Let’s say that Madoff wasn’t caught. There are two scenarios I’m wondering about.
I’m most curious about this one. Let’s say that Madoff got a conscience and decided the scam had to end. Could he have wound it down and paid everybody off? Let’s say he stopped taking new investors and then tried to slowly pay off the existing ones. Would that have worked? Or would it look too suspicious causing investors to withdraw to much too soon causing the whole thing to collapse?
He keeps the scam going. Since it’s all a house of cards it was bound to collapse eventually anyway, but how much longer could he have kept it up?
Pay them off with what? The new investors provide all the money to pay the old investors. If they disappear, so does the ability to pay anything.
Until new investors stop investing, which is what happened when the recession started in 2008. There is no way it could have been sustained any longer than it did.
He was actually “caught” by a guy way before he was arrested. The problem is the SEC is run by a bunch of lawyers who know almost zero about finance and stock markets. So they kept ignoring a lot of solid evidence about what he was doing since they could not understand it.
This guy figured out it was a ponzi scheme way back
No. There was nothing to pay them off with. Like Fear Itself says, what Madoff was doing taking money from people and tell them he was investing it. He didn’t invest it (or in his version, he invested it early on but stopped doing it years before he was caught). If you invested money with him, every year you got some money and you were told it was the return on your investment, but it was actually just money paid by newer victims. I think that’s all there was to it:
By “wound it down” I guess he could have given away all his money and sold all of his possessions and paid off a fraction of what he said he’d invested, but he could never have covered all of it.
If he’d said he was closing the fund for some reason, his investors would have asked for the rest of their money. He could never have repaid them.
He confessed because the scam was collapsing. People started withdrawing their money because the market was struggling and he couldn’t bring in enough new marks to cover the money that he was supposed to repay.
Yeah, I knew about people trying to bust him earlier, and I know it was his kids who finally brought him down, but I didn’t realize that he was already in financial trouble before he was caught.
I thought it was the reveal that he was running a pyramid scheme that caused investors to rush in and try to retrieve their money that brought the whole thing down.
I also didn’t realize that there was NO investing going on. I thought there was some and he was just keeping all the profits for himself.
Saying “it was his kids who finally brought him down” makes it sound like they were shocked, shocked to find out there was fraud going on, and decided to do the right thing.
It is beyond belief that his sons didn’t know that, at the very least, something fishy was going on. For one thing, everyone knew something fishy was going on. Really. Everyone, or just about everyone, except the suckers who put their money in, knew. Mostly they thought he was front-running, and that was just fine with them. A few of the people running the “feeder funds” probably knew it was a Ponzi, but didn’t care as long as they got their cut.
His neice was the firm’s compliance officer. It is not credible that she didn’t know that something was up (her father is doing time right now for his part in the scheme).
The problem was also that Harry Markopolos is a screaming, sputtering nutcase. He happened to be absolutely correct about Madoff, but if you actually read his memos to the SEC (or better yet, watch his interviews in the documentary Chasing Madoff), it’s apparent how manic, unhinged, and paranoid he is. I can understand why the SEC was loath to take him seriously, although obviously they should have.
I’ve often wondered what would have happened if somebody saner had investigated Madoff the way Markopolos did.
Yeah, I heard that from a friend who is a lawyer in the SEC’s NY office. And later from others, too. Of course, the SEC has an interest in portraying Markopolos as a head case, but apparently he was/is a bit crazy. As you say, he was right, though.
Madoff could have kept going for quite a while as long as the market didn’t tank as it did. As long as new investments outpaced redemptions, he could have gone on for the rest of his life. Of course, people have a pesky habit of panicking every once in a while, which causes them to sell (redeem) their shares in mutual funds, stocks, etc (thereby exacerbating the problem.) This is what caused Madoff to get caught, not his kids, not any change of heart, not a bad run of luck - his investors panicked and wanted cash.
As Saintly Loser said, many people knew that there was something fishy about Madoff, but most agreed that it was front running (i.e., if he knew that (example) Bill Gates was going to dump his Microsoft stock and he told his trusty broker Bernie to do so, Bernie would sell Bernie’s MSFT shares prior to placing the Bill Gates order.) Markopolous was one of the people who knew and he built a good case against Bernie, but as mentioned, he had personality issues that hurt his credibility.