Project Title: Ponzi Scheme II

Project Title: Ponzi Scheme II

Project Title: Ponzi Scheme II

Read instructions carefully and follow them.  APA 7th edition format is to be used.  Use proper grammar and it should be 15 pages long not including cover and reference page.  Be very detailed and specific.

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    Reading2WallStreetKnewMadoffwasaFraud.pdf

     

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    Reading4ASSESSINGTHEMADOFFPONZISCHEMEANDREGULATORYFAILURES.pdf

     

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I. Project Title: Ponzi Scheme II. Introduction You are a relatively new journalist at an accounting publication: The Journal of Strategic Fraud Warriors, which is headquartered in New York City. The target market for Fraud Warriors includes academics, professional fraud examiners, accounting practitioners, attorneys, financial managers, government regulators, and other highly educated professionals. The journal is sold in high end bookstores, university bookstores, and on Websites of various professional organizations. In your sixth week of employment, your boss assigned you to author an article on the fallout from the Bernie Madoff Ponzi scheme. He expects your final article to be a minimum of 15. Since the article will appear in a peer reviewed journal, APA style and formatting must be used. The boss explicitly stated, he expects a minimum of 15 pages of content, excluding the cover page, abstract, table of contents, and references. Bulleted lists are disallowed. APA uses double spacing with no extra white space between items, etc. You’re super excited to be selected as the author knowing that your article will likely attract many readers from prestigious institutions. Before jumping into writing you decide to read more about the Madoff Ponzi scheme. III. Steps to completion Step 1: Review the articles and view the videos in the Project 2 folder in Content/Course Resources/Projects & Rubrics.

• Read: Case Study, Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Advisor, by Denis Collins.

• Search the Web for more information on the Madoff case: o Bernie Madoff movies and/or the mini-series o Book, pdf, and movie: No One Would Listen, by Harry Markopolis

Step 2: Review the requirements of APA Style, 7th edition.

Step 3: Conduct Research

Cite from scholarly (peer reviewed) journals only. When using the UMGC library, One Search, click Scholarly journals only to retrieve articles from peer reviewed journals.

 

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Use the following question(s) as a launch pad for further research. To prepare the journal article select those questions upon which your research focused.

1) Consider the laws and regulations passed since Madoff’s fraud; how likely would it be for a similar perpetrator to get away with a $65 billion Ponzi scheme? Why?

2) Discuss the use of data visualization techniques that could have detected Madoff’s Ponzi scheme earlier.

3) Using Cressey’s fraud triangle, discuss how Bernie and his co- conspirators rationalized the fraud given that they were all very wealthy before their involvement in the scheme.

4) What losses, both financial and nonfinancial, could have been avoided (reduced or eliminated) if the SEC had listened to Harry Markopolis the first time he informed them of his suspicions?

5) Charles Ponzi’s fraudulent scheme began in the early 1900s. He was imprisoned multiple times, escaped prisons multiple times, and died in the charity ward of a Rio de Janeiro hospital in 1949.

i. In what ways were Madoff’s Ponzi scheme similar to and different from Mr. Ponzi’s Ponzi scheme?

ii. Bernie Madoff committed a Ponzi scheme a century later than the original Mr. Ponzi. How has the accounting profession failed to create GAAP and the requisite internal controls to protect the public?

iii. What measures have the accounting profession and federal government agencies implemented to thwart similar financial schemes like Madoff’s Ponzi scheme?

6) To what extent would it have been considered fraud, if Madoff’s sons granted their father’s wish to stay quiet for one-week while he disbursed remaining funds to family and friends?

7) To what extent did the SEC serve as an unknowing accomplice or co- conspirator by ignoring Harry Markopolis’ warnings, thus allowing Madoff to perpetuate his fraud?

8) Markopolos has described Madoff as an octopuses’ body and head whereby feeder fund managers were the octopuses’ tentacles that spanned the globe. Discuss ways to mitigate investing in a fund of funds led by feeder fund managers willing to look the other way to maintain a steady flow of fees from fraudsters such as Madoff.

9) From your research plus the readings, and videos discuss red flags that feeder fund managers and savvy investors should have noticed. Discuss why people, even those well informed about Ponzi schemes, ignored red flags.

10) Bernie Madoff is imprisoned but what happened to his co-conspirators, such as the feeder fund managers, Madoff’s accountants, accounting firms that performed audits on the feeder funds and others?

