Madoff investment scandal

Concerns about Madoff's business had surfaced as early as 1999, when financial analyst-whistleblower Harry Markopolos informed the SEC that he felt it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. Others felt it was inconceivable that his growing volume of accounts could be competently serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant.
However, no serious inquiries were made into his business practices until December 2008, when the financial crisis created a rising demand of cash withdrawals. On December 10, Madoff informed his sons that he decided to pay several million dollars in bonuses two months earlier than scheduled.

According to federal investigators, Mark and Andrew demanded to know how their father could pay bonuses if he couldn't afford to pay investors. Madoff then admitted the asset management arm of his firm was an elaborate Ponzi scheme. Through their attorney, Madoff's sons reported their father to federal authorities. On December 11, he was arrested and charged with securities fraud.
On March 12, 2009, Madoff pled guilty to 11 felonies, including securities fraud, wire fraud, mail fraud, money laundering, perjury and making false filings with the SEC. The plea came in response to a criminal complaint filed two days earlier, which stated Madoff had defrauded his clients of almost $65 billion. The complaint spelled out the largest Ponzi scheme in history, as well as the largest investor fraud committed by a single person. Despite the scale of the fraud, Madoff insists that he was solely responsible for the Ponzi scheme. Madoff did not reach a plea bargain with the government, opting instead to simply plead guilty to all charges. It has been reported that he did so because he refused to cooperate and name any accomplices. He faces a maximum sentence of 150 years in prison, plus mandatory restitution of up to twice the gross gain or loss from his crimes. If the government's estimate of $65 billion is correct, Madoff faces a maximum of $170 billion in restitution.
In his pleading allocution, Madoff stated that had begun his Ponzi scheme sometime in the early 1990s. He wanted to continue to satisfy the expectations of high returns promised to his clients, in spite of an economic recession. He admitted that he had never invested any of his clients' money since the inception of his scheme. Instead, he simply deposited the money into his business account at Chase Manhattan Bank. He admitted to false trading activities masked by foreign transfers and false SEC returns. He used the Chase business account to pay clients who requested withdrawals, claiming the "profits" were the result of his own unique "split-strike conversion strategy". He declared that he had every intention of resuming legitimate activities in his asset management division, but it proved "difficult, and ultimately impossible" to catch up to the paper profits. Madoff admitted he knew his day of reckoning was inevitable.
Sister project Wikinews has related news: Madoff prosecutors want assets from wife and children

Madoff had been under 24-hour monitoring and house arrest in his Upper East Side penthouse apartment since December, 2008. However, after accepting Madoff's plea, Judge Denny Chin immediately revoked his $10 million bail and remanded him to the Metropolitan Correctional Center pending sentencing. Chin said that in light of Madoff's age, wealth, and the possibility of spending the rest of his life in prison, Madoff was a substantial flight risk. Madoff's lawyers have appealed Chin's order.
Some involved in the case as well as other unrelated observers have opined that the actual loss to investors could be far less than reported. Former SEC Chairman Harvey Pitt estimated the actual net fraud to be between $10 and $17 billion, because it does not include the fictional returns credited to the Madoff's customer accounts.
In February, 2009, Madoff reached an agreement with the SEC, banning him from the securities industry for life. About 120 class action suits have been filed against him.

The SEC came under fire for not investigating Madoff sooner, despite complaints from Markopolos and others. In testimony before Congress after the scandal broke, Markopolos claimed it was very easy to prove mathematically that Madoff was running a scam. He said it took him five minutes to make an initial assessment of the fraudulent nature of Madoff's purported high investment returns and about four hours to work the detailed math calculations.
(wikipedia - media.kiiitv.com - gothamist.com - www.nypost.com)