ColdFusion - The Man Who Stole $65 Billion (Bernie Madoff)

Starting point is 00:00:00 This episode is brought to you by Activia. You might already be eating yogurt, but not all yogurts are created equal. Activia contains over 1 billion probiotics per serving to survive and reach the gut alive. When it comes to gut health, Activia is the number one family doctor-recommended probiotic yogurt brand. Choose Activia. Feel good from the inside out. Visitactivia.ca for more details. Hi, welcome to another cold fusion video. There are some people in this world who are gifted, who excel beyond the rest.

Starting point is 00:00:35 They are leaders, visionaries and pioneers. A mystic, all-knowing confidence surrounds their image. Bernie Madoff was one of these people. He was one of the best traders on Wall Street. He was Wall Street. His consistent investment returns made him one of the best fund managers in the world. You couldn't just invest with Madoff. You had to know someone.

Starting point is 00:00:58 Be vouched for. Earned the right to have your money accepted by him. Madoff served as the chairman of the NASDAQ and revolutionised the trading business. He had spent decades building his multi-billion dollar empire until one day the House of Cards fell. And when the dust settled, all that remained was a decade of lies. At $65 billion, it was the largest Ponzi scheme the world had ever seen. You are watching Toll Fusion TV. Bernie Madoff would start his investment firm in 1960.

Starting point is 00:01:43 He started with $5,000 that he'd made, working during the summertime as a lifeguard and another $50,000 from his father-in-law. In total, about $480,000 in today's money. In order to compete with large investment firms, Madoff turned to technology. His firm pioneered the use of electronic trading, opting away from the historic human traders.

Starting point is 00:02:07 With this focus on technology, the company was able to provide a lower cost for their services, which led them to have a substantial share of market transactions. While the numbers are hard to find, it's believed that at one point, 5 to 10% of trades in New York went through the firm. In 1971, the NASDAQ was born. It came with a wave of new innovations in electronic trading.

Starting point is 00:02:31 Today, the NASDAQ is the second largest stock exchange in the world, it's where companies like Microsoft, Apple, Amazon, Google and Facebook choose to trade their shares. Bernie Madoff would go on to be the chairman of the NASDAQ in the early 90s. It was a very highly respected position. But as Wall Street was caught up in the mystic of Madoff, no one knew that behind the walls of Madoff's empire, something else was happening. Well, almost no one knew. Enter Harry Markopoulos. He was a financial fraud investigator who back in the 90s was working as a portfolio manager at Rampart Investment Management. In 1999, his firm had caught wind that a hedge fund manager of one of their partners was consistently returning a 1 to 2% profit per month. This turned out to be the work of none other than Bernie Madoff.

Starting point is 00:03:25 Harry Markopoulos was subsequently given the task of replicating Madoff strategy at his own firm, Rampart. As Harry began reverse engineering the strategy, he had no idea that he had just stumbled across the biggest financial scam Wall Street had ever seen. According to Harry, it took him five minutes of looking at Madoff's revenue stream to realize that things just didn't add up. Madoff's returns were too consistent. When the market went up, Madoff made a profit, and when the market went down, Madoff still made a profit.

Starting point is 00:03:56 Harry Markopoulos was adamant that Madoff's returns weren't real. The return seemed to be unfazed by the market conditions. There was little to no fluctuation despite the market movements. Harry had two theories. Either Madoff was trading on insider information, or this was all a giant Ponzi scheme. A Ponzi scheme is a pretty simple concept. Investors would give Madoff their money to invest, and Madoff gives them a healthy return. The return doesn't come from actual investments.

Starting point is 00:04:27 He simply gives back a small portion of their initial investment. and calls that a return. Eventually, the money dries up so the stock needs to be replenished. Madoff then moves onto the next investor, and so the scam grows larger. On paper, the investor has money invested in Madoff's firm and gets a good return. In reality, the money is being siphoned into Madoff's own accounts, as well as paying off old investors to keep the lie afloat. It almost seems too ridiculous to believe. How could this have happened?

