A strong message to Wall Street
With Bernard L. Madoff sentenced Monday to 150 years in prison, his massive Ponzi scheme is likely to be felt for years as victims struggle to recoup their money, investors treat Wall Street with new suspicion and regulators scramble to crack down on all manner of financial wrongdoing.
Closing a chapter in the Madoff melodrama, a federal judge unexpectedly imposed the maximum possible sentence, jolting the legal community and electrifying many of those who had entrusted Madoff with their money.
The ruling by U.S. District Judge Denny Chin marked a culmination of public outrage at Madoff as well as at a litany of other scandals that have besmirched Wall Street in recent years.
The judge sent a message to financial professionals “who find themselves in a position to abuse victims,” said George Jackson, a white-collar crime lawyer in New York. “And it was a signal to the victims that ‘I hear you, I am sympathetic to your plight.’ ”
Along with a grinding bear market that has saddled Americans with once-unthinkable losses in their 401(k) plans and other portfolios, the Madoff saga has prompted a widespread reassessment of Wall Street, particularly of hedge funds, which are private pools of money that became highly coveted for their aura of exclusivity and superiority.
“The mystique of the private hedge fund investment has disappeared,” said Thomas Whelan, chief executive of Greenwich Alternative Investments, a Stamford, Conn., firm that advises investors about hedge funds.
Madoff pleaded guilty in March to a record-setting Ponzi scheme that was audacious in its magnitude and duration. The scheme, said to have begun more than two decades ago, is estimated to have caused at least $13 billion in actual losses to investors.
Madoff was arrested in December after nearly running out of money because of heavy withdrawals by investors in the wake of the plunging financial markets. He had told his investors their accounts collectively were worth almost $65 billion, but most of that is believed to have represented fictitious profits.
Chin’s ruling elicited an impromptu burst of applause from victims in the courtroom, who saw it as an acknowledgment of their suffering.
“Mr. Madoff was sentenced to life, as his victims are sentenced to life,” Maureen Ebel, a 61-year-old widow from West Chester, Pa., said afterward.
But the verdict offered only momentary solace to victims locked in a bitter clash with a court-appointed trustee over how much money they will be allowed to recoup.
The investors disagree with the government’s formula for calculating losses and reimbursements. Some groups of victims fear that others could receive more than they do.
“Madoff to me at this point is irrelevant,” said Richard Friedman, a 59-year-old certified public accountant in Jericho, N.Y. “Most investors will not get a dime from this.”
The 90-minute hearing in an ornate, wood-paneled courtroom was emotionally charged.
Nine victims testified about their financial and emotional wounds. Several older witnesses broke down as they told of life savings that were gone, homes that were lost and menial jobs that they were trying to patch together.
Miriam Siegman, 65, of New York said she was subsisting on food stamps and the proceeds from recycling empty bottles.
“At the end of the month I sometimes scavenge in dumpsters,” she told Chin.
Madoff’s lawyer, Ira Sorkin, sought to limit the sentence. While acknowledging that his client was “a deeply flawed individual,” Sorkin said Madoff deserved a fair sentence.
“The magnificence of our legal system is that we do not seek an eye for an eye,” Sorkin said.
Madoff also spoke, reiterating many of the points he made when he pleaded guilty in March, although Monday’s comments dwelt more on his feelings.
“I live in a tormented state now knowing of all the pain and suffering that I have created,” Madoff said, hunched slightly over a table as he read from prepared remarks. “I have left a legacy of shame.”
After being criticized for not facing his victims at his court appearance in March, Madoff turned briefly toward those who attended Monday and apologized.
Chin punctuated the proceeding by uncorking a blistering attack on Madoff, calling his crime “staggering” and his breach of trust “massive.”
The judge said he was moved by letters from victims detailing their Madoff-induced hardships.
Chin was particularly touched, he said, by a woman who said she went to see Madoff after her husband’s death to ask him whether she should withdraw her savings. Madoff put his arm around her shoulders, Chin quoted the woman, and assured her in soothing tones that her life savings were safe with him.
The judge also condemned what he said was Madoff’s lack of cooperation in helping investigators unravel his case and identify others who might have helped him.
“I simply do not get the sense that Mr. Madoff has done all that he could or told all that he knows,” Chin said.
After the hearing, Madoff’s wife, Ruth, ended the silence she had maintained since the scandal came to light in December. She said in a statement that she was “embarrassed and ashamed” and that “not a day goes by when I don’t ache over the stories that I have heard and read.”
Following on the heels of the worldwide crash of financial markets that began in September, news of Madoff’s scam dealt another blow to Wall Street’s tattered image.
Because Madoff was secretive about his supposed investment style, his downfall has especially done damage to the somewhat secretive hedge-fund industry, even though his operation wasn’t technically a hedge fund.
In recent years, hedge funds became the preferred investment accounts for many well-to-do Americans, despite the often limited disclosure provided to clients. Their exclusivity was part of the allure -- along with the potential for better returns than plain-vanilla mutual funds.
With the global market plunge last fall, however, hedge funds began to experience heavy withdrawals by frightened investors.
A record 778 funds closed up shop in the last three months of 2008, followed by 376 closures in the first quarter of this year, according to Hedge Fund Research Inc. About 9,000 funds remain.
Madoff’s fraud has prompted many investors to rethink their blind allegiance to hedge funds, said Virginia Parker, whose Stamford, Conn., firm helps investors select funds.
“They want to understand who has their money, what’s being done with it and is it safe,” Parker said. “They’re asking a lot more questions, and if the questions aren’t answered they’re stopping the conversations.”
The Madoff scandal also shone a withering light on regulators, particularly the Securities and Exchange Commission, which failed to uncover the fraud despite repeated warning signs over the years.
As part of the Obama administration’s push for greater regulatory oversight, the SEC is getting an overhaul so it can spot frauds more easily and bring enforcement actions more quickly.
But that won’t help Madoff’s victims, such as Sheryl Weinstein and her husband, who lost their life savings.
“This is a human tragedy of historic proportions,” she said.
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Bernard Madoff’s 150-year prison sentence far exceeds those given for other white-collar crimes of the last three decades.
The central player in Wall Street’s insider trading scandals of the 1980s served 22 months of a three-year sentence for lying to regulators.
The junk bond king was sentenced in 1990 to 10 years in prison for securities fraud and conspiracy. He served 22 months.
Charles Keating Jr.
The head of the failed Lincoln Savings & Loan was sentenced in 1993 to 12 years, seven months for looting the company and swindling investors. His convictions were later overturned and he was released after serving four years and eight months.
Bernard J. Ebbers
The former chief executive of WorldCom was sentenced in 2005 to 25 years for orchestrating an $11-billion accounting fraud. He is in federal prison.
L. Dennis Kozlowski
The former head of Tyco International was sentenced in 2005 to eight to 25 years for defrauding shareholders. He is in New York state prison.
Jeffrey K. Skilling
The former Enron chief executive was sentenced in 2006 to 24 years, four months for his role in the collapse of the company. He is in federal prison.
Graphics reporting by Scott J. Wilson