Jewish Bernie Madoff pleads guilty, is jailed for $65 billion fraud

Madoff pleads guilty, is jailed for $65 billion fraud

NEW YORK (Reuters) – Bernard Madoff pleaded guilty on Thursday to orchestrating the biggest investment fraud in Wall Street history and was jailed to await a sentence that could keep him in prison for the rest of his life.

As some of his victims looked on in the courtroom, the former Nasdaq stock market chairman calmly described for 10 minutes a long-running, worldwide Ponzi scheme that he knew was criminal from the start but thought would end quickly.

“I am painfully aware that I have deeply hurt many, many people,” including family, friends and associates, the grim-faced Madoff, 70, said before U.S. Judge Denny Chin in Manhattan federal court. It was the first time he had spoken publicly of his crime.

“When I began my Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme,” said Madoff, who wore a gray suit but none of the rings that were a signature of his style.

Madoff, who read from a prepared statement, did not mention the size of the scheme, but prosecutors have said it amounted to as much as $65 billion over 20 years and involved more than 4,800 client accounts.

Madoff said that shutting down the scheme, in which early investors were paid with money from new ones, proved impossible. “As the years went by, I realized that my arrest and this day would inevitably come,” he said.

Madoff has become one of the most vilified men in America, a symbol of the unraveling of Wall Street that has laid bare other multimillion dollar frauds. Some onlookers cheered as he was led out of the courtroom in handcuffs.

Dozens of investors caught in Madoff’s web huddled outside the courthouse, commiserating, crying and passing judgment on the disgraced financier.

“It’s a Pyrrhic, bittersweet victory,” said Miriam Siegman, 65, of New York City. A retired consultant, she said she had lost her life savings to Madoff’s fraudulent investments and now receives food stamps.

”I have no one to help me. That he’s in jail doesn’t change that,“ she said. ”I still have the rest of my life to live, or try to live, in incredible stress and in total poverty. He took everything.

Two suicides have been associated with the collapse of Madoff’s scheme.

WHERE WERE THE WATCHDOGS?

The swindle has cast a harsh light on securities regulators for failing to uncover the scam, even after a whistleblower brought it to the attention of the U.S. Securities and Exchange Commission in May 1999.

The case has intensified demands for greater regulation of the financial industry.

Madoff’s investors included hedge funds, banks, Jewish charities, the wealthy, and small individual investors in North and South America and Europe.

Three investors accepted an opportunity to speak in court. One of them, George Nierenberg, tried to address Madoff directly.

“I don’t know whether you had the chance to turn around and look at the many victims,” Nierenberg said. Madoff pivoted in his seat slightly and briefly looked at him.

As the world slipped into recession and Madoff’s investors started asking for their money, his swindle collapsed.

Madoff told the court that the essence of his scheme was telling customers that he would “invest their money in shares of common stock, options and other securities of large well-known corporations.”

He admitted that he simply deposited clients’ money in an account at Chase Manhattan bank instead of investing it.

When people wanted their money, “I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds.”

PENTHOUSE TO PEN

After his arrest last December, Madoff was released on bail and confined to his $7 million Manhattan penthouse.

After he pleaded guilty, the judge ordered Madoff to jail and scheduled his sentencing for June 16. Madoff can get up to 150 years for the 11 charges against him, which include securities fraud, money laundering and perjury.

Madoff headed a family-run business in which his brother, Peter, and sons Mark and Andrew were executives in the brokerage arm of his firm. Madoff insisted that the brokerage unit was a legitimate business.

Neither they nor his wife of nearly 50 years, Ruth, were in court.

During the hearing, which ran more than an hour, rapt attention was broken by scoffs or laughter at a reference by defense lawyer Ira Lee Sorkin to Ruth Madoff paying for security at their apartment as part of her husband’s house arrest and bail package.

Madoff will be jailed in a shared cell at the nearby Metropolitan Correctional Center, a far cry from his opulent lifestyle that included boats and mansions.

WHERE‘S THE CASH?

Investors have said that any money in Ruth Madoff’s name is likely proceeds of her husband’s fraud and belongs to them.

Prosecutors have said that as of November 30, 2008, Madoff’s client accounts purportedly had $64.8 billion, but in reality “held only a small fraction of that.”

They are seeking $170.8 billion in forfeiture from him, a sum they estimate of all the money and property that can be traced back to the fraud. They have not said how they arrived at that figure, and Madoff’s lawyers have challenged that amount.

After the once-respected trader answered each of the charges with the word “guilty,” Chin accepted the plea and rejected his request to stay out on bail until sentencing. His attorney said he would appeal the ruling revoking bail.

Acting U.S. Attorney for Manhattan Lev Dassin said in a statement that Madoff’s guilty plea “is one step in an ongoing investigation.”

He said, “We are continuing to investigate the fraud and will bring additional charges against anyone, including Mr. Madoff, as warranted.”.

Some of the investors in the courtroom and in another room nearby watching a video feed of the proceedings, said they were unsatisfied by Madoff’s admission and apology.

