Bernie Madoff: 6 things to know about the man behind the largest financial fraud in US history

Bernie Madoff: 6 Famous Victims of His Ponzi Scheme

Bernie Madoff: 6 things to know about the man behind the largest financial fraud in US history

December 11, 2008, was the beginning of a financial nightmare for thousands of people after word got out that financier Bernie Madoff was arrested for running the biggest Ponzi scheme in U.S. history.

While the media initially touted Madoff's fraud as having run upwards of $50 billion, prosecutors would later raise the estimate to $65 billion among his 37,000 victims, who ranged from prominent figures in business and media and hardworking, everyday people to nonprofit charities.

Many of his victims emerged to share their stories as part of a larger narrative of the shocking fraud, it was his celebrity clients who made the biggest headlines.

Some public figures chose to stay relatively quiet about their association with Madoff. Before her death in 2016, Hungarian-born actress Zsa Zsa Gabor had reportedly lost between $7 to $10 million from investing with the money manager, while Hollywood bigwig Steven Spielberg's Wunderkinder Foundation also took a substantial hit, although the dollar amount was never disclosed.

Still, other prominent figures decided to speak out about their financial losses and what they learned from the experience. Among them are actors and couple Kevin Bacon and Kyra Sedgwick, Dreamworks Animation chief executive Jefferey Katzenberg, actor John Malkovich, Holocaust survivor Elie Wiesel, and broadcaster Larry King.

Kevin Bacon and Kyra Sedgwick

Kyra Sedgwick and Kevin Bacon at a screening of 'The Edge of Seventeen” on November 9, 2016, in Los Angeles, California.

Photo: Jason LaVeris/FilmMagic

Known to be a low-key Hollywood couple, actors Bacon and Sedgwick became front and center news when the scandal broke, as they had been one of the first celebrities known to have reportedly lost millions of dollars investing with Madoff.

“I see him as a sick man,” Sedgwick told Piers Morgan on CNN in 2012. “And I see us as adults who made a choice. And I see a lot of people who are so much worse off than we are…”

Years later, Bacon echoed his wife's sentiments about the scandal. “It was a bad day,” Bacon admitted to The Guardian during an interview in 2017. “But pretty quickly we were able to see all the things we had as opposed to whatever we lost, and those are the biggest cliches: children, health, love, a nice home. So we got through it together. I don’t think about Madoff, , at all.”

He also added that the “real victims” were those who lost their entire life savings. “I think there’s a good cautionary tale there, to be cognizant of what’s happening with your money.”

Jeffrey Katzenberg

Jeffrey Katzenberg at the 'Megamind' premiere on November 29, 2010, in Paris, France.

Photo: Pascal Le Segretain/Getty Images

Just Bacon and Sedgwick, Dreamworks Animation executive Katzenberg, known for producing hits the Shrek and Kung Fu Panda franchises, endured a substantial financial loss, which he described as “painful and humiliating.

” Although he also refused to discuss the actual dollar amount that was taken from him and his charitable organization, Marilyn & Jeffrey Katzenberg Foundation, the charity had estimated assets of over $22 million before the scandal broke.

The Los Angeles Times would later uncover that Katzenberg had lost $20 million. Both he and Spielberg shared the same business manager, who made investments with Madoff on their behalf.

“The first time I heard the name Bernie Madoff was about three weeks ago,” Katzenberg told reporters in January 2009. “What it has done to other people is terrible. It's destroyed many people's lives. People that I know.”

Elie Wiesel

Elie Wiesel at a press conference after an Interfaith Leaders delegation meeting at the United Nations on October 27, 2004, in New York City.

Photo: Chris Hondros/Getty Images

Before his death in 2016, Holocaust survivor and Nobel Peace Prize winner Wiesel was another famous figure taken in by Madoff's criminal enterprise. And when the news hit, Wiesel didn't take the loss lightly.

Describing Madoff as “one of the greatest scoundrels, thieves, liars, criminals,” Wiesel and his wife, Marion, had lost their life savings of $12 million, along with $15 million from their nonprofit organization, Elie Wiesel Foundation for Humanity.

“Could I forgive him? No,” Wiesel told a media panel in New York City in 2009 regarding Madoff. “To forgive, first of all, would mean that he would come on his knees and ask for forgiveness. He wouldn't do that.”

Wiesel explained that a wealthy trusted friend, who had been friends with Madoff for five decades, introduced the two of them. After Wiesel met with Madoff multiple times, he went on to get advice from other financial experts before entrusting his personal finances with Madoff.