 

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11) Which fraud detection tools should be employed to assess the due diligence of feeder fund managers?

12) Why didn’t sophisticated investors perform due diligence before investing large sums of money with Madoff?

• Step 4: Prepare your final deliverable:

o An article in APA style suitable for publication in The Journal of Strategic Fraud Warriors

o Requires a minimum of 15 pages of content, excluding the cover page, abstract, table of contents and references. Also, bullets are disallowed. APA uses double spacing only. Do not add white space between items, etc. Refer to your APA resources as there are many formatting requirements needed.

Step 5:

Submit your draft documents to the writing tutors at least 1 week before the

project due date. Make edits to improve your deliverable after reviewing

feedback from writing tutors.

 

As a reminder, Turnitin will check the authenticity of your submissions.

If you submit your Word document before the due date, Turnitin will provide a

similarity score, which can guide you in determining potential edits needed. You

may submit as many times as you’d like. Your professor will only grade the last

file you submit in your LEO Assignment folder.

IV. Deliverables

An article in APA Style 7th edition suitable for publication in The Journal of Strategic Fraud Warriors. The article should be a minimum of 15 pages, excluding the cover sheet and reference list.

V. Rubric The grading rubric and all files associated with this project are located in

Content/Course Resources/Projects & Rubrics.

VI. Helpful Hints for Success

Read the rubric before you begin writing to ensure you understand the requirements.

Ask your boss (professor) questions as needed.

 

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Review and refresh your understanding of APA Style formatting

Review the Turnitin resources in Content/Course Resources/Writing Resources

Submit your final project to Turnitin (TII) before the due date to receive a

Similarity Score.

o If you determine the Similarity Score is too high, edit your paper (usually

by adding more citations and/or quotations marks) and resubmit to TII.

Your professor will grade the last version submitted before the due date.

Re-read the grading rubric before submitting your final project to ensure you

have met all of the requirements of this project.

Submit your draft documents to the writing tutors at least 1 week before the

project due date. Make edits to your deliverables after reviewing feedback from

the writing tutors.

If relevant, review the Departmental Late Policy, in syllabus and in Course

Resources/Late Policy. Note: no assignments are accepted after the last day of

class.

 

,

435

Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Adviser By Denis Collins Denis Collins is a professor of management in the School of Business at Edgewood College in Madison, Wisconsin. His research interests include business ethics, management, and organizational change. Contact: [email protected] edgewood.edu

A [person] is incapable of comprehending any argument that interferes with his revenue.

Rene Descartes

Overview This case study is a chronology of the largest Ponzi scheme in history. Bernie Madoff began his brokerage fi rm in 1960 and grew it into one of the largest on Wall Street. While doing so, he began investing money as a favor to family and friends, though he was not licensed to do so. Over a period of fi fty years, these side investments be- came an investment fund that mushroomed into a $50 billion Ponzi scheme. Bernie1 pled guilty without a trial on March 12, 2009, and was sentenced to 150 years in prison. Thousands of wealthy clients, philanthropic organizations, and middle-class people whose pension funds found their way into Bernie’s investment fund lost their life savings.

What to Do? Bernie Madoff, at age 69, owned three very successful fi nancial companies—a bro- kerage fi rm, a proprietary trading fi rm, and an investment advisory fi rm. On Decem- ber 10, 2008, the brokerage and proprietary trading fi rms, managed by his brother and two sons, were performing as well as could be expected in the middle of a deep recession. His investment advisory fi rm, however, was on the verge of collapse. In- vestors in Bernie’s investment fund had requested $7 billion in withdrawals, and he did not have the cash to pay them. Known only to Bernie and a close circle of loyal employees, the investment fund was a $50 billion Ponzi scheme in operation for at least twenty years.

Bernie met with his sons—Mark, age 44, and Andrew, age 42—in his offi ce to discuss his contentious plan to issue annual employee bonuses in December

Case Study

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436 CASE STUDY Bernie Madoff’s Ponzi Scheme

rather than in February, as was typical. Bernie insisted they be chauffeured with him 12 blocks to his $7.4 million penthouse apartment to discuss the matter in greater privacy. Shortly after arrival, Bernie broke down and confessed, “I’m fi n- ished. I have absolutely nothing. [The investment fund is] all just one big lie.”2 The Ponzi scheme consisted of tens of thousands of falsifi ed balance sheets and client statements.

