So, this guy pulled off the biggest Ponzi scheme in history, about $60 billion. Damn. Now, the guy's name is Bernie.
And Bernie's 22 when this story starts, and he's living in New York. And Bernie, he's a market maker, someone who helps buyers and sellers match up in the stock market. I mean, he's doing well for himself.
He's making some money. However, the guy's just not satisfied. He wants to make more, a lot more, even if he has to break the law to do it.
So, one day in 1960, he starts an investment advisory firm on the side. Basically, he advises his clients on how to invest their money and he'll also invest it for them. But here's the problem with that, though.
He doesn't register his firm with the SEC. So, technically, it's illegal. But whatever, this works for him.
He takes his client's money and he invests it for them, and he and them are making some gains. But then something terrible happens in 1962. The stock market crashes and the money all gets wiped out.
And Bernie, he doesn't know what to do. He doesn't want to ruin his reputation. So he decides to not tell his clients that he lost all their money.
And instead, he low-key borrows money to cover the losses. And I guess the clients see that he didn't lose any of their money and they're like, "Holy shit, the market crashed and Bernie didn't lose my money. " So now they trust him even more and they give him even more money to invest for them.
So he keeps going. But here's the important thing you need to know about Bernie. He's actually running two different businesses parallel to one another.
A legitimate business and a shady business. And so anyway, about a decade passes and it's now the 1970s, and early computers are starting to take off, and Bernie, who's actually a pretty smart guy, he becomes one of the first people to use computers for trading, which makes his work faster and brings in tons more money. And so his legitimate business keeps growing.
Now, fast forward several decades, and it's now the 1990s, and Bernie's market-making firm, his legitimate business, becomes one of the biggest in the US, and he's making millions of dollars. But for whatever reason, he keeps his illegal investment advisory business going, his shady business, and over time, he turns that shady business into a full-on Ponzi scheme. And like Bernie tells his investors that he's trading stocks and stuff for them, but in reality he's not.
He only pretends to. Instead, each month he goes through the newspapers, picks out the best stocks that did the best, and he generates fake transactions that show that he bought them just before they went up. That way, it seems like he's always buying winners.
And investors see all this money being made, and they're like, "Fucking sweet," and they tell their friends and families how good Bernie is at investing their money. And soon a ton of people are lining up to invest with Bernie. Not just ultra-wealthy people, but universities, nonprofit organizations, and several pension funds holding the life savings of thousands of retirees.
They start investing their money with him. So now Bernie's managing billions of dollars. And with this much money pouring in, he's able to offer average returns of up to 15%, which is great.
Now, normally these kinds of returns would raise red flags among the investors. Like, damn, HOW ARE WE MAKING THIS MUCH MONEY? Well, this can't possibly be legal.
But since they're all making huge returns, I guess they don't look too closely at how Bernie might be doing it. I guess they just don't want to ruin a good thing. But here's where the story gets crazy.
It's now the year 2000 and a lot of people think Bernie is a financial genius. But not everyone is fooled. Specifically, this guy.
His name's Harry. And Harry, he's a financial analyst. And to him, Bernie's numbers just don't add up.
It all seems very suspicious. So, he files a complaint with the SEC, telling them that Bernie's gains are mathematically impossible. However, the SEC doesn't take action.
And a year goes by, and it's now 2001, and a finance magazine called Barron's publishes an article questioning how Bernie is able to pull off such high, steady returns. Now, this article actually does catch the SEC's attention because it mentions Bernie's shady business, not his legitimate one. And remember, this shady business isn't registered, so it's not supposed to exist.
So the SEC starts looking into him. And once Bernie finds out that they're looking into him, he freaks the hell out. He's like, "Oh shit.
" And he hires these two computer programmer guys to fix this for him. And he tells them to create thousands of fake transactions and detailed records that look really real so that the SEC won't suspect that he's scamming anyone. And these computer programmers, they do their job.
I mean, they spend several hours doing all this, and ultimately it works. In 2004, the SEC shows up to audit Bernie and they clear him. I guess they really didn't dig all that deep.
Here's the thing, though. Harry, he's not about to give up. He's still convinced that Bernie's business is a con and that millions could be lost if it ever collapses.
So, he keeps hitting up the SEC multiple times. He sends them detailed information. He sends them mathematical proof that Bernie's returns just can't be real and that the only explanation for returns like these is that Bernie's running the largest Ponzi scheme in the world.
But unfortunately, yet again, the SEC just doesn't seem to take him as seriously as they should. Although over the next 2 years, the SEC does audit Bernie five different times, and somehow he passes every single time. I think he's showing them fraudulent documents and they just aren't digging all that deep.
Now, of course, while all this is going on, Bernie's been making a ton of money from this. So, he's out here living the life. He's got four houses, including a Manhattan penthouse.
He's got three yachts. He also pays his staff, the ones who are helping him run his Ponzi scheme—he pays them huge salaries, and they also spend it on nice cars and houses. And so it looks like Bernie and his team are just unstoppable, and they're going to keep going and they'll never, ever be caught, until a few more years pass and it's now 2007-2008 and something crazy happens.
Boom. The global financial crisis hits. Banks are collapsing.
The stock market's crashing. People in every industry are losing tons of money. But somehow Bernie's firm is still reporting steady gains, about 1% every month.
Regardless, Bernie's investors are nervous. Like, what if his firm takes a hit next? So, even though their accounts look fine, they start hitting him up and demanding to withdraw their money.
Here's the problem with that, though. On paper, Bernie's Ponzi scheme has billions of dollars, but in reality, there's only about $300 million left in his bank, but the amount of withdrawal requests from his investors is about $1. 5 billion.
And Bernie doesn't have $1. 5 billion. And this is where his Ponzi scheme starts to fall apart.
And old Bernie, he starts freaking out, and he's calling investors and begging them to give him cash to keep things afloat. But no one is willing to help. And that is when it begins to dawn on Bernie that the end is finally near.
So he calls his wife and his two sons together and he confesses everything. He tells them he's been running a Ponzi scheme all along and that in total he defrauded more than 40,000 people and took somewhere between $20 and $60 billion from investors, including big names like Kevin Bacon and Larry King and Steven Spielberg. And so his sons go and they do the right thing and they report him to the FBI.
But see Bernie, he knows what's coming. Like he knows the whole world is about to turn on him and his family. And so on Christmas Eve, he and his wife decide that they want to un-alive themselves.
And they take a bunch of pills, but for whatever reason, it doesn't work. They don't die. And so soon FBI agents show up to his house and bam, they arrest him.
Here's his mug shot. And ultimately he pleads guilty to all kinds of fraud and he gets sentenced to 150 years in prison. And in 2021, Bernie dies in prison of natural causes.
