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The saga of Bernard L. Madoff, who swindled investors of an estimated $65 billion, ended last week after a federal judge sentenced him to 150 years in prison. However, despite the maximum sentence for the crimes which Judge Denny Chinn pronounced as extraordinarily evil, the verdict failed to tone down the anger and alleviate the pain of Madoff’s victims. The wounded on the side of the road counted upstanding banks and investment houses in Wall Street including those from Europe, as well as celebrities, retirees and even charitable institutions.
Madoff’s fraudulent scheme which is said to be the largest in the history of Wall Street has brought financial ruin and irredeemable losses to many people which is why the verdict has brought little comfort to them. For example, how would the Banco Santander in Spain grapple with more than $3 billion in losses even as it promises to return more than $200 million it withdrew from the Madoff funds before the evil empire collapsed?
I suppose country club associations all over the US, whose total exposure amounted to more than $250 million, will reckon valuable lessons from the saying all that glitters isn’t gold after they consciously courted the membership of Mr. Madoff. But what about charitable institutions which, as their own investment figures suggest, were inspired by less than benevolent motives?
The Elie Wiesel Foundation, which was founded in memory of the Holocaust to promote cultural tolerance through international dialogue and programs for the youth, plunked all its assets amounting to more than $15 million in the Madoff scheme. The institution is trying to soften the impact of the scandal lest its benefactors withdraw support, but sadly this episode will surely affect its future programs.
Madoff used the Ponzi scheme, that is to say, a con game that dated back to the early ‘40s to entice investors. The idea got its name after Charles Ponzi, who promised clients of 50% profit within 45 days or 100% returns within 90 days. Ponzi was able to pay off dividends by using funds from early investors. He engaged in buying discounted postal reply coupons in other countries and redeeming them at face value in the United States, a practice that we are familiar with in the stock market. But yet Mr. Ponzi was not even original because before him, there was William F. Miller, a Brooklyn accountant who, in 1899 used the pyramid scheme and profited $1 million.
With such important lessons from the past, we wonder why ordinary people, but especially professional investors and financial experts would still fall for the scheme. We often hear the admonition to be wary with offers that sound too good to be true, but I heard that there were investors who pleaded with Madoff to get their money. And so the question is, was Madoff so glib that he was able to ensnare supposed hard boiled investors, or were his victims so foolish that they allowed themselves to be deceived by something that looked like a con game in the past?
The answer to this question can be found in an award winning television series produced by CNBC, entitled “The American Greed”. I was able to watch one feature about Texas billionaire and offshore banker Allen Stanford, who used practically the same scam in duping clients in the US and in Antigua. Mr. Stanford endeared himself to the island government in the Caribbean region by buying real estate and involving himself in philanthropic activities. Before long, he got knighted by the island state and later allowed him to buy a small island.
Stanford had earlier wanted to corner the port services of Antigua but was derailed by a top department official who smelled something fishy. True enough, as the Madoff caper unraveled, Stanford’s clients in the US and Antigua lined up to withdraw their investments. As it turned out, they were not even worth the paper they were printed on. A $7 billion case for fraud has been filed against the Texan and after a federal judge revoked his bail bond early this week, he is set to return to jail while awaiting trial. The series brought to light the dark side of the so-called American Dream.
I hope that Hollywood biggies like Steven Speilberg, who also lost millions in the Madoff caper, will be able to put a more thoughtful spin on the American Dream – the supposed inner soul or essence of every American to achieve a “better, richer and happier life”. Being rooted in the US Constitution that all men are created equal, the national ethos served as an inspiration for many poor Americans, especially blacks and white immigrants, who rose from rags to riches through hard work and perseverance.
It looks to me that over the years, and this is not just a malady for American society, but for many cultures all over the world including our own, the value of hard work and sacrifice has lost its meaning. As shown by the Madoff caper, the danger is when material riches become an obsession because one will be driven to achieve it at any cost.
