Disgraced US financier Bernard Madoff was led off to prison on Thursday morning (12 March) for what may be the rest of his life.
Completing his surrender in the biggest Ponzi scheme in history, Madoff, confronted a courtroom filled with angry investors and kept a poker face as he pleaded guilty to 11 felonies (see box below) before being slapped into handcuffs.
Madoff’s guilty plea brought an abrupt resolution to the largest fraud schemes in history and a case that has fascinated the US legal community.
The 70-year old financier’s scheme involved using billions of dollars in new money from investors to cover redemptions of existing backers, rather his business’s supposed investment activities. A number of prominent US lawyers were among Madoff’s defrauded backers.
It was only during his allocution before Southern District Judge Denny Chin that Madoff (pictured) displayed any emotion or indication the pressure was getting to him.
When Chin cleared the preliminaries, he turned to the defendant and said, “OK Mr. Madoff, what’d you do?”
Madoff’s eyes twitched repeatedly as he recited the details of the crimes, that he said left him “so deeply sorry and ashamed”.
Madoff’s lawyers, Ira Sorkin of Dickstein Shapiro, who had successfully kept his client out on bail since his 11 December arrest, was fighting an uphill battle on Thursday as he argued that Madoff was not a flight risk and should be allowed to stay under house arrest until sentencing on 16 June.
Sorkin invoked a list of other notorious white-collar defendants who had been allowed to stay out of jail pending sentencing, including John Rigas of Adelphia, Bernard Ebbers of WorldCom and Jeffrey Skilling of Enron.
But assistant US attorney Marc Litt did not have to say a word about bail, as Chin had made up his mind. “I don’t need to hear from the government. It is my intention to remand Mr Madoff,” Chin said, setting off applause in the courtroom.
“As Mr Madoff has pleaded guilty, he is no longer entitled to the presumption of innocence,” Chin said. “The exposure is great, 150 years in prison. In light of Mr. Madoff’s age, he has an incentive to flee, he has the means to flee, and thus, he presents a risk of flight.”
Madoff pleaded guilty to six crimes that carry a maximum of 20 years in prison each – securities fraud, mail fraud, wire fraud, making false statements to the Securities and Exchange Commission (SEC) and two counts of international money laundering. An additional count of money laundering carries a 10-year sentence. He also pleaded guilty to four crimes that carry a maximum of five years in prison – perjury, false statements, investment adviser fraud and theft from an employee benefit plan.
Sorkin’s co-counsel, Daniel Horwitz of Dickstein Shapiro, said last night that the legal team has already filed a notice of appeal on Chin’s bail revocation to the 2nd US Circuit Court of Appeals.
In the courtroom on Thursday, a tearful Norma Hill was sitting in the front row after Madoff had been led from the courtroom.
“Twenty-one years ago my husband invested with Madoff two weeks before he died,” she said. “When he died, Madoff put his arms around me and told me everything was going to be all right.”
Hill said Judge Chin took “a courageous stance” in sending Madoff away and “restored my faith in the justice system.”
Chin, once he indicated he would accept the guilty plea, allowed victims who opposed that decision to step up to the podium next to the defence table and speak their minds.
George Nierenberg told the court, “I’m one of the many victims of Madoff’s egregious crimes.”
US Marshals tensed when Nierenberg pulled away from the podium, looked down the back of the defense table trying to get a glimpse of Madoff, and then appeared to move in his direction.
“I don’t know whether you had a chance to turn around and look at the victims,” he said to Madoff, who had craned his neck back in an effort to look at Nierenberg.
Instructed to stay at the podium, Nierenberg said, “I don’t understand why conspiracy is not one of the charges,” adding that it would take “an army to produce” all the false statements Madoff provided to fool investors.
Litt, the prosecutor, rose to reassure the victims that the Government’s investigation is continuing.
“A lot of resources and efforts are being expended to find both the assets and anyone else who may be responsible for this crime,” he said.
There was tension in the 24th-floor courtroom leading up to the proceeding but the room was subdued for most of the 80-minute plea hearing.
When Chin said he was going to have Madoff locked up, and after the brief applause had subsided, the judge called off a list of victims who had indicated in advance that they wanted to speak.
When he came to the name of Mark LaBianca, LaBianca said, “I do not object. It’s about time. Thank you, judge.”
Madoff’s side of the story
When Sorkin rose to detail the history of Madoff’s perfect attendance record in court since he was granted bail, Sorkin said that Ruth Madoff, Madoff’s wife, had put up her own money to fund a security service to monitor her husband while he was under house arrest. That comment drew a wave of derisive laughter from the benches, and one man said aloud, “That’s funny.”
Litt and prosecutor Lisa Baroni charged that Madoff sent out statements in the weeks leading up to his arrest last December indicating Bernard L Madoff Investment Securities had $64.8bn (£45bn) in assets, when in fact, there was only a fraction of that amount remaining.
Madoff said he was “actually grateful for this first opportunity to publicly speak about my crimes.”
“When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme,” he said. “However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come.”
Madoff had been prepared by Sorkin for the likelihood that he would go to jail. In previous court appearances, Madoff wore his wedding ring, but his left hand was bare on Thursday.
He said he was “painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money.”
With investigators probing who else may have been involved in the scheme, Madoff said he wanted to “emphasize today that while my investment advisory business, the vehicle of my wrongdoing, was part of my firm Bernard L Madoff Securities, the other business my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects. Those businesses were managed by my brother and two sons.”
He said the fraud began in the early 1990s, during a recession that was tough for the securities markets. But his clients, which included hedge funds, pension funds and charitable organisations, “like all professional investors, expected to see their investments outperform the market”.
“While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients’ expectations, at any cost,” he said.
Since Madoff was arrested, it became clear to investigators that he had not been purchasing securities for more than a decade.
Thursday, Madoff said that to keep up appearances, he claimed to employ a “split-strike conversion strategy,” investing in a basket of stocks that would closely mimic the price movements of the Standard & Poor’s 100 index, rotating out of the market into government-issued securities like treasury bills and hedging the investments by buying and selling option contracts related to those stocks.
For clients involved in this mythical “split-strike conversion strategy,” Madoff said he “caused false trading confirmations and client account statements that reflected the bogus transactions”.He said he lied several times in a May 2006 deposition conducted by the SEC staff in Manhattan. And he used another method to conceal the fraud more recently – wiring money from New York to London or vice versa, and charging clients four cents per trade on trades that never happened.
Madoff closed by making yet another attempt to keep separate the legitimate side of his company from the illegitimate side, and protect those nearest to him.
“I did this to insure that the expenses associated with the operation of my fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses,” he said, referring to the 4% trade charge. “It is my belief that the salaries and bonuses of the personnel involved in the operation of the legitimate side of Bernard L Madoff Investment Securities were funded by the operations of the firm’s successful proprietary trading and market making businesses.”
When it was first revealed that Madoff had agreed to plead guilty, speculation was rampant among investors and lawyers that he was doing so pursuant to a plea agreement with the Government, although it was unclear what the prosecutors could conceivably offer Madoff that would not ignite public outrage.
Thursday, acting US attorney Lev Dassin addressed these issues in a statement in which he said the guilty plea was just “one step in an ongoing investigation.”
“Despite speculation to the contrary,” Dassin said, “there is no agreement whatsoever, public or otherwise, between the government and Mr. Madoff about his plea, his sentence or the filing of additional charges against him or anyone else.”
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List of charges against Madoff