Eduardo Munoz/Reuters
Eduardo Munoz/Reuters

Weak end at Bernie’s: Reform withers six years after massive Madoff fraud

Revolving door persists on Wall Street as Congress fails to enact stronger investor protection for Main Street

Six years ago on Thursday, Bernard Madoff was arrested over the longest, largest and arguably one of the most brazen financial scams in history. By the time investigators caught up with him, the silver-haired fraudster had bilked investors to the tune of $65 billion.

Madoff is now behind bars, serving out what he can of a 150-year sentence. Meanwhile, efforts to make sure others can’t repeat his crime have similarly languished.

In the years since his indictment, legislation to protect Main Street investors’ savings and retirement accounts has failed to move through Congress.

Attempts have been made. On Capitol Hill, Sen. David Vitter, R-La., and Rep. Scott Garrett, R-N.J., are the sponsors of bills to provide an additional level of insurance against Madoff-type fraud. The laws are designed to restore financial confidence across the board, from pensioners to charities, yet they are stuck at the committee level.

That has disappointed many of those who lost money when Madoff’s giant Ponzi scheme collapsed.

“Our government made a pledge to every investor that this is a regulated industry and that we will be there for you to protect you from these kind of frauds,” said former Navy electrician Michael DeVita, who postponed retirement after his entire life savings evaporated at Bernard L. Madoff Investment Securities. “But the SEC [Securities and Exchange Commission] is either incompetent or a complete, total failure.”

Advocacy groups like the Network for Investor Action and Protection (NIAP) have recommended stricter punishments for the perpetrators of white-collar crime, support guarantees for the victims and prevention of future fraud. 

“We’re not just dealing with Madoff here. This is a national issue,” said NIAP President Ron Stein, adding that there is “truly bipartisan support” to push legislation forward in the 114th Congress.

“But the House bill is bottlenecked in the Financial Services Committee by Jeb Hensarling [R-Texas],” Stein said. “It’s unclear why the chairman has gone against his promise of giving it serious attention. It’s very, very frustrating.” Neither Hensarling’s office nor committee staff would comment on the issue.

Last month bankruptcy lawyer and Madoff company trustee Irving Picard — in charge of recovering investors’ funds — secured additional payouts for victims. Thus far, 60 percent of the lost principal has been repaid, costing the Securities Investor Protection Corp. (SIPC) $1 billion to dig up more than $10 billion in assets — with another vanished $8 billion that Picard is still chasing.

In mid-November, he reached settlements with two Cayman-based funds and a New York real estate developer to recoup their fake profits from the Madoff fraud.

Madoff’s elaborate financial fraud bilked 4,800 victims of $65 billion in fabricated gains over 20 years.
Neda Djavaherian

As the patriarch remains in prison, where he is addressed as “Uncle Bernie," like a Mafia don, the Madoff family has lost its two sons: Andrew, to cancer in September, and Mark, to suicide exactly one year after the scandal broke.

In March five of Madoff’s employees were found guilty and are soon to be sentenced. The con artist’s deputies were charged with conspiracy, securities fraud and tax evasion for having maintained an elaborate web of lies. Bookkeeper Annette Bongiorno, operations director Daniel Bonventre and account manager JoAnn Crupi were among those convicted, as six former insiders, including Madoff’s right-hand man, Frank DiPascali, cooperated with authorities and testified against their former coworkers.

Madoff reportedly suffered a heart attack last December and has stage 4 kidney disease. His ill-gotten lavish lifestyle is a thing of the past, and he now earns just $40 per month doing prison jobs at the Butner Federal Correction Complex in North Carolina. 

Even those close to Madoff still say they cannot believe the extent of the fraud.

Eleanor Squillari, his former personal secretary, aided in the criminal investigation against her boss. “I know that I didn’t do anything wrong,” she said. “But I blame myself for being there for 25 years and not seeing anything, even if there was nothing to see. I didn’t know what I was dealing with.” 

“[The Madoffs] lived this incredible life,” she said. “It just never occurred to me that they were living on the dime of their clients,” vacationing on a high-end yacht and flying on a private jet between summer homes.

‘I blame myself for being there for 25 years and not seeing anything, even if there was nothing to see. I didn’t know what I was dealing with.’

Eleanor Squillari

Madoff’s former personal secretary

Madoff, second from right, walking out of federal court after a bail hearing in Manhattan in January 2009.
Hiroko Masuike / Getty Images

Madoff’s scheme may pale in comparison with other financial scandals that emerged in the Great Recession, like the collapse of Lehman Brothers. But the scope of Madoff’s laundering was vast. Investors were paid massive returns from fresh money deposited by new investors, which kept the system going for decades. Although similar frauds often collapse quickly, this one lasted until the financial crisis made it untenable.

“If the stock market had not collapsed in 2008, Madoff Securities would still be in business,” said criminologist Diane Francis. “Every well-constructed fraud has a really brilliant mastermind … who knows everything. But they never tell anybody else everything.”

One of the architects of Madoff’s Ponzi scheme was Jeffry Picower, an investor who some say compelled Madoff to create the phony hedge fund on his behalf. As the single biggest beneficiary of the scam, Picower in turn was apparently instrumental in marketing the business to property moguls.

Another key component of the international arrangement was Austrian banker Sonja Kohn, who reportedly directed more money to Bernie than anyone else. Her ties to the government in Vienna have raised suspicions about limits of the law’s reach across borders.

Reform proposals since the discovery of history’s biggest financial fraud have emphasized the regulatory importance of strengthening extradition laws, shutting down tax havens and busting up shell companies.

Some critics even fault the capital gains taxes collected by the IRS for the duration of the Madoff saga, making the government a major recipient of the proceeds. Calling attention to the concentration of economic power, political corruption and the need for more transparency, advocates are demanding faster change.

At the same time, many of those left in the dust by Madoff’s crimes are still reeling.

“This man has stolen the life and hard work of so many people,” said Ilene Kent, another Madoff victim. “They’re Jews, Christians, Muslims, Hindus — across the board. They’re a microcosm of America.”

“In God We Trust” is an in-depth look at the Madoff crime and an intimate portrait of a remarkable woman who defied the odds to do what she believed was right. Watch part one of two this Sunday at 9 p.m. Eastern time / 6 p.m. Pacific.

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