The brothers were shocked. They admired their father and looked forward to inheriting the company. They, along with other family members and close friends, were heavily invested in the fund. Now they were all broke, and their father would have to spend the rest of his life in jail. Andrew collapsed in tears. Their mother, Ruth, hovered nearby.

Bernie made one request of his sons. He asked them to remain quiet about the Ponzi scheme for one week, allowing him time to distribute what little money remained left into investment accounts held by family, friends, and a few special clients. Then he would turn himself in to the Securities and Exchange Commission (SEC) and FBI. After forty-fi ve minutes of screaming and heartache, the sons left the apartment. Should Mark and Andrew grant their obviously distraught father the one week he requested, or should they immediately notify government offi cials about their father’s criminal activities?

Becoming a Stockbroker Bernie Madoff was born on April 29, 1938, the second child of Ralph and Sylvia Madoff.3 Ralph and Sylvia, married at the nadir of the Great Depression in 1932, were children of eastern European immigrants who had fl ed the anti-Semitism— persecution and murder of people who are Jewish—in their homeland. The family lived in a small lower eastside Manhattan apartment. Following the bi rth of Peter, their third child, in 1946, Bernie’s parents bought a small home in the Laurelton sec- tion of Queens. Laurelton was a predominantly working-class Jewish community near what is now Kennedy Airport.

Ralph worked, mostly off-the-books, as a plumber. The IRS found out, ordered him and two partners to pay $13,000 in back taxes (equivalent to $103,000 in 2010 dollars),4 and placed a lien on his home. In the late 1950s, desperate for money, Ralph and Sylvia, a homemaker, opened Gibraltar Securities. The business was reg- istered in Sylvia’s name to protect its assets from the IRS. Sylvia obtained a stockbro- ker license, but not an investment adviser license. Ralph had neither license.

A stockbroker and an investment adviser differ according to the type of obliga- tions they have to clients. An investment adviser has a fi duciary duty to always act in the client’s best interest. A stockbroker, on the other hand, is a salesman who brokers a deal between buyers and sellers. A stockbroker must provide the client “suitable advice,” which may not necessarily be the best advice.5

In 1959, while majoring in political science at nearby Hofstra College, Bernie made a series of decisions that shaped the rest of his life. First, he decided that he, too, wanted to become rich working as a stockbroker. Second, he married Ruth, his high school sweetheart, and they moved into an inexpensive one-bedroom apart- ment in Bayside, Queens. Third, two days after the wedding ceremony, he registered Bernard L. Madoff Investment Securities as a brokerage fi rm with $200 of assets and no liabilities. Bernie had $5,000 in working capital, money he saved from summer

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CASE STUDY Bernie Madoff’s Ponzi Scheme 437

jobs as a lifeguard and installing lawn sprinkler systems. Ruth agreed to do the bookkeeping.6

Growing the Business through Some Illegal Trading on the Side In 1960, who would trust a 22-year-old political science major trading stocks out of his apartment? Initially, hardly anyone. Ruth’s father, Saul Alpern, helped Bernie establish some legitimacy by giving him offi ce space in his mid-town Manhattan ac- counting fi rm.

A publicly traded company listed on the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX), had to meet certain size requirements and pay substantial fees. Bernie focused on trading “over-the-counter” penny stocks, valued at less than $1.00, that were traded outside the NYSE or AMEX. An in- vestor would telephone Bernie wanting to buy or sell penny stock. Bernie would then contact other investors or stockbrokers to make the trade at the best price for Bernie’s client.

In a short time, Bernie got several big breaks. Alpern, impressed by his son-in- law’s work ethic, loaned him $50,000 ($364,000 in 2010 dollars) to invest. Then, a mutual acquaintance introduced Bernie to Carl Shapiro, the very successful owner of a Boston women’s apparel company. Shapiro, worth more than $22 million ($3.0 billion in 2010 dollars) at age 45, was intrigued by Bernie’s ability to complete trades in three days; most stockbrokers took three weeks.7 Shapiro gave him $100,000 to invest on his behalf. Bernie used the money he made trading for Alpern and Shapiro to subsidize his penny stock brokerage fi rm.8

Bernie earned substantial fees by investing Alpern and Shapiro’s funds, and sought to increase business by offering to pay his father-in-law for each new client he recruited. Alpern told family members, business friends, accounting clients, and acquaintances he met during summer vacations in the Catskills, that Bernie could get them an 18 percent return on their investment. At the time, the SEC had a rule that exempted investment advisers with less than 15 clients from being licensed. Bernie exceeded this limit and was required to obtain a license; this meant passing an examination, paying fees, and fi ling statements with the SEC. Instead, Bernie joined the ranks of illegal unlicensed investment advisors— including his parents—who escaped the scrutiny of the SEC and state securities regulators.

