  He will withdraw for his own protection finding that the culture in federal prison is something foreign to him.  He will hear and learn things that will repulse him and there will be those who will leach on to him hoping to make him their prey.  Perhaps, they might think, “If I can threaten or endanger him, I might get some money for my family on the outside.”  He may become a target or he may just fade into oblivion.

For a time, he will continue to have notoriety as the federal government seeks to unravel the true scope of his actions.  Did his wife and/or children know?  Were they involved?  Was his accounting firm in the know or where they just incompetent?  How was he able to maintain the grandeur of his illusion for so long?  These questions and many more will arise – but all the while, the human tragedy is that someone – Bernie Madoff – through his choices is ending his life sitting in a prison cell.

Beyond Madoff – for a moment – imagine being one of his children, grandchildren or greatgrandchildren – the name Madoff is tainted.  He will be remembered for his crime – for the effect he had on the lives of thousands who trusted him – for his last days spent in prison.  If you were a grandchild – think of what happens when you enter college and for the first time the teach calls the role.  When they get to your name and say “Madoff” – think of the looks you’ll get when folks quickly begin to wonder – “is he connected to that guy”?   Their lives have been changed forever as well – and not by their doing.

Charles Ponzi created this scheme.  The name “Ponzi” is forever associated with something negative – just like the name Hitler.  As we live our lives today, the same is true with “Madoff” – his name has been etched in history never to be associated with positive thougths.

FINAL THOUGTHS:

As a business ethics and fraud prevention speaker, I know what it must be like for Madoff – this his first weekend in prison.  While I wish I could say otherwise, I know because I’ve been there.   I earned my time there.  It was no fun, but punishment is a consequence of choices.  My choices led me to prison, and Madoff’s have led him there as well.

Perhaps, when the dust settles, we can all take a moment and, like Private Ryan from the movie, ask “have I led a good life?”  I pray when my life ends that I’ll be able to look back and see a life well lived.  I wonder though for Madoff if it is possible for people to find compassion while at the same time accepting that his life is prison is a clear consequence for the choices he made?

YOUR COMMENTS ARE WELCOME!


Bernie Madoff in Jail! It’s Not “Club Fed” I Know – I’ve Been There…

March 12, 2009

madoff-cp-6397978There was cheering from the crowd when Madoff was immediately taken to jail.  Emotions are running high and will do so for years to come.   But this is not a joyous day.  Many victims lives have been radically transformed by the financial crime Madoff effected.  Likewise, Madoff’s life as he knew it is over.  Leaving the comfort of normal life to go to prison is a radically different experience as well.

I know – regretably I have been there for exactly the same crime Madoff plead guilty to today.

Every choice has a consequence.  Many were victimized by Madoff et al and both the victims and Madoff, himself, are facing the consequences of choices made.

Madoff made the following comments in court today.

“I operated a Ponzi scheme.  I thought it would end quickly, but it proved impossible.  I am ashamed for these criminal acts. I always knew madoff_sketch_09031203this day would come.”

I was asked today on CBS radio – KRLD – by Ernie and Jay about the mentality of how something like this could happen.  Is it possible that Madoff just was out to steal from folks?  The answer is simply – NO.

While I don’t personally know Bernie Madoff, I know the thought process that ends in federal prison.  Madoff is a smart man.  In fact, I would say that he was brilliant in his ability to effect such a scheme successfully for so long.  That is rather amazing.  But, for a time, I suspect when he first got started, Madoff was legitimate.

To effect a fraud like this, there must be three components: (1) need; (2) opportunity and (3) rationalization.  My best guess is that Madoff had two needs that came together when he began this in the early 90’s – (a) emotional need – he would not admit that he was faliable; and (b) money – in that he likely lost money and was unwilling to admit that fact.  Hence, he entered into the second  part of creating such a fraud – he took advantage of his name and notariety to gain more money – more investors or more victims.

CNN reported: Madoff admitted that he never invested his clients’ money, and that he deposited the funds into a “Chase Manhattan” bank.

