Madoff and Sons – a Paternal Sacrifice?

Some years ago Bernard Madoff, founder and owner of a successful stock and bond trading firm, made known to friends the rates of return his trading activities were experiencing, and the numbers were certainly enticing, ranging from 1%-2% per month.

Even a “mere” 12% annual return was enough to attract the well-endowed, and billions of dollars flowed into Madoff’s investment vehicle.

Where did Madoff go wrong? When and why did Madoff’s name become forever linked to Ponzi? As yet we don’t know the when or why, but certain truths can be introduced into the analysis. The beginning of the end occurred before Madoff announced the distribution of a $100-$200 million dollar bonus plan, a plan opposed by his two sons, both operating managers of the company’s trading firm. Faced with their strong opposition Madoff, realizing the “Time” had come, admitted to his boys that he was paying investors “returns” not earned, but were made possible by incoming cash flow. A Ponzi scheme.

In retrospect, the impact upon Madoff’s sons must have been catastrophic. Nevertheless, they both went immediately to Federal authorities, revealing the multi-billion dollar fraud.

But! Did that confrontation between father and sons actually occur? Can it be reasonably assumed, without question, that Madoff’s sons, operating managers of the firm, had no clue, no knowledge of the monies coming in, the actual trading returns being earned, and monies being disbursed? Did Madoff, alone, without accomplices, without accountants, without secretarial staff, have sole access to cash control? With $50 billion dollars, and thousands of investors involved, can it be reasonably assumed there was only one felon on the premises?

How about this scenario: father and sons acted in collusion, each with separate responsibilities. Madoff, the frontman, the friend of nobility, selling the company’s success to willing listeners. Number One son managing the cash inflow from a location separate from where Number Two son managed cash disbursements. With limited ability of personnel to communicate outside of their operating location any irregularities would be difficult to uncover. Within each operating section everything would appear normal and above board.

If such a scenario was, in fact, the operational situation at the time all three recognized the end of their Ponzi scheme – namely, current investors were withdrawing their funds as cash inflow was dropping as fast as the stock market – Bernard made the paternal sacrifice.

“Boys,” he might have said, “no need for the entire family to go under the bus. You two go to the Feds, tell them I duped even you, and your doing what is required for God, Country and Apple Pie. Anyway, I’m an old man, with limited time available. Go!”

And so it might have been.

Do you think the Feds look at the sons as persons of interest? What are your thoughts?

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James MacMeekin served in the US Air Force during the Korean conflict, earned B.A. and M.A. degrees in economics and finance at Michigan State University, worked his way through Wall Street as stock analyst up to CEO of his own venture capital firm. Retired to Winter Haven, MacMeekin taught school in Polk County for eight years before turning his attention to writing. After a pair of biographies (Abraham Lincoln, Richard O’Kane), MacMeekin has turned his attention to the short essay form. Metro I4 News is happy to commence online publication of a variety of MacMeekin’s essays of interest to residents of the I4 corridor.