By 1962, after only two years of operation, Bernie was overwhelmed by the paperwork required for managing his growing number of small investments. Bernie told his father-in-law to do him a favor by collecting money from various investors and then give the total amount to Bernie as one account to invest.9 This also made it appear to the SEC as though he had fewer clients. Soon, Alpern’s accounting busi- ness unoffi cially merged with Bernie’s investment business. Alpern assigned Jerry Horowitz, one of his accountants, as Bernie’s personal accountant. This allowed Ruth to reduce her company involvement to writing checks and managing her hus- band’s work expenses. Frank Avellino, another Alpern accountant, not only invested with Bernie for a guaranteed 20 percent return rate, but also earned a commission for recruiting other clients. Both Alpern and Avellino were, like Bernie, unlicensed investment advisers.

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438 CASE STUDY Bernie Madoff’s Ponzi Scheme

In 1963, Bernie focused on growing his brokerage clients. That year, the SEC in- vestigated 48 brokerage fi rms, including Bernie’s mother’s Gibraltar Securities busi- ness, for not fi ling fi nancial reports. His mother, though not fi ned, lost her business license and was banned from the securities industry.10 Nonetheless, Bernie’s father continued to earn money as an investment adviser.

As for Bernie, he could have obtained an investment advisory license then to avoid what happened to his mother. But if he did, the SEC or other securities regula- tors might audit his fi nancial books and discover that Bernie also had been violating SEC licensing laws. He feared that, just like his mother, this could result in being banned forever from the securities industry.

More Growth and Illegalities Businesses borrow money from banks to pay for expansion. Bernie didn’t have to do this because he had a bank account with money fl owing in and out from his il- legal investment advisory business. He used some of this money, without his client’s permission, to avoid interest payments. Bernie moved money between his Bank of New York brokerage bank account and his Chase investment adviser bank account as needed. Whenever he fell short of the guaranteed 20 percent investment advisory returns, he made up the difference by taking money out of his brokerage bank ac- count. If he needed income to grow the brokerage fi rm, he took money from the investment advisory bank account.11

Bernie got another big break when his father-in-law hired Michael Bienes as an accountant in 1968. Bienes’ brother-in-law was Jeffrey Picower, a wealthy Wall Street investor.12 Bienes earned hundreds of thousands of dollars in commissions from money Picower invested with Bernie over the next forty years.

How did Bernie explain his remarkable results to sophisticated investors like Picower? Bernie now sold blue-chip stocks and claimed he invested client money using a complicated three-part “split strike conversion” investment strategy. He told clients that fi rst he purchased common stock from a pool of 35 to 50 Standard & Poor’s 100 Index companies whose performance paralleled overall market perfor- mance. The S&P 100 Index represents the 100 largest publicly traded companies based on market capitalization, and represented a very sound investment. Second, he bought and sold option contracts as a hedge to limit losses during sudden market downturns. Third, he left the market and purchased U.S. Treasury Bills when the market was declining, and then sold the U.S. Treasury Bills and reentered when the market was rising.13 Bernie never shared his mathematical calculations for determin- ing when to buy or sell. He considered the information proprietary and did not want competitors to copy it. Later, fi nancial experts would question whether Bernie ever used this method.

Key to Bernie’s success was the effi ciency and speed of his trading operations. Bernie was one of the fi rst brokers to recognize the role computers could play in the fi nancial industry. In 1970, he hired his younger brother, Peter, to help computerize operations.14 The speed of their trading transactions attracted a growing number of clients, such as other brokerage fi rms and investment advisers, to do business through Bernie’s operations.

Investment advisers were also intrigued by Bernie’s unique one or two pen- nies commission for each share invested with his company. Although legal,

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CASE STUDY Bernie Madoff’s Ponzi Scheme 439

competitors maintained that these commission payments created a confl ict of in- terest for investment advisers, equivalent to paying fi nancial kickbacks to a sup- plier. As noted earlier, an investment adviser is legally obligated to make the best deal for a client. The possibility of investment advisers earning a commission for directing their client’s money to Bernie introduced another motive— doing what was in the investment adviser’s fi nancial interest rather than the client’s fi nancial interest.