At that point, Madoff crossed the line of investing and became an outright fraud.  Amazingly, instead of continuing to invest clients money hoping for the big win, Madoff just deposited the money in the bank.  Of all revelations, that was the most amazing.  Effectively he just gave up, committed the crime and waiting until the house of cards fell.

TONIGHT FOR MADOFF:

As I type this I can speak first hand from experience, Madoff just entered a phase of life that is totally foreign and for which he is unprepared.  Likely, as he was removed from the court room, he went to processing where he removed his clothing and was issued prison issue clothing.  It is doubtful that he was madoff_jail_cell03allowed to keep much other than one set of “street” clothes that might be used for limited visiting privileges or meetings with legal counsel, etc.  He would have likely been handed his bed linens and escourted to his holding cell.   Unless because of his age he was assigned a lower bunk, he would be given the upper bunk as those with more time in the facility get the privilege of lower.  His meals would be a step above a Swanson’s TV dinner – maybe – and the routine is strict.

Counted multiple times per day, Madoff will soon find that he’s no more than anyone else incarcerated, an inmate.  Inmates will likely acknowledge him, but not consider him any more than they.  In fact, it is likely that many will avoid him fearing that what they might say to him will be used against them (they fear he’d become a snitch) in order to gain favor with the judge for a lighter sentence.

Tonight will be one of the longest nights of Madoff’s life.  He will wonder to himself – time and time again – what he has done and why.  Those thoughts will haunt him for the rest of his life, which from a free man’s perspective, has ended.

THE VICTIMS:

Now here’s where I should stop, but for whatever reason, I can’t.  I understand the anger, and desire for revenge that many feel.  It is natural as your trust has been violated.  This is no different than feeling that one has when a marriage ends with the distrust created by adultery.

Many would say that I am the least to offer advice.  Perhaps that is true, but I’m going to try.  First, from a practical perspective seek the legal help you need to recover what you can.  Know that there are possible sources for some recovery including the application of IRC Section 165(c)(2).  I am not an expert in that area, but I have a guest blog from someone who is.  Go there it might be helpful.

Beyond the legal recourse against Madoff and those involved – and I suspect that others will fall from this as well, may I say – with respect – put your loss into perspective.  We come into this world with nothing and leave that way as well.  Money – security – certainly are important, but it is afterall only material.  The longer one harbors anger or hate, the worse life becomes.  Finding the ability to recognize that Madoff will suffer and reap the consequences of his choices is significant.

Your life has changed – so has his.  No one walks away from this feeling good or whole.  The ultimate outcome, however, for you and your well being will, in large part, be a function of your ability to forgive.

IN THE LONG RUN:

Having been there, I know the pain of prison.  Some learn from their experience and others never get it.  In Madoff’s case we may never know what the true effect of his life changing experience will bring.  In my case, prison was life changing.  While I am thrilled with freedom, I understand that my time there changed my life and gave me an opportuity to do something positive today that, in fact, helps others.

Sometimes you can actually get lemonade from lemons!

As always – COMMENTS ARE WELCOME.

HERE is what Madoff read to the court.


The Mind of Madoff (Part 1) – What Would Motivate Such A Crime? Comments by Fraud Prevention Expert Chuck Gallagher

January 29, 2009

The largest Ponzi scheme in history seems to be unfolding before our eyes if what Bernie Madoff has said is true.  What some believed was a Wall Street power broker is now a prisoner in his own home.  Fifty billion dollars potentially lost with a huge string of investors who found out in late ’08 that the economic crisis was personal – very personal.

bernie-madoffThe proported manager of billions of dollars for individuals and foundations, Madoff to many was a brilliant investor who produced consistent returns and attracted a star studded client list.  After all, who would not want to place their investments with someone who seemed to have the inside track on how to produce results.  But with Bernie’s self admitted Ponzi scheme, who is the real Bernie Madoff and more importantly what would motivate such a crime?

According to a New York Times article written by Julie Creswell and Landon Thomas, Jr. the following is stated:

An easy answer is that Mr. Madoff was a charlatan of epic proportions, a greedy manipulator so hungry to accumulate wealth that he did not care whom he hurt to get what he wanted.

But some analysts say that a more complex and layered observation of his actions involves linking the world of white-collar finance to the world of serial criminals.

