On Dec. 11, 2008, Bernard Madoff was arrested on charges of running a Ponzi scheme. The arrest came as a surprise to the thousands of investors who had entrusted the safety and security of billions of dollars to his investment advisory firm. Experts estimate that Madoff's scam involved approximately $65 billion. It was one of the most prolific investment fraud scams in history.
Bernard "Bernie" Madoff was born in 1938 in Queens, New York. He later founded a trading firm named after himself in 1960. He used money earned at his lifeguarding job to help him start the business. Just 20 years later, his firm had already helped change the trading methodologies employed by investment firms and it had become one of the biggest independent firms in the business. The Madoff family grew rich, purchasing boats, homes, jewelry and artwork.
Exposed During the Market Collapse
Madoff was successful running a law-abiding trading firm, which gave him sufficient capital and clout to open an investment advisory wing. Later, though, the investment advisory portion of his business would become one of the biggest Ponzi schemes in history. A Ponzi scheme involves using investment capital deposited by new investors to pay out false profits and dividends to older investors. When a Ponzi scheme cannot attract enough capital from new investors, the old investors stop receiving their payouts and the scheme is discovered. In the case of Madoff's scam, it was discovered in 2008 during the height of the economic crisis in the United States.
Madoff Was Turned in by His Sons
Madoff was arrested the day after Dec. 10, when he first divulged to his family that his investment firm was a monstrous scam. Madoff's sons immediately reported their father to authorities and he was taken into custody the following day.
After Madoff's scam was revealed, many wealthy individuals discovered that they had lost their entire life savings as a result of the fraud. Madoff invested money belonging to charities, universities, hedge funds, banks and even Hollywood stars. Madoff pleaded guilty to the criminal charges brought against him and several months later, after criminal proceedings, he was sentenced to 150 years in prison.
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