While Bernie was pushing other investment advisers into ethically grey areas with his commission offers, the SEC was trying to break up the virtual trading monopoly the NYSE and AMEX had in the investment community. The SEC en- couraged Bernie and others to create a “third market” for trading over-the-counter stocks of small public companies. In 1971, the National Association of Securities Dealers and Automated Quotations (NASDAQ) was founded for public companies not listed on NYSE or AMEX. As the name implies, the buy and sell prices for these stocks were automated by computers. Bernie became one of the fi rst fi ve brokers to join NASDAQ.15

Bernie also made trades on small regional stock exchanges. The Cincinnati Stock Exchange, founded in 1885 to raise funds for Cincinnati area businesses, was one of the many regional stock exchanges that fl oundered under the shadow of the NYSE. Bernie revived the exchange in the 1970s by investing $250,000 ($950,000 in 2010 dollars) to upgrade its computer system. By 1976, the Cincinnati Stock Exchange increased its volume of trades signifi cantly by closing its trading fl oor and becoming an all-electronic stock market.

Bernie’s Ponzi Scheme Most analysts, particularly litigators, believe Bernie began operating a Ponzi scheme much earlier than 1991, the year he claimed during his sentencing trial. Some date it as early as the mid-1960s.16 Ponzi schemes are named after a scheme developed by Charles Ponzi. In 1920, Ponzi promised to double the money of investors within forty-fi ve or ninety days if they invested in a complicated security that only he knew how to manage. However, he never invested the money. Instead, he deposited their money into his bank account and paid investors the promised return using new in- vestor income. His scam was uncovered within a year. Investors who withdrew their funds early earned a large profi t, while those who had not withdrawn money lost their investment.

A successful Ponzi scheme requires a network of trusted co-conspirators. In 1975, Annette Bongiorno, hired 10 years earlier at age 19 as Bernie’s secretary, rec- ommended her Queens neighbor, Frank DiPascali, Jr., an 18-year-old recent high school graduate, for a job assisting Bernie’s investment advisory business. DiPas- cali quickly advanced to managing Bernie’s computer systems. DiPascali and Daniel Bonventre, originally hired seven years earlier as Bernie’s auditor, created fraudulent records to verify trades that never occurred.

Unlike Ponzi, Bernie owned a successful and legitimate brokerage fi rm. He used the activities of his booming brokerage business to shield his fraudulent activities. The computer software program developed by Bernie’s brother determined opti- mal trades within four seconds.17 Clients visiting the brokerage company observed a great deal of trading hustle-and-bustle that generated tremendous profi ts.

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440 CASE STUDY Bernie Madoff’s Ponzi Scheme

Bernie’s fraud was a rather simple scheme. Assume a client, promised a 20 percent annual return, gave Bernie $1 million to invest on January 1. Bernie depos- ited the client’s money in his own bank account. As more clients invested over the course of the year, the amount in Bernie’s bank account grew. If the client decided to redeem the entire investment on December 31, Bernie wrote the client a check for $1.2 million from the company’s bank account. Then DiPascali and several loyal in- vestment fund employees fed price data from the previous 12 months for stocks, op- tions, and Treasury Bills into a computer to derive a long list of trades that indicated a $200,000 profi t. DiPascali mailed these documents and fi ctitious trading tickets to the client as supporting evidence.18

Why would potential clients trust Bernie? Investors are drawn to successful fund managers trusted by others. Bernie had a long track record of successful investing, and was at the forefront of the computerization of stock trading. He served on SEC advisory committees, held a four-year elected term on the NASD Adviser Council, and was elected as non-executive chairman of NASDAQ.19

In addition, people were drawn in by Bernie’s personality. He was quiet yet char- ismatic and did not boast about his fi nancial success. Bernie exhibited a strong sense of family, loyalty, and honesty, and did not drink alcohol. Elderly clients treated Bernie as a son, peers treated him like a brother, and younger clients treated him like a friendly uncle.

Bernie also played hard to get. When approached by potential investors, Bernie typically told them his investment fund was closed, having reached its peak capac- ity. Then he’d re-contact them and offer a huge favor by reopening the fund just for them. For all these reasons, having Bernie manage their money became a status symbol.