They wonder whether good old Bernie Madoff might have stolen simply for the fun of it, exploiting every relationship in his life for decades while studiously manipulating financial regulators.

“Some of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,” says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioral profiles.

The questions about who the real Bernie Madoff is and what motivated his crime will be the subject of many books and be studies for years.

Psychopath – now that seems a deep reach and a good question.  Listed in Scientific America is the following definition or description of psychopathic behavior.  I have included several paragraphs so that you can begin to judge for yourself just where the connection may be with Bernie Madoff.

First described systematically by Medical College of Georgia psychiatrist Hervey M. Cleckley in 1941, psychopathy consists of a specific set of personality traits and behaviors. Superficially charming, psychopaths tend to make a good first impression on others and often strike observers as remarkably normal. Yet they are self-centered, dishonest and undependable, and at times they engage in irresponsible behavior for no apparent reason other than the sheer fun of it. Largely devoid of guilt, empathy and love, they have casual and callous interpersonal and romantic relationships. Psychopaths routinely offer excuses for their reckless and often outrageous actions, placing blame on others instead. They rarely learn from their mistakes or benefit from negative feedback, and they have difficulty inhibiting their impulses.

Not surprisingly, psychopaths are overrepresented in prisons; studies indicate that about 25 percent of inmates meet diagnostic criteria for psychopathy. Nevertheless, research also suggests that a sizable number of psychopaths may be walking among us in everyday life. Some investigators have even speculated that “successful psychopaths”—those who attain prominent positions in society—may be overrepresented in certain occupations, such as politics, business and entertainment. Yet the scientific evidence for this intriguing conjecture is preliminary.

Most psychopaths are male, although the reasons for this sex difference are unknown. Psychopathy seems to be present in both Western and non-Western cultures, including those that have had minimal exposure to media portrayals of the condition. In a 1976 study anthropologist Jane M. Murphy, then at Harvard University, found that an isolated group of Yupik-speaking Inuits near the Bering Strait had a term (kunlangeta) they used to describe “a man who … repeatedly lies and cheats and steals things and … takes sexual advantage of many women—someone who does not pay attention to reprimands and who is always being brought to the elders for punishment.” When Murphy asked an Inuit what the group would typically do with a kunlangeta, he replied, “Somebody would have pushed him off the ice when nobody else was looking.”

Is this the description of Bernie Madoff?  When he began his career is this Bernie Madoff?  Those questions will be the subject of much public debate.  Yet, as I read the definition above, I can think of many people I know, including myself, who have – from time to time – exhabited some of those behaviors.  In fact another comment from the New York Times article says it so clearly:

“People like him become sort of like chameleons. They are very good at impression management,” Mr. McCrary says. “They manage the impression you receive of them. They know what people want, and they give it to them.”

By all means I am not trying to be funny here, but what Mr. McCrary says is to me the definition of a good salesman.  And a good salesman, Bernie Madoff was!

I suspect that his motivation was far more simple than what some are trying to characterize.   All of his upbringing would indicate a basically normal childhood with nothing presented that is out of the ordinary.   Starting his investment firm in the 1960’s trading penny stocks, Bernie Madoff – I believe – was making a way for himself as honestly as he knew how.  I doubt he had any thought or concept that he would create a ponzi scheme to defraud people.  I can almost picture that nothing like that was foremost in his mind.

Now some might be asking, well why do you think you know so much about a man you’ve never met?  Fair question.  The answer, because I’ve been in his shoes.  Not proud to say that, but my past will reveal that I, too, effected a ponzi scheme and like Bernie – when the card (from the house of cards was pulled) I, too, revealed my misdeeds and eventually went to prison.  They say it takes one to know one – well maybe that fits in this case.

Fraud – at least this kind of fraud – consists of three primary traits:  (1) need; (2) opportunity and (3) rationalization.  So when looking at the question of “what would have motivated such a crime” the first thing that is important is what was Bernie’s – need.  Need in this case is the key to his motivation.

