hi welcome to another ColdFusion video there are some people in this world who were gifted who excelled beyond the rest their 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 he couldn't just invest with Madoff he had to know someone be vouched for earn the right to have your money accepted by him Madoff served as the chairman of the
Nasdaq and revolutionized the trading business he had spent decades building his multibillion-dollar Empire until one day the house of cards fell and when the dust settled all that remained was a decade of liars as sixty five billion dollars he was the largest Ponzi scheme the world had ever seen [Music] [Applause] [Music] [Music] Bernie Madoff would start his investment firm in 1960 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 four hundred eighty thousand dollars 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 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 at at one point five to ten percent 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 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 Empire something else was happening well almost no one knew enter Harry Markopolos he was a financial fraud investigator he 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 retaining a 1 to 2 percent profit per month this turned out to be the work of none other than Bernie Madoff Harry Markopolos 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 made us 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 Harry Markopolos 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 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 on to 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 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 on
such a scale under the noses of some of the 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 strategy he immediately ran into mathematical inconsistencies for example he calculated that an order for Madoff strategy to work he would have to abort more options on the Chicago Board of Options Exchange than actually existed in addition he couldn't find a single transaction
by Madoff firms on the exchange Harry spoke with a dozen equity firms but none of them had made any trades that Madoff and this was strange in reality Madoff hadn't made a single trade since 1993 or perhaps even earlier in 2000 Harry Markopolos 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 when asked about at 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 Marco Polo's 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 Madoff also knew how to get around the auditors testimony from former staff describe how they cooled down falsified documents in the fridge so that auditors wouldn't notice that there had
been freshly printed the investigation was closed eleven months later due to a lack of evidence and soon after madoff audaciously praised the SEC same 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 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 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 from 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 gonna kill him 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 Markopolos 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 in the Nasdaq everything and more has been completely wiped out the Dow traders are standing there watching in amazement I don't blame them 676 points down waiters here working the phones say a lot of their customers are freaked out waiting to see how low will go they'll you're seeing just broad-based declines across all of the major technology sectors Apple's under pressure trillions of dollars was wiped out from the stock market
as subprime mortgages in the u.s. 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 would no new money pumping his account and his clients asked him for their original investments back the scam would soon be over so Madoff pulled every string to get some new cash Bernie had created the firm madoff securities international a subsidiary based in London he suspiciously had no clients this fraudulent firm transferred 164 million years in November billionaire carl shapiro invested 250 million dollars
at the start of December and Madoff received another 10 million dollar 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 thing was enough the withdrawals were still more than madoff could bring it 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 he didn't try to run or hide he simply knew that it was the end the game was over
and 65 billion dollars 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 a nearly 200 million dollar bonus to the staff two months early despite the firm hemorrhaging cash amidst the global financial meltdown his sons argued against it but Madoff had no choice but to tell them exactly why it needed to be done he told him 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 determine well we knew we knew right away that this was 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 workup to realize that their attempt to run away from their problems had failed Bernie would now face life in prison I don't know whose idea it was but we decided to kill ourselves because it was 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 I added to the whole depression he took pills and woke up the next 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 u.s. 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 were sentenced to 150 years in prison today he is simply known as
inmate number six 177 - zero five four 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 sons had passed away mark committing suicide after the scandal and Andrew died 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 moral of the story don't let great 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 it's called greed and with that that represent I'll 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 on this episode it's a really good one thanks for watching if you did enjoy this video and want to see more stuff from science technology 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 gogo and you'll be watching cold fusion and I'll catch you again soon for the next video cheers guys [Music] [Applause] [Music] [Music] [Music]
