Going down quietly

Bernard Madoff, history's biggest swindler, faces life behind bars.

SURELY a drama this dark deserved a more explosive finale. A previous wave of financial fraud produced many an entertaining courtroom battle, featuring the likes of Enron’s Jeffrey Skilling and Tyco’s Dennis Kozlowski. But Bernard Madoff has robbed the world of such a catharsis, just as he robbed almost 5,000 credulous clients of billions of dollars. On Thursday March 12th he pleaded guilty in a Manhattan court to 11 charges, ranging from securities and mail fraud to money laundering and perjury. Together they carry a maximum jail term of 150 years, leaving the 70-year-old “Monster Mensch” all but certain to spend the rest of his life behind bars.

The fraud he masterminded was remarkable for its scale, longevity and the sophistication of its victims: hedge-fund founders, Swiss banks and movie moguls, as well as charities and small investors, some of whom put in their life savings. The charge sheet confirms that he ran a Ponzi scheme of unprecedented boldness, dating at least as far back as the 1980s. Mr Madoff claimed to achieve healthy, stable returns through a whizzy stock- and options-trading strategy. In reality, there was no trading for well over a decade. Money from new investors was used to cover redemptions for old ones. It was that simple and brazen.

The fraud was bigger than the $50 billion Mr Madoff originally claimed to have lost. On paper, he had $65 billion in client accounts just before he was arrested in December, say prosecutors, who are claiming an eye-popping $171 billion in restitution. But there now appears to be little left for investors who stuck with him: a court-appointed liquidator has so far recovered just $1 billion. Even Charles Ponzi’s victims got a third of their money back.

Mr Madoff’s guilty plea is especially anticlimactic because he has apparently refused to co-operate with investigators, leaving many a loose thread. Few believe that he acted alone, but identifying those who colluded, and how, is proving difficult. Friends and relatives who helped to run the firm remain under scrutiny. Junior employees were apparently made to generate fake trade confirmations and monthly statements, though it is not clear if they knew they were partaking in a fraud. Mr Madoff creamed off commissions from his investment business to support his share-trading operations. But how much he kept for himself is anyone’s guess.

The drama has several more acts. Those who channelled investors’ money to Mr Madoff, such as his now notorious “feeder funds”, face years of litigation as victims go after those with deep pockets. Some conduits, such as Santander, a Spanish bank, have already offered partial reimbursement. Lawyers are also targeting investors who withdrew their funds (plus fictional interest) before the fraudster’s arrest. Whether that includes the charity that withdrew $90m more than it paid in remains to be seen.

Seething victims and pundits have variously denounced Mr Madoff as a “terrorist”, a “financial serial killer” and, most cuttingly, a “turd”. For now, they will have to make do with seeing him locked up without the fireworks of a trial, still guarding his biggest secrets. To hope for more may only court further disappointment.

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