Starting point is 00:04:57 On such a scale, under the nose of some of the guys, greatest financial minds in the world. But that was the talent of Madoff. He knew how to lie and how to be convincing of it. And besides, who would dare question the man who helped build the modern Wall Street? As Harry began further deconstruct Madoff's strategy, he immediately ran into mathematical inconsistencies. For example, he calculated that in order for Madoff's strategy to work, he would have to have bought more options on the Chicago Board of Options Exchange than actually existed. In addition, he couldn't find a single transaction by Madoff's firms on the exchange. Harry spoke with a dozen equity firms, but none of them had made any trades with Madoff.

Starting point is 00:05:41 And this was strange. In reality, Madoff hadn't made a single trade since 1993, or perhaps even earlier. In 2000, Harry Markopoulos took his findings to the Securities and Exchange Commission, otherwise known as the SEC. But Harry didn't have any hard evidence against Madoff. it was just a theory and some red flags. Therefore, an investigation wasn't opened. But Harry wasn't the only one who was suspicious over Madoff.

Starting point is 00:06:10 When asked about it several years later, he confirmed that hundreds of people within Wall Street had been suspicious. But when asked why none of them ever reported anything, he responded, quote, people in glass houses don't throw stones. By 2005, Markopoulos had uncovered many more red flags surrounding Madoff, and the SEC eventually opened an investigation in 2006. But Madoff had ties with the SEC and on occasion was even called to provide advice.

Starting point is 00:06:40 Madoff also knew how to get around the auditors. Testimony from former staff described how they called down falsified documents in the fridge so that auditors would notice that they had been freshly printed. The investigation was closed 11 months later due to a lack of evidence. And soon after, Madoff audaciously praised the SEC, saying, Quote, in today's regulatory environment, it's virtually impossible to violate the rules. Many people couldn't believe his crimes had gone undetected for so long, and that astonishment, it turned to anger when it was revealed that one man uncovered the Ponzi scheme,

Starting point is 00:07:17 even went to the Securities and Exchange Commission five times to try and expose it. He was stealing my clients, and I wasn't going to tolerate that. If you steal from a Greek, we come after you. The stakes were so high that he bought a gun. and routinely would check his car for bombs. I realized then that Bernie was stealing from the Russians and the Colombians. And if he was doing that, that was a very dangerous game for him to play because if they found it, they were going to kill him.

Starting point is 00:07:43 But Madoff at this time must have known that it was only a matter of time before the hypocrisy in his words would be revealed. Ironically, in the end, it wasn't anything that the SEC or Harry Markopoulos did that caught Madoff out. Greater forces came into play. It was December 2008 and Wall Street was illuminated in red. So almost everything there completely wiped out, and the NASDAQ, everything and more has been completely wiped out. The Dow traders are standing there watching in amazement, and I don't blame them.

Starting point is 00:08:15 The credit market. $676.76 points down. Traders here work in the phone say a lot of their customers are freaked out waiting to see how low the Dow will go. They're focused on the Dow's cut production. casino and check out the newest exclusive. The Price is Right Fortune Pick. BetMDM and GameSense remind you to play responsibly. 19 plus to wager.

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Starting point is 00:09:02 Apple's under pressure. Trillions of dollars was wiped out from the stock markets as subprime mortgages in the US tumbled the global economy. In rushes of panic, people were reining in their investments and cutting their losses. Madoff knew the end was near. He knew that with no new money pumping his account and his clients asking for their original investments back, the scam would soon be over. So Madoff pulled every string to get some. some new cash. Bernie had created the firm Madoff Securities International, a subsidiary based in London, who suspiciously had no clients. This fraudulent firm transferred 164 million US in November.