What was his need?  Money?  I doubt it.  Rather, I think that Mr. Madoff’s need was emotional.  Reared as a child in a normal jewish home, I have no doubt that Bernie Madoff was a motivated – perhaps driven – individual set out on achieving success.  Getting involved in the securities business when he did allowed him to ride the crest of a wave of growth and success that this nation had not seen for decades.  And Bernie was at the forefront of dramatic change.

As an example of Bernie Madoff’s business positioning the following was said in the New York Times article:

During the mid-1970s, when changes in the rules allowed his firm and others like it to trade more expensive and more prestigious blue-chip stocks, Mr. Madoff began gaining market share from the Big Board.

“He was a man with a good idea who was also a terrific salesman,” says Charles V. Doherty, the former president of the Midwest Stock Exchange. “He was ahead of everyone.”

So what happened?  Imagine…fairly successful guy – gets to move in bigger and more powerful circles – making money for himself and those he is connected with – on the cutting edge of his career growth – likable – and a great salesman.  Then the market changes and he experiences what he has not felt in years – losses.   Clearly I can’t support the theory with documentation – that will be disclosed in years to come as part of this massive investigation.  But, if I were a betting man I would say that Bernie had an emotional problem with revealing that he was not the person he created the illusion he was.

Fraudsters, by nature, create illusions.  That statement seems obvious, but to the unsuspecting public is seems a revelation.  If a fraudster were to reveal the truth, no one would be defrauded.  The illusion is critical and the illusion is hard to break.  Once broken the fraudster is revealed as nothing more than a liar and a thief.   In 1990 I had to reveal that shadow side of myself to my wife, family, partners and clients and the cost was devastating.  In December of 2008 Bernie Madoff – when there was no way to perpetuate his fraud had to do the same.

I suspect that when Bernie’s results began to go south, he was incapable of admitting his weakness to his clients and friends.  He created the persona and was going to stick by it.  It was then that the ponzi scheme began to unfold.  Did he intend to defraud at first?  I don’t think so.  However, his need to maintain the illusion for his emotional well being kicked into gear the first aspect of the tranformation of Bernie Madoff into fraudster.  When “need” was established the house of cards began to be built.

The Times report says the following:

To some extent, analysts of criminal behavior say, defining Mr. Madoff is complicated by the wide variety of possible explanations for his scheme: a desire to accumulate vast wealth, a need to dominate others and a need to prove that he was smarter than everyone else. That was shown, they say, in an ability to dupe investors and regulators for years.

There is no one answer and yet the answer is simple.  For whatever the underlying reason, when the “need” is established and firmly in place the fraud will begin.

There will be more about Madoff to come…for now however, know this – in troubled economic times – the “need” becomes heightened and fraud is on the rise.  Perhaps it remains undetected, but it will be brought to the light – it always is.  Every choice has a consequence.  I am living proof of that statement and speak around the world about choices and consequences.  Perhaps my comments – heard by just one person – will be sufficient to help them make choices that yield positive results.  Bernie’s will leave him in prison for the rest of his life.

COMMENTS ARE WELCOME:

Read the rest of this entry »


Bernie Madoff – Confined by a Prison of His Own Making – Comments by Fraud Prevention Expert Chuck Gallagher

January 15, 2009

ABC News wrote about “Bullet Proof Bernie” – nice article but predictable – here’s a link.   It seems that whenever a crime is discovered there is the public outcry for justice.  From most every angle by most media outlets, there is a profuse desire to see Bernie Madoff suffer as others have suffered at his hand or by his doing.  It is a logical desire as it is driven by human emotion.

madoff1The article states in its beginning:

The federal government today took a second shot at attempting to argue in court that alleged $50 billion fraudster Bernard Madoff ought be put behind bars while it gets its case against him into shape for court, and a second federal judge deflected the attempt to revoke the current bail conditions.

Perhaps that is the story.  Perhaps it is as simple as an eye for an eye.  Perhaps it is all about the process.  Perhaps it is more?