In 2012 he reflected back on his experience during an interview with Oprah Winfrey. “[My wife and I] looked at each other, and our reaction was, ‘We have seen worse,'” Wiesel said. “Both she and I have seen worse.”

Once news spread about his foundation's financial troubles, Wiesel said he was taken aback from the public's reaction.

“All of a sudden, we began receiving hundreds and hundreds and hundreds of letters and donations, small donations, from all over America, Jews and non-Jews,” Wiesel told Oprah. “The American people are so generous. … We received hundreds of them, and that helped us.”

John Malkovich

John Malkovich at Michael Bastian's Fall 2010 show during Mercedes-Benz Fashion Week on February 14, 2010, in New York City.

Photo: Paul Warner/WireImage

When actor Malkovich lost his investment of $2 million dollars to Madoff, he — fellow actors Bacon and Sedgwick — put his problems into perspective.

“I don’t view it as a negative experience…,” he told Details magazine in 2013. “To me it was, ‘You think you have a bunch of money – and you don’t.’ So what? Most people don’t (have a lot of money). I think it kind of reconnected me to how most people live all the time. And, un a lot of people that were involved in the Madoff thing, I could just go back to work, and it was fine.”

So would he say anything to Madoff if he had the opportunity? Malkovich told Vanity Fair, in his classic cool demeanor, not particularly.

“I only met Mr. Madoff once, many years ago. He seemed very pleasant. But, you know, I don’t think I’d have much to impart,” he told the magazine in 2013. “For me, in all honesty, it was a good life lesson.”

In the end, Malkovich reportedly received $670 thousand of his investment back.

Larry King

Larry King

Photo: M. Caulfield/WireImage

King met Madoff through his childhood friend Fred Wilpon, owner of the New York Mets.

At the time, King and his wife were looking for a reputable investment firm, and Wilpon suggested he look into Madoff but warned King that the money manager was known for being selective about his clientele.

King experienced Madoff's choosiness firsthand, as the latter accepted King into his firm but not King's brother.

When Madoff was arrested in 2008, the broadcasting legend suffered a $700K loss but thankfully, was able to recover it within a few years.

“If I could interview one person on the planet, it'd be Bernie Madoff and the obvious [question] would be 'Why? Why did you do this to people?'” King said.

King's friend, Wilpon, would come the Madoff scandal much worse off, taking a hit of $500 million.


The Top 6 Biggest Financial Crimes in The Last Two Decades

Bernie Madoff: 6 things to know about the man behind the largest financial fraud in US history

If you already have an interest in financial topics, which you ly do since you’re reading this article, you might already be familiar with some of these cases.After going through many of the larger cases, my first takeaway was very cliché: hindsight definitely is 20/20.

As I read about each of the crimes I explored, I couldn’t help but think to myself that it seemed so obvious something wasn’t right. Yet, no one noticed them until sometimes years after they began their fraud.

It’s easy to see looking back, but in the moment, it is much better concealed.

The second take away was this, if it seems too good to be true, then it probably is. So please do your research before getting involved with anything related to your financial well-being. Don’t jump into risky (or “low risk” as you’ll see) financial decisions without understanding everything you need to know first. 

With that in mind, here is my round-up of six of the biggest financial crimes that have taken place in the last two decades:

#1 Bernard (Bernie) Madoff

Bernard Madoff was an investment advisor and financier (someone who manages large amounts of money on behalf of large organizations, governments, etc.). More notably, Madoff is known for running the largest Ponzi scheme in the history of financial crimes.

Madoff actively convinced people to invest with him by explaining his “low-risk” investment strategy called a “split-strike conversion” (sometimes referred to as a ‘collar’) which is used to avoid high losses in the market. He promised high returns on these investments. In reality, they were creating false trading records and paying out to early investors using money from new investors.

Somehow this went largely unnoticed possibly from its conception in the 1970s until the early 2000’s.

Harry Markopolos, forensic accounting and financial fraud investigator, uncovered evidence that suggested that Bernie Madoff’s wealth management business was nothing more than a huge Ponzi scheme.

Markopolos pointed out that Madoff’s numbers were such that to give the returns he was promising, they would have to be buying more than was available on the exchange.

Despite this, it wasn’t until 2008 when Madoff didn’t have enough funds to make necessary payouts, that he admitted to his fraud and was turned in by his sons to the I.

Approximately $65 billion USD was reported missing from his client’s accounts. In 2009, he was sentenced to 150 years in prison for his many counts of fraud and was banned from trading. In February 2020, he filed for compassionate release due to kidney failure.