Flush with cash, Bernie opened a London offi ce in 1983 to attract European investors. But that was not his only reason: the London offi ce would play a key role in his money laundering operation. Bernie and his co-conspirators deposited client investment money in Bernie’s New York City Chase bank account and then trans- ferred the money to his London bank account, creating the appearance of investing in London-based securities. He then transferred the money back to his personal Chase bank account.

The Apex of Hedge Funds Bernie’s investment fund performance caught the attention of large hedge fund man- agers seeking to maximize their client’s fi nancial returns. This put Bernie’s fund at the apex of the investment pyramid.

The investment pyramid begins with individuals deciding whether to conser- vatively deposit money in a highly liquid bank account and earn low interest rates, or pay a broker’s fee and invest in riskier mutual funds, consisting of a portfolio of investments. Mutual funds combine money from many investors, are professionally managed, charge management and withdrawal fees, and are highly regulated by the SEC. The most conservative mutual funds contain blue-chip stocks and Treasury Bills, the type Bernie allegedly bought and sold.

Hedge funds, unlike mutual funds, can invest in anything, such as midwestern farmland.20 They are only available to “accredited investors” with individual income over $200,000, and a net worth of over $1 million. Hedge funds are less regulated

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CASE STUDY Bernie Madoff’s Ponzi Scheme 441

than mutual funds and charge higher management, performance, and withdrawal fees. Some hedge funds are very risky and involve aggressive buying and selling and more speculative positions in derivative securities. Other hedge funds are very con- servative, they hedge, or reduce, market exposure inherent when investing in stocks.

Bernie’s business strategy consisted of marketing his investment fund to feeder hedge funds. A feeder hedge fund is a hedge fund that earns profi ts by feeding its cli- ents’ investments into another investment fund. Feeder hedge fund managers found investing their clients’ money with Bernie very appealing because of his consistently high annual returns.

In addition, Bernie paid feeder hedge fund managers a commission instead of charging them fees. 21 Hedge fund managers, then, earned money on both ends of their transactions. They charged their clients a 2 percent fee on assets and 20 percent fee on profi ts and then passed the money along to Bernie, who paid them commis- sions instead of charging them fees. However, Bernie would only do business with feeder hedge fund managers if they agreed not to mention his name in their mar- keting materials. Bernie insisted on this condition because, unknown to the feeder hedge fund managers, he was still an unlicensed investment adviser.

Bernie’s feeder hedge funds strategically operated out of New York City, Bos- ton, Palm Beach, Hollywood, Austria, and Greenwich, Connecticut. Bernie’s larg- est feeder hedge fund suppliers included Fairfi eld Greenwich Group, Ascot Partner, Bank Medici of Austria, and Cohmad Securities. Ascot Partner, owned by Ezra Mer- kin, had invested a total of $2.4 billion with Bernie before his arrest.22 Merkin, a well-known money manager, philanthropist, and leader within the Jewish New York City community, was trusted to manage investments for many Jewish charities, Ye- shiva University, the American Jewish Congress, and holocaust survivor Elie Wiesel, among others. The Cohmad Securities hedge fund, which rented offi ce space from Bernie, combined the fi rst letters of the last names of its two founders—Maurice “Sonny” Cohn and Bernie Madoff. Robert Jaffee, the son-in-law of Bernie’s long time client Carl Shapiro, became the primary recruiter for Cohmad Securities. Pro- fessionally, all seemed to be going well for Bernie. In 1986, Bernie’s earnings of $6 million put him among the 100 highest paid people on Wall Street.23 His new com- puter system, one of the best in the world, could calculate the best price for stock orders of up to 3,000 shares in just 10 seconds.24 Both of his sons, after graduating from college, worked for Bernie and learned about the legitimate business from the bottom up. The SEC also honored Bernie for staying open for business on “Black Monday,” October 19, 1987, when the Dow Jones Industrial Average dropped 508 points (22.6 percent) in one day of chaotic trading.25 Unknown to the SEC, Bernie was able to remain open because he had a large amount of cash from his illegal in- vestment fund account.

Solidifying Operations With all this success, Bernie relocated to three fl oors in the new prestigious Lipstick Building on Third Avenue in mid-Manhattan. The red-granite, 34-story, receding oval



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