Starting point is 00:09:42 Billionaire Carl Shapiro invested $250 million at the start of December, and Madoff received another $10 million investment a few days later. Bernie Madoff had seemingly asked the whole of Wall Street for cash, dishing out a 19-page booklet detailing his new investment scheme, but it seemed that nothing was enough. The withdrawals were still more than Madoff could bring in. Investors wanted their money back, and now. The simple fact was he didn't have the money. So, finally, Madoff decided to turn himself in.

Starting point is 00:10:16 He didn't try to run or hide. He simply knew that it was the end. The game was over and $65 billion was gone, and thousands of investors were left to pick up the pieces. Madoff had been running this scam in parallel to a legitimate side business, a business in which his sons, Mark and Andrew, worked. He told them that he planned to give out an early $200 million bonus to the staff. Two months early, despite the firm hemorrhuring cash amidst a global financial meltdown.

Starting point is 00:10:45 His sons argued against it, but Madoff had no choice but to tell them exactly why it needed to be done. He told them about the Ponzi scheme, and that he was planning to turn himself in at the end of the week after the bonuses were handed out. According to his sons, this was the first that they'd ever heard about it. Fearing that they'd become accomplices in their father's crimes, they called a lawyer and turned their father in before he distributed the bonuses. And the decision to turn him in, how did that evolve?

Starting point is 00:11:13 Well, we knew right away that that was our only course of action. Madoff was later arrested at his home, then released on bail under house arrest. As Bernie Madoff and his wife Ruth sat at home on Christmas Eve, the reality of their world falling apart sunk in. The two childhood sweethearts laid down in bed and consumed a cocktail of prescription medications. On Christmas Day, the couple woke up to realize that their attempt to run away from their problems had failed.

Starting point is 00:11:46 Bernie would now face life in prison. I don't know whose idea it was, but we decided to. kill ourselves because it was so horrendous. What was happening, we had terrible phone calls, hate mail, just beyond anything. And I said, I can't, I just can't go on anymore. I mailed them, it was Christmas Eve that added to the whole depression.

Starting point is 00:12:18 We took pills and woke up the next day. In the end, Madoff didn't fight, He admitted his crime, he offered his remorse, but offered no excuses. 65 billion dollars of investments had been wiped out, from billionaire's holdings to everyday people's pension funds across the US. As if it wasn't bad enough that the economy was in meltdown, people had now lost their savings to. Madoff pleaded guilty and within a few months was sentenced to 150 years in prison.

Starting point is 00:12:49 Today, he is simply known as, inmate number 61727-054 at a medium security prison in North Carolina. At age 81, he will live out the remainder of his life there. While in prison, both of Madoff's sons had passed away. Mark committing suicide after the scandal and Andrew dying from cancer. And as for his wife, Ruth, she no longer speaks with him. Bernie is allowed a 15-minute phone call each day, but he doesn't use it, Because, in his own words, he doesn't have anyone to talk to.

Starting point is 00:13:24 And angry in me, of course. How could she not be angry at me? You know, she tries not to be, but it's hard not to be. You know, I destroyed off the family. Moral of the story, don't let greed get the best of you. It's really not worth it. Why did he do it? There's a word that's a very simple word that I think we all understand.

Starting point is 00:13:49 It's called greed. And with that, that wraps up our look at Bernie Madoff. Next week, in the next episode of Cold Fusion, we'll be taking a look at the We Work disaster. So make sure you subscribe so you don't miss out in this episode. It's a really good one. Thanks for watching. If you did enjoy this video and want to see more stuff on science, technology,

Starting point is 00:14:10 history and business, feel free to subscribe to Cold Fusion. Don't forget to check out my podcast and follow me on Instagram and Twitter. Anyway, this has been to Go-Go, and you'll be watching Cold Fusion, and I'll catch you again soon for the next video. Cheers, guys. Have a good one. Spotify, it's Jay Shetty. Are you one of those media strategy people?

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ColdFusion - The Man Who Stole $65 Billion (Bernie Madoff)

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