Many wanted a trial.

“If we go to trial, we have more of a chance to comprehend the global scope of this horrendous crime,” investor Maureen Ebel of Florida said in court.

“At trial, we can bear witness to the pain Mr. Madoff has inflicted on the old, the infirm and the disabled.”

Reporting by Grant McCool and Martha Graybow; Additional reporting by Edith Honan and Caroline Humer; Writing by Paul Thomasch; Editing by Brian Moss, Toni Reinhold

Our Standards:The Thomson Reuters Trust Principles.

Why It Matters That Madoff Is Jewish

Journalist J.J. Goldberg on Jews and the Money Culture

In the aftermath of the revelation that Bernard Madoff’s investment fund was a tremendous Ponzi scheme, the Jewish community adopted a customarily defensive pose. Afraid that Madoff’s religious affiliation would encourage anti-Semites, community spokesmen worked to disassociate him from the Tribe. David Harris, the executive director of the American Jewish Committee, complained to the New York Times in a December 13th letter that their coverage of Madoff had placed “a striking emphasis on his being Jewish,” and pointed out that no one was talking about the religion of Illinois governor Rod Blagojevich, who had been accused of corruption the same week.

The tendency to see the event in terms of anti-Semitism was matched by a similar communal instinct to avoid discussions of the problems within the community that Madoff had exposed. At a January panel discussion in New York organized by the YIVO Institute for Jewish Research, The New Republic editor Martin Peretz was met with boos from the audience when he asked whether the affair was cause to take another look at the Jewish culture of ostentation. No one wanted to talk about what expensive Bar Mitzvah parties had to do with Bernard Madoff.

To discuss this fear of criticism and the real meaning of Madoff, we visited J.J. Goldberg at the brand new offices of the Jewish Daily Forward in downtown Manhattan. Goldberg was the editor of the Forward from 2000 until 2008, and now serves as the paper’s editorial director. He is the author of Jewish Power: Inside the American Jewish Establishment (Addison-Wesley, 1996).

What is the answer to David Harris’ implied question? Why does it matter that Madoff is Jewish? And why don’t Jews think that it matters?

First of all, it matters because he operated through a network of Jewish associations. His Jewish communal involvement was part of his scheme. In a larger sense, [it matters] because of the long association of Jews and Wall Street and finance. It figures into anti-Semitic mythology. His being Jewish is relevant in some way that I think most people can’t put their finger on. It’s relevant because his story seems to be a fairy tale come true. It’s exactly what everybody has in the back of their minds. Jews and polite gentiles don’t want to talk about it because it reinforces anti-Semitic stereotypes. Stereotypes are exaggerations of truth, frequently unfair but very rarely unfounded.

[At the YIVO event,] Martin Peretz mentioned that there’s something in the American Jewish subculture, with the million dollar Bar Mitzvahs and the lavish Viennese table, there’s something built in-even the fact that lower middle class Jews feel compelled to bankrupt themselves on these elaborate Bar Mitzvahs.

That was the most fascinating part of the YIVO panel-when Peretz was booed for raising the issue of expensive Bar Mitzvah parties. Why are people so resistant to having a conversation about Jewish ostentation?

Jews don’t want to hear about negative stereotypes. If you talk about what Jews do wrong as Jews, as an outgrowth of their Jewishness or as part of their association with Jews, they don’t want to hear it. It’s interesting-when Jews spoke Yiddish, [negative attributes of Jews] were discussed all the time. You can’t talk about it in English because “they” can hear.

Pope John Paul apologized for the role Catholics [played] in perpetrating anti-Semitism. The World Jewish Congress and other groups wanted him to apologize for the Church’s role. And he couldn’t do that, because the Church can’t do wrong. Catholics can do wrong. Employees of the Church can do wrong. But it is impossible for a pope or anybody else to apologize for the Church, because the Church is holy. It can’t be wrong. We are sort of the same way with Judaism. It can’t be wrong. There can’t be anything wrong with it. If something goes wrong that seems associated with Judaism, it’s a perversion of Judaism.

This is a defense against anti-Semitism?

No. It’s because we hold Judaism so dear, we don’t want to think it’s capable of creating problems. In 1993, there was a wave of Pell Grant fraud cases where people were setting up phony schools to apply for Pell Grants and then keeping the money. [The Senate Permanent Subcommittee on Investigations] had two days of hearings. [Anti-Defamation League National Director] Abe Foxman wrote a letter [to John McCain] complaining that all of the witnesses that had been called up represented yeshivas. He said, the way this has been set up it could create the unfortunate impression that this is some particularly Jewish pattern of crime. And McCain wrote back and said, it is. Yeshivas were this huge network of institutions where people study full time. They had been mainly supported by the billionaire Reichman family from Toronto. [The Reichman family] went bust, and all of a sudden there are all of these cases of fraud and money laundering. Anything to support this impossible system. But you can’t talk about Judaism leading to wrongdoing. It can’t be. Judaism is only good.

