Problem: Was He Guilty of Using the Mail to Commit a Ponzi Scheme?

FACTS Bernard L. Madoff Investment Securities LLC (BLMIS) was a broker-dealer registered with the Securities and Exchange Commission (SEC). Bernard Madoff was the founder of BLMIS and served as its sole member and principal. Beginning in the 1980s, Madoff perpetrated a scheme to defraud BLIMIS clients by soliciting billions of dollars under false pretenses, failing to invest investors' funds as promised, and misappropriating and converting investors' funds to Madoff 's own benefit and the benefit of others without the investors' knowledge or authorization. To execute the scheme, Madoff solicited and caused others to solicit prospective clients to open trading accounts with BLMIS, based on his promise to use investors' funds to buy securities of large, well-known corporations, and representations that he would achieve high rates of return for clients with limited risk. In fact, Madoff knew these representations were false. Madoff failed to honor his promises by failing to invest clients' funds in securities as he had promised. Instead, notwithstanding his promises and representations Madoff made on tens of thousands of account statements and other documents sent through the U.S. Postal Service to BLMIS clients throughout the operation of this scheme, Madoff operated a massive Ponzi scheme in which client funds were misappropriated and converted to the use of Madoff, BLMIS, and others.

In connection with this Ponzi scheme, Madoff accepted billions of dollars of investor money from individual investors, charitable organizations, trusts, and pension funds, and established on their behalf thousands of accounts at BLMIS. From the outset, Madoff obtained investor funds through interstate wire transfers from financial institutions and through mailings delivered by the U.S. Postal Service. In carrying out this scheme, Madoff made false representations concerning his investment strategies to clients and prospective clients. Clients were promised that BLMIS would invest their funds in a basket of 35 to 50 common stocks within Standard & Poor's 100 Index (S&P 100), a collection of the 100 largest publicly traded companies. Further, to induce new and continued investments by clients and prospective clients, Madoff promised certain clients annual returns of up to 46 percent a year. Contrary to his promises, Madoff used most of the investors' funds to meet other investors' periodic redemption requests. In addition, Madoff took some of these clients' investment funds as commissions which he used to support market making, and from which he received millions of dollars in benefits. To conceal his scheme, Madoff withheld information from regulators and repeatedly lied to the SEC in written submissions and in sworn testimony. Guilty Plea Bernard Madoff entered a federal courtroom in Manhattan on Thursday to admit that he had run a vast Ponzi scheme that robbed thousands of investors of their life savings; he was as elegantly dressed as ever.

But, preparing for jail, he wore no wedding ring-only the shadowy imprint remained of one he has worn for nearly 50 years. He admitted his guilt for the first time in public, and apologized to his victims, dozens of whom were squeezed into the courtroom benches behind him, before being handcuffed and led away to jail to await sentencing. "I knew what I was doing was wrong, indeed criminal," he said. "When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients." But finding an exit "proved difficult, and ultimately impossible," he continued, stumbling slightly in his prepared remarks. "As the years went by I realized this day, and my arrest, would inevitably come." Mr. Madoff acknowledged that he had "deeply hurt many, many people," adding, "I cannot adequately express how sorry I am for what I have done." His testimony was shaped not only by expressions of regret, but also by his determination to shield his wife and family. (Henriques and Healy 2009) Sentencing Hearing Madoff Statement Your Honor, I cannot offer you an excuse for my behavior. How do you excuse betraying thousands of investors who entrusted me with their life savings? How do you excuse deceiving 200 employees who have spent most of their working life working for me? How do you excuse lying to your brother and the two sons who spent their adult lives helping to build a successful and respectful business? How do you excuse lying and deceiving the wife who stood by you for 50 years, and still stands by you? And how do you excuse deceiving an industry you spent the better part of your life trying to improve? There is no excuse for that, and I don't ask for any forgiveness.

I am responsible for a great deal of suffering and pain. I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created. I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. That's something I will live with for the rest of my life. People have accused me of being silent and not being sympathetic. That is not true. They have accused my wife for being silent and not being sympathetic. Nothing could be further from the truth. She cries herself to sleep every night, knowing of all the pain and suffering I have caused, and I am tormented by that as well. Apologizing and saying I am sorry, that's not enough. Nothing I can say will correct the things that I have done. I feel terrible that an industry I spent my life trying to improve is being criticized terribly now, that regulators who I helped work with over the years are being criticized by what I have done. That is a horrible guilt to live in. There is nothing I can do that will make anyone feel better for the pain and suffering I caused them, but I will live with this pain, with this torment, for the rest of my life. I apologize to my victims. I will turn and face you. I am sorry. I know that doesn't help you. Your honor, thank you for listening to me. Judge's Statement Judge's statement at sentencing Madoff. Objectively speaking, the fraud here was staggering. It's been more than 20 years. As for the amount of the monetary loss, there appears to be some disagreement. Mr. Madoff disputes that the loss amount is $65 billion or even $13 billion. But Mr. Madoff has now acknowledged that some $170 billion flowed into his business as a result of his fraudulent scheme. By any measure, the loss figure here is off the chart by many fold. Moreover as many of the victims have pointed out, this is not just a matter of money.

