Selasa, 15 Maret 2022

Bernie Madoff, The Story of the Biggest Ponzi Scheme Scam in History


Team of Hukumindo

Previously, the platform has talk about "Case of Boredom at Work" you may read also "How To Report Online Scammer Or Fraud To The Police In Indonesia" and on this occasion we will discuss about 'Bernie Madoff, The Story of the Biggest Ponzi Scheme Scam in History'. Recently, Indonesia was presented with interesting news with the arrest of two "crazy rich", namely Doni Salmanan (Quotex App) and Indra Kenz (Binomo App) related to a trading application fraud which turned out to be, after being investigated by the Police, as online gambling. If we learn from history, then one of the biggest fraud case in investment is carried out by Bernie Madoff. So that we are well alert and let's read this case again. 

Brief History of Bernie Madoff

Madoff was born on April 29, 1938, in Queens, New York City, the son of Sylvia (Muntner) and Ralph Madoff, who was a plumber and stockbroker. His family was Jewish. Madoff's grandparents were emigrants from Poland, Romania, and Austria. He was the second of three children; his siblings are Sondra Weiner and Peter Madoff. Madoff graduated from Far Rockaway High School in 1956.[1]

Madoff attended the University of Alabama for one year, where he became a brother of the Tau Chapter of the Sigma Alpha Mu fraternity, then transferred to and graduated from Hofstra University in 1960 with a Bachelor of Arts in political science. Madoff briefly attended Brooklyn Law School, but left after his first year to found Bernard L. Madoff Investment Securities LLC and work for himself.[2]

In 1960, Madoff founded Bernard L. Madoff Investment Securities LLC as a penny stock broker-dealer with $5,000 (equivalent to $44,000 in 2020) that he earned from working as a lifeguard and irrigation sprinkler installer and a loan of $50,000 from his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families. Carl J. Shapiro was one such early customer, investing $100,000. Initially, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate its quotes. After a trial run, the technology that the firm helped to develop became the NASDAQ. After 41 years as a sole proprietorship, the Madoff firm incorporated in 2001 as a limited liability company with Madoff as the sole shareholder.[3]

The firm functioned as a third market trading provider, bypassing exchange specialist firms by directly executing orders over the counter from retail brokers. At one point, Madoff Securities was the largest market maker at the NASDAQ, and in 2008 was the sixth-largest market maker in S&P 500 stocks. The firm also had an investment management and advisory division, which it did not publicize, that was the focus of the fraud investigation.[4]

Madoff was "the first prominent practitioner" of payment for order flow, in which a dealer pays a broker for the right to execute a customer's order. This has been called a "legal kickback". Some academics have questioned the ethics of these payments. Madoff argued that these payments did not alter the price that the customer received. He viewed the payments as a normal business practice:[5]
"If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow was an issue that attracted a lot of attention but was grossly overrated".
Madoff was active in the National Association of Securities Dealers (NASD), a self-regulatory securities-industry organization. He served as chairman of its board of directors, and was a member of its board of governors.[6]

What is a Ponzi Scheme and How Does it Work?

What is a Ponzi Scheme? Quoting the book Free from Financial Fraud by Benny Santoso, a ponzi scheme is a fraudulent mode that promises quick profits for its victims. Why do ponzi schemes still attract so many victims? Because the ponzi scheme has a very tempting bait, where the victim is promised to get money quickly and easily. Fraudsters only need to change the external form of this ponzi scheme, then victims will come and fall into the trap of this scam. In general, a ponzi scheme is able to provide benefits for members who join first, where the benefits are taken from members who join later.[7]

Ponzi schemes are often referred to as pyramid schemes, because the members who join are divided into levels or levels that are shaped like pyramids. The first member to join will occupy the highest level, namely at the top of the pyramid. The next member who joins will occupy the level below it.[8]

Thus, the composition of the members of the ponzi scheme is that the number of members at the top tier is less than the number of members at the lower tier so that the pattern is similar to the shape of a pyramid.[9]

How Does it Work? The first possibility, the first member to join must recruit other members to join. This means that each member must actively recruit new members to join him. Usually, ponzi schemes are very simple in form to give the impression that these schemes are easy to implement. For example, one member only needs to recruit two or three people. Now from the recruitment of new members, old members will be given certain benefits. Profit sharing schemes are usually clearly notified from the start of members joining. Usually, a ponzi scheme that uses this method will form a chain social gathering or under the guise of multi-level marketing (MLM).[10]

The second possibility, the members do not need to recruit new members but the company will recruit new members themselves. Although there is no need to recruit new members like the first method, old members will still get money from people who have just signed up. Usually, ponzi schemes that use this second method will take the form of cooperatives, illicit banks, or investment schemes. Although somewhat different ways, these two methods will still have a detrimental impact on most members, especially for members who have just joined at the end.[11]

Bernie Madoff's Story Loses $65 Billion Client With Ponzi Scheme

The biggest ponzi scam in the world is none other than the ponzi scam scheme by Bernie Madoff. With the real name Bernard L. Madoff, he is known as a icon artist who has cost clients up to $65 billion over the years. By establishing Bernard L. Madof Investment Securities, victims of Madoff's fraud include individuals, charities, pension funds, to hedge funds or investment managers.[12]

Bernie Madoff founded a company called Bernard L Madoff Investment Securities LCC in 1960. The company he created was able to attract rich people to invest. With the smooth development of his bogus investment firm over 50 years, Bernie Madoff is well-known on the Wall Street Exchange as a major financial manager who founded his own company at the age of 22. Madoff was also appointed non-executive chairman of the Nasdaq in 1990.[13]

To note, the way the Ponzi scheme investment works is by promising tantalizing returns if the investor succeeds in inviting other people to join. Then the old investors will be paid with income from new investors, and so on until there are no more new investors. In the case of Bernie Madoff, he caused a global commotion by breaking into ponzi schemes for years in the practice of digging holes in his clients' investment holes.[14]

In 1992, Madoff's cheating began to be detected, but Madoff always brushed it off. Until the economic crisis in the US in 2008 made Madoff no longer able to pay his customers, the ponzi scheme that had been carried out so far was exposed. Madoff was officially arrested on December 11, 2008, where Madoff had previously admitted to his two children, Mark and Andrew, that the business he was running was a lie. Then it was Madoff's two children who reported his father to the Police.[15]

The man who was born in Queens, New York, in 1938, was finally sentenced by a jury in 2009. He was held in Butner, North Carolina, federal prison for 150 years. The US Federal Bureau of Prisons (FBP) said that the biggest pozi scheme fraudster, Bernie Madoff, died on April 15, 2021, at the age of 82. It said the cause of death was not disclosed, but Madoff was diagnosed with kidney failure with 18 months remaining.[16] And if you have troubles during your investment process in Indonesia, contact us, feel free in 24 hour, we will be happy to assist you. 

*) For further information please contact:
Mahmud Kusuma Advocate
Law Office
Jakarta - Indonesia.


1. "Bernie Madoff",, Diakses pada tanggal 14 Maret 2022,
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. "Apa Itu Skema Ponzi dan Bagaimana Cara Kerjanya?",, Penulis : Isna Rifka, Editor : Akhdi Martin Pratama, Diakses pada tanggal 14 Maret 2022, Klik untuk baca:
8. Ibid.
9. Ibid.
10. Ibid.
11. Ibid.
12. "Penipuan Ponzi Terbesar, Kisah Bernie Madoff Rugikan Klien USD65 Miliar",, Diakses pada tanggal 14 Maret 2022,
13. Ibid.
14. Ibid.
15. Ibid.
16. Ibid.

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