Madoff: For the 71-year-old Bernie Madoff, a century and a half in jail is largely symbolic. Sure, the sentence may deter some would-be fraudsters. But although the conman was undone by the financial crisis, the sorry tale won’t do much to avoid another. It only underlines lessons that, sadly, everyone should have learnt before.
The maximum sentence should serve as a catharsis of sorts for Madoff’s victims. The long prison term might also send a discouraging message to some younger would-be Ponzi schemers.
With luck, another concrete result may be that the Securities and Exchange Commission and other watchdogs will look a bit harder at allegations of fraud. They missed Madoff, despite being presented with reasonably well documented evidence of his $65bn scam.
More nebulously, the scandal has caused some investors to insist on safeguards like third-party custody of assets and proper audits. But even supposed checks of that sort didn’t stop some sophisticated investors throwing money at Madoff anyway – and many of his victims probably lacked the resources to do much due diligence of their own.
But there’s little else to learn, because the giant fraud involved entirely fictitious investing. The Enron debacle in 2001 revealed specific disclosure and governance problems that Congress tried, with mixed success, to address. The financial crisis found Madoff out, because when investors needed their cash he didn’t have it. Beyond that, though, his scheme was just a con trick, like so many before it.
The big lessons are age-old ones. Investors should diversify, and they should check the credentials of anyone they entrust with their money. They should resist the appeal of personal attention and perceived exclusivity, and fight the allure of above-average returns at below-average risk, no questions answered.
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As for swindlers, not all of them may be deterred. Charles Ponzi himself, shortly before his death in 1949, still thought his scam “the best show that was ever staged” for his Bostonian victims, and thought they should consider it “cheap at the price”. Even Madoff is paying with (probably) relatively few years in jail, after decades of the good life and having seemingly managed to avoid taking his family or friends down with him.
There’ll be more scandals like Madoff’s, not least because people will always be hopeful and greedy. Madoff’s sentence may end one tumultuous chapter. But the book of swindles will continue to expand.