While fascinated with were Bernie Madoff will be temporarily imprisoned, I suggest that his incarceration began sometime back – before any of us knew the scope and maginatude of his fraud –  and has been on going – just not the way the public would like to see – as evidenced by the media frenzy.    The article talks about Bernie’s entrance into the court room with a bullet proof vest worn over his clothing.  It further goes on to describe his current method of confinement:

He is currently confined, except for court appearances, to his Manhattan cooperative apartment. There is an armed security guard on duty at all times, video cameras recording visitors at both the front and rear entrances, and Madoff also wears an electronic security ankle bracelet that would instantly notify the U.S. Marshals or the FBI if he attempted to leave the premises without permission and an escort.

All of this interest in how Bernie Madoff will be punished is certainly interesting, but fails to address the much larger issue that allows such a crime to take place in the first place.  Two questions to ponder…

  • What would motivate an otherwise intelligent, competent person to choose to defraud his friends, close business associates and disappoint those closest to him? What was in the “Mind of Madoff” that could make such a crime possible?
  • More importantly, how could very bright, influential and astute investors be taking for so much so easily?  Was the sheer masterful illusion he created so powerful that it would take down the very powerful and influential of our country?

I believe that the “why” he did it and the “how” he did it is far more important than what happens now.  Agree?

On my Facebook wall the following was written:

Chuck – well Madoff remains in home confinment. Appropriate legally. He has created his prison and its much deeper than where the government might send him. 5:53pm
Betsy Rodgers Smith at 5:55pm January 14
Agreed….he has been in the prison of his own making for a very long time.
Chuck Gallagher at 6:00pm January 14
Yes. I’ve been there (on a much MUCH smaller scale and the pain was tremendous. Odd, but I understand where he is and yet see the pain felt by his victims. Likely he will die in prison – either figuratively or literally or both.
Jimmy Carter at 6:35pm January 14
I am certain that even the luxurious walls of a Manhatten apartment will tend to grow close given a sufficient amount of time.
Terence Washington at 7:53pm January 14
They’re still “luxurious” meanwhile the unemployment line grow longer and longer. All his brethren need to be shipped off to a small island populated with wolves,sharks,weasels..so they can mingle with creatures of their own ilk.
Chuck Gallagher at 9:03am January 15
Interesting to see what responses folks feel. I had an entry on my blog that generated similar emotions. I often wondered if the person who was most critical found themselves in the shoes of the accused, would they have the same attitude for “wolves, sharks and weasels”?

By the way, Madoff is a prisoner in a nice place, but will – no doubt – be a prisoner (if he lives that long) is federal prison – and that is not so nice. I know – I’ve been there.

Terence Washington at 9:08am January 15
After reviewing my acerbic comments I would have to say I still stick by them. I mean, Madoff is the Master of his own Universe( in the scope of reality). Greed fed his universe, like it does so many people.

The bible says never judge “lest he be judged”, but I’ll never ever ever( cubed, squared,etc) be in a loathsome situated as Mr.Madoff–I’m way to level headed for that. His prison is his own, how he resides in or his mental anguish it is not my concern.

Chuck Gallagher at 1:17pm January 15
Fair enough…he does reside in a prison of his own doing. I wonder however if greed fed his universe or if it was fed by ego? By the way…thanks for the comments.
Ask youself this question – when you read or hear about Bernie Madoff – what emotion comes up for you.  Take the time to feel deeply.  It is far too easy to take the “I’d never do that path” than it is to explore the “whys” and “hows.”
While there will be much more to come – as this issue and case is far to complex for one writing – the real value will come in understanding the “Mind of Madoff.”   While I must be honest, I don’t know Bernie Madoff personally, I have been in his shoes.  Not proud of it, but I did  perpetrate a Ponzi scheme (for which I spent time in federal prison) so I know, from experience, what is in the mind of someone who commits such a fraud, and likewise, how easy it is to achieve. Today I help organizations prevent fraud and deal with ethical issues.  See here.
Madoff set a standard that will be written about for years.  The people he defrauded will suffer the consequences of his actions and their inactions.  As for Bernie’s future…  well he is already in prison – a prison of his own doing.  He will be cut off from life as we (who are free) know it.  That disconnection is more painful than you can imagine.  He will be reduced to a number and sent to federal prison where – he will likely die.  The bright young man who faced a bright future at 22 when he first started investing will leave this world, more than likely, the shell of a man who will be remembered for the illusion he created.
For all involved it is sad…