Bernard Madoff confessed in court on March 12, 2009, to operating a Ponzi scheme through Bernard L. Madoff Securities LLC until his arrest on December 11, 2008. He expressed deep regret and shame for his actions, acknowledging that he knew his conduct was wrong and criminal from the start. Madoff stated his initial belief that he could extricate himself but found it impossible, leading to the eventual revelation of his fraud.
The essence of his scheme involved misrepresenting to clients that he would invest their money in shares, options, and other securities of large corporations, and return profits and principal upon request. These representations were false, as Madoff never invested the funds. Instead, client money was deposited into a Chase Manhattan Bank account, and withdrawals were paid using funds from other clients or their own principal. The victims included individuals, charitable organizations, trusts, pension funds, and hedge funds. He obtained funds through interstate wire transfers and mail services.
Madoff explained that to conceal his fraud, he created false trading confirmations and client account statements. He also made false claims about using a "split-strike conversion strategy" to give the appearance of successful investments. These strategies, which supposedly involved investing in S&P 100 stocks and hedging with options, were never actually executed. He even gave false testimony under oath to the SEC in 2006, claiming to trade securities in overseas markets and to have custody of client assets.
While his investment advisory business was fraudulent, Madoff emphasized that other parts of his firm, specifically proprietary trading and market making, were legitimate, profitable, and managed by his brother and two sons. Madoff also used methods like wiring money between the U.S. and the U.K. to create the illusion of legitimate securities transactions and filed false audit reports with the SEC. He even falsely certified under penalty of perjury that his firm had custody of advisory clients' securities.