The less involved you are in daily Jewish life, the more inviolate it has to be. Think of Superman and [the city of Kandor] in the little bottle in his Fortress of Solitude. It has to be preserved because there’s nothing you can do with it. Flowers that you press into a Bible. The less you can do with it the more you need it to be perfect.

Now, there’s another thing that needs to come out about the Madoff affair, which is that not only can you not admit that Judaism had anything to do with what he did, but you can’t admit that capitalism had anything to do with what he did. He’s a villain. He’s a monster. He’s a sociopath. I mean, he was doing things that are illegal, but not that different from everybody else. He was thinking, I’m going to put money into nothing, but if I keep on collecting more and more of it then it’ll never collapse. Which is exactly what the American economy’s been doing-spending more than we make and then borrowing more and more from China. In his testimony, he said at a certain point he felt trapped. He must have made a bad deal somewhere, took in a bunch of money he couldn’t cover hoping he would make it back, and it became this beast that he had to keep feeding. He lost everything, including the rest of his life. Everybody else lost money. Which is a lot better than the people at Bear Stearns and Bank of America, who took the whole world down with them. The big difference between him and them is that the things that they were doing weren’t illegal anymore.

So if that’s what capitalism had to do with Madoff, what was it about Jewish culture that created Madoff?

I’ve done a little bit of thinking about it. Certainly the fact that Jewish culture is so exhibitionist. Conspicuous consumption has something to do with it. That’s at the heart. Now, where does that come from? In the 1930s, the ADL had what they called a Bureau of Jewish Deportment. They put out booklets advising people how to behave in Miami, which was mainly gentile then. You don’t wear furs in the summer on Collins Avenue. They wouldn’t have said it if it wasn’t being done. Why would somebody wear furs on Collins Avenue in the summer? What are they trying to show? They want to show that they’re successful, they want to show that they’re not their grandfather the tailor in Russia. Jews went into finance in the Middle Ages, Jews invented international trade. So it’s in the tradition-it’s in the culture. Maybe because it’s a portable culture, it’s an urban culture, it’s a culture that was not rooted in physical labor. It was entirely survival by wits. And if it’s entirely survival by wits, and if everybody’s against you, then a whole lot of things become imaginable.

And this culture survived the generations of poverty? People who are wealthy now, their grandparents were destitute, and their great-grandparents were destitute. I’m not sure when poverty hit the Pale, but-

The 1600s. It was a long time. So, you know, there’s a mystery here. It’s worth solving. But I don’t know anybody who studies it. I know a historian who wanted to write about Jewish history. Their first book was about Jewish gangsters. Dropped the topic. Took too much heat. Because nobody wants to hear about it.

How has wealth affected the Jewish community?

There’s been exponential growth of Jewish wealth, partly because there’s been exponential growth of wealth. The top marginal tax rate under Eisenhower and Kennedy was 90%. [Today,] America’s got the lowest taxes in the industrial world. It all changed in the mid 1970s. People blame Reagan, but it really started under Carter. Along with deregulation came the lowering of the taxes. You removed the rules for getting rich, and you let people keep more of that money. And the sky was the limit. The Jewish organizations, for a bunch of reasons, grew and grew and grew during those years. There was always a myth that the richer Jews were more assimilated. Nowadays, the poorer Jews are more assimilated because they can’t afford [Jewish life]. The Jewish community grew by the graces of the donations of the wealthy. And then it built up this infrastructure that was dependent on the donations of the wealthy. It became harder and harder to act independently of the interests of the wealthy.

In 1994, when Newt Gingrich took over the House of Representatives, [the Republicans] introduced the Balanced Budget Amendment, which was nonsense. After years of unprecedented deficits under Reagan, they decided that Congress couldn’t control itself, so they wanted a constitutional amendment to prevent themselves from spending. The Council of Jewish Federations said it was going to really damage Jewish institutions. The Jewish community probably raises $2 billion a year for the schools, synagogues, and hospitals. It probably spends $8 billion. The rest of it is government money. So the Balanced Budget Amendment was really going to damage the Jewish community. The way I heard it, five families in three cities said, I’m a Republican, and you lose my gift if you lobby against the Balanced Budget Amendment. After 1994, the Jewish community stopped offending Republicans. Quite suddenly.

Before the modern age, Jews lived in ghettoes. They could tax themselves. Tzedakah was not voluntary. Shabbes wasn’t voluntary. The first synagogue in America, Shearith Israel in New York, adopted a rule saying that if you violated Shabbes you got fined. It didn’t work. People just resigned from the synagogue. [The community] had lost enforcement power. And once you’ve lost enforcement power, you’ve got to ask for it. And once you’ve got to ask for money, you become dependent on the wealthy. Rabbis now depend on the goodwill of a few rich people. And so the balance of power between the moralists and the hedonists shifts. There used to be a check. The moral authority of the Jewish community had enforcement power. Now it’s around for entertainment. Instead of scolding Jews, now they scold goyim. They have no authority to scold the Jews. None. Rabbis lose their jobs for being moral scolds. So there is no more moral authority.

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