The breach of trust was massive. Investors- individuals, charities, pension funds, institutional clients-were repeatedly lied to, and as they were told their monies would be invested in stocks when they were not. Investors made important life decisions based on these fictitious account statements-when to retire, how to care for elderly parents, whether to buy a car sell a house, how to save for their children's college tuition. Charitable organizations and pension funds made important decisions based on false information about fictitious accounts. Mr. Madoff also repeatedly lied to the SGC and the regulators, in writing and in sworn testimony by withholding material information, by creating false documents to cover up his scheme. Mr. Madoff argues a number of mitigating factors but they are less than compelling. It is true that he essentially turned himself in and confessed to the FBI. But the fact is that with the turn in the economy, he was not able to keep up with the requests of customers to withdraw their funds, and it is apparent that he knew that he was going to be caught soon. It is true that he consented to the entry of a $170 billion forfeiture order and has cooperated in transferring assets to the government for liquidation for the benefit of victims. But all of this was done only after he was arrested, and there is little that he could have done to fight the forfeiture of these assets. Moreover, the SIPC trustee has advised the court Mr. Madoff has not been helpful, and I simply do not get the sense that Mr. Madoff has done all that he could or told all he knows.

I have taken into account the sentences imposed in other financial fraud cases in this district but, frankly, none of these other cases is comparable to this case in terms of the scope, duration and enormity of the fraud, and the degree of the betrayal. In terms of mitigating factors in a white-collar fraud case such as this, I would expect to see letters from family and friends and colleagues. But not a single letter has been submitted attesting to Mr. Madoff 's good deeds or good character or civic or charitable activities. The absence of such support is telling. We have heard much about a life expectancy analysis. Based on this analysis, Mr. Madoff has a life expectancy of 13 years and he therefore asked for a sentence of 12 years or alternatively 15 to 20 years. According to his lawyer, if he spends about 20 or 25 years it would be largely, if not entirely symbolic. But the symbolism is important, for at least three reasons. First retribution. One of the traditional notions of punishment is that an offender should be punished in proportion to his blameworthiness. Here the message must be that this kind of irresponsible manipulation of the system is extraordinarily evil, and is not merely a bloodless financial crime that takes place just on paper, but that it is instead as we have heard, one that takes a staggering human toll. The symbolism is important because the message must be sent that in a society governed by the rule of law, Mr. Madoff will get what he deserves, and that he will be punished according to his moral culpability. Second deterrence. Another important goal of punishment is deterrence, and the symbolism is important here because the strongest possible message must be sent to those who would engage in similar conduct that they will be caught and they will be punished to the fullest extent of the law. Finally the symbolism is also important for the victims.

The victims include individuals from all walks of life. The victims include charities, both large and small, as well as academic institutions, pension funds, and other entities. Mr. Madoff 's very personal betrayal struck at the rich and not-so-rich-the elderly living on retirement funds and Social Security, middle-class folks trying to put their kids through college, and ordinary people who worked hard to save their money and thought they were investing it safely, for themselves and for their families. A substantial sentence will not give the victims back their retirement funds or the monies they have saved to send their children or grandchildren to college. It will not give them back their financial security for the freedom from financial worries. But more is at stake than money as we have heard. The victims put their trust in Mr. Madoff. That trust was broken in a way that has left many victims, as well as others touting our financial institutions, our financial system, or government's ability to regulate and protect, and sadly, even themselves, [disillusioned]. I do not agree that the victims are succumbing to the temptation of mob vengeance. Rather, they are doing what they are supposed to be doing, placing their trust in our system of justice. A substantial sentence, the knowledge that Mr. Madoff has been punished to the fullest extent of the law, may, in some small measure, help these victims in their healing process. Mr. Madoff, please stand. It is the judgment of this court that the defendant, Bernard L. Madoff, shall be and hereby is sentenced to a term of imprisonment of 150 years. Mr. Madoff, you have the right to appeal at least certain aspects of this judgment conviction. If you wish to appeal you must do so within 10 days. If you cannot afford an attorney, the court will appoint one for you. We are adjourned.

Questions: 1. Identify the criminal charges against Madoff.

2. List all of the facts relevant to deciding the criminal action against Madoff.

3. Explain the reasons why the criminal case resulted in acquittals on some charges and a hung jury in the main charge.

4. Explain the basis for the civil action and what the government hopes to obtain in the case.

5. Summarize Madoff 's statements at his guilty plea hearing and at his sentencing. What's your emotional reaction to the statements?

6. Was Madoff 's sentence too harsh? Not harsh enough? About right? Back up your answer with facts and arguments from the excerpt.

7. Describe your emotional reaction to the story of Madoff 's crimes.

8. Describe your emotional reaction to Madoff 's statement at his sentencing hearing. If you were the judge, what effect would it have on your sentencing decision? Defend your answer.

9. Describe your emotional reaction to the judge's statement at Madoff 's sentencing hearing. In your opinion, was the sentence too lenient? Too harsh? About right? Defend your answer, paying particular attention to the three purposes of punishment outlined by the judge.