Jewish and pro-Israeli organizations in the USA were stunned after Bernard L. Madoff, a storied name on Wall Street, was charged with securities fraud. The man confessed to his sons that his business was a Ponzi scheme, according to a complaint filed by the Securities and Exchange Commission (SEC). The returns paid to investors came from money invested by other people. And there was almost nothing left.
It may be the largest fraud in the history of Wall Street, authorities said, according to the Washington Post. Madoff is charged with stealing as much as $50 billion, in part to cover a pattern of massive losses, even as he cultivated a reputation as a financial mastermind and prominent philanthropist.
According to press reports, Madoff’s investors included a number of leading hedge funds and the firm of Fred Wilpon, the owner of the New York Mets. Several may have sustained billions of dollars in losses.
But the damage appears to be deepest in the small world of Jewish philanthropy, where Madoff was a prominent figure. The North Shore-Long Island Jewish Health System said it lost $5 million. The Julian J. Levitt Foundation, based in Texas and focused on Jewish causes, lost about $6 million. Yeshiva University, a New York institution where Madoff served on the board, conveyed it was examining how much money it invested with his firm.
The Boston-based Robert I. Lappin Charitable Foundation, which had the bulk of its money invested with Bernard L. Madoff Investment Securities, closed its doors and terminated its seven staff members. It had funded teen trips to Israel, enrichment programs for Jewish educators, and interfaith outreach initiatives.
Madoff’s own $19-million foundation, which gave to a range of New York and Jewish causes, also was wiped out.
Ira Lee Sorkin, an attorney for Madoff, said his client’s firm “is cooperating fully with the government.” “We’re disturbed about these unfortunate events that have led to this,” Sorkin said.
Madoff, 70, made his fortune as a broker between buyers and sellers of stock. He helped pioneer electronic trading as an alternative to the New York Stock Exchange, where buyers and sellers meet in person, and he eventually became chairman of Nasdaq, the first electronic stock exchange.
Madoff built himself into a brand. He came to Wall Street with money saved as a Long Island lifeguard and built a family business employing many relatives, including his sons, and refused to sell the business or take it public. He advertised his integrity.
By the late 1970s, and perhaps earlier, Madoff started managing money for investors, at least in part because he could require people to process trades through his firm. He eventually attracted billions of dollars from investors. Some he knew personally. Others belonged to clubs he was a member of, including the Palm Beach Country Club in Florida and Glen Oaks Country Club in New York. Several large hedge funds invested with Madoff in part because he did not charge traditional fees, instead collecting money solely for processing trades.
The key attraction, however, was Madoff’s successful track record. A hedge fund run by Madoff, which described its strategy as focused on shares in the Standard & Poor’s 100-stock index, averaged a 10.5-percent annual return over the past 17 years. This year, amid a general market collapse, the fund reported that it was up 5.6 percent through November, while the S&P 500-stock index fell 38 percent.
The SEC charged in its complaint that the returns were artificial. Madoff at some point started paying investors with money received from other investors, a Ponzi scheme, according to the SEC. “Mr. Madoff lured investors to entrust him with substantial sums of money—in some cases massive amounts of money—with the false promise of great interest returns,” said Mark Mulholland, a New York lawyer who filed a class-action lawsuit against Madoff. He said his firm has been approached by two dozen investors, who lost up to $90 million.
Madoff’s investors had requested the return of some $7 billion by the end of 2008, part of a broad trend in which investors are pulling massive sums from Wall Street.
As the pressure mounted, Madoff told his two sons “he wasn’t sure he would be able to hold it together” at the office, the SEC said. There he said he was “finished.” The business was “a giant Ponzi scheme”—”all just one big lie,” the SEC documents said. He estimated that his investors had lost $50 billion.
The sons reported Madoff to authorities. On Friday, a federal judge placed the company in receivership at the SEC’s request.