#2 Samuel Israel III

Samuel Israel III is a former CEO and hedge fund manager. Israel raised $450 million from investors only to later misappropriate these funds for his own personal use.Israel was running a Ponzi scheme using these investors’ money.

After a year with incredibly low returns, his company founded a fake accounting firm to ‘fact check’ their numbers and maintain the appearance that they were running above board.

In 2005, his scheme was revealed, and he was indicted being sentenced to 20 years in prison for his crimes (in 2008).

However, it doesn’t stop there. Un Bernie Madoff who was planning to be turned in when he admitted his crimes, Israel took off after sentencing. His vehicle was found abandoned with the words “Suicide is Painless” written in dust on the hood. Israel’s girlfriend, Debra Ryan, admitted to helping him escape. The two of them were famously featured on America’s Most Wanted. 

Later in 2008, he was found in Massachusetts and his sentence was extended by 2 years for his attempt to flee.

#3 Tom Petters

Tom Petters’ resume of financial crimes includes the following: conspiracy, mail fraud, wire fraud, and money laundering among others.It was described by one of his associates as essentially a giant, elaborate Ponzi scheme.

Petters and associates (under the Petters Group Worldwide operating name) were using false bank statements as a way of luring investors to invest with them. They would then use the acquired and invested money to obtain billions of dollars worth in bank loans as a way of paying off previous loans.Petters and co.

would use falsified documents to show that they were procuring merchandise from big box stores in which the lenders would wire money to the stores and then the stores would send the money on to Petters (and colleagues) minus a ‘commission’.

The funds were used to pay off those participating in the scheme, other companies owned by Petters, and of course Petters himself to maintain an overly expensive lifestyle.

In 2008, due to a credible informant, the I began investigating Petters for evidence of the scheme for loans and investments purchases that never happened and also for tax fraud.

He was eventually convicted of these federal crimes for operating Petters Group Worldwide as a $3.65 billion Ponzi scheme and sentenced to serve 50 years in prison.

Even with all the evidence against him and his criminal conviction, he still pleads he is innocent.

#4 Allen Stanford

Allen Stanford was a financier running yet another massive Ponzi scheme. His scheme extended beyond U.S. borders to also include banks in the Caribbean and within Venezuela.Stanford presented hypothetical returns as actual company data when convincing new investors to invest with him and claimed that his certificates of deposits (CD’s) were safer than U.S. government-insured accounts.

He was able to hide their scheme by falsifying records from Stanford International Banks while he misappropriated funds. In 2009, he was charged by the Securities and Exchange Commission (SEC) for a whopping $8 billion investment scheme.

After trying to flee the country, his accounts being frozen, arrested, claiming medical problems and being unfit to stand trial, a judge finally found him fit for trial in 2011. He went to trial in 2012 where he was found guilty and sentenced to 110 years in prison for his creating and seeing out one of the largest Ponzi Schemes to ever exist.

#5 Scott W Rothstein

Scott W. Rothstein is a disbarred lawyer and the former managing shareholder, chairman, and chief executive officer of Rothstein Rosenfeldt Adler law firm.Rothstein’s Ponzi scheme was riddled with “highly confidential” legal settlements.

In the most basic of terms, Rothstein offered investors the chance to “purchase” large legal settlements at low rates that would give them the right to payments with higher returns.However, that certainly was not the case. Supposedly settlement payments from the defendants were already received while the investors were expecting high returns on their investment.

The attorneys at the firm, not just Rothstein, were instead using these investor payments to fund their own lavish lifestyles. This continued on for a few years but in 2009, funds ran out to pay off investors and Rothstein fled the country.A few weeks later he returned to the country and turned himself in.

He then cooperated with authorities during their investigation and ultimately pleaded guilty. He along with many of his associates, including his wife, were given prison sentences.

He is currently serving a 50-year prison sentence (in an undisclosed location) for running a $1.2 billion Ponzi scheme.

#6 Marc Dreier

Last but certainly not least, there is the case of Marc Dreier.

Dreier is yet another former attorney, working his firm in New York where he was the mastermind behind a Ponzi Scheme selling fake financial instruments, assets or packages of assets that can be traded to investors.

Dreier would arrange meetings with investors and people posing as officials from the US and Canada as official sellers of the falsified promissory notes. He continued doing this to the tune of $700 million USD.

He was first arrested for impersonating a lawyer and trying to sell financial instruments while in Canada. After being released on bail and upon returning to the US, he was immediately arrested again for his on-going Ponzi scheme.

Dreier was eventually disbarred by the New York Supreme Court in 2009 and was sentenced to 20 years in prison for 8 counts of fraud. He is scheduled to be released in 2026, a few years earlier than the original sentence.

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