About Bernard Madoff’s Victims

As the news broke this morning that Bernard Madoff had been convicted of engineering the largest-ever Ponzi scheme and sentenced to 150 years in prison, articles began to crop up reminding us about the victims’ fate: since the Securities Investor Protection Corporation (SIPC) will only guarantee up to $500,000 per eligible claimant, all those who invested higher amounts are set to recover no more than pennies on the dollar out of the remaining funds.

For some weeks now, the victims have been conveying their anger and sense of injustice at the loss of what often amounted to their life savings. But while I sympathize with them up to some extent –clearly, nobody deserves to be wiped out of the money they had invested in good faith-, I can’t help wondering about the reason they trusted Bernard Madoff’s firm in the first place.

Accessing Madoff’s fund was not easy for individual investors. The process to get into the fund was shrouded in secrecy, with Mr. Madoff making a point of being all but unapproachable to his clients. But for those who were able to make it through the apparent obstacles –sometimes lured by the appearance of exclusivity-, the rewards were plenty.

According to Robert Chew’s thought-provoking article in Time -where he gives a first-person account of how he became one of Madoff’s victims-, when he first invested in it the fund had been providing generous returns for decades, “ranging from 15% to 22%”.

It doesn’t sound very plausible to come across an investment which consistently provides such extraordinary returns regardless of the stock market’s performance. Madoff, however, managed to convince his clients that he and his colleagues had discovered a system to consistently outperform the market. What made these claims believable to many rich investors was the idea that such opportunities are indeed available to a few chosen and very rich people like them. As Robert Chew acknowledges referring to himself and other victims, “we deluded ourselves into thinking we were all smarter than the others”.

It is not my intention to generalize or blame the victims for the consequences of Bernard Madoff’s hideous actions. Many of them didn’t even know the funds they were buying had stakes in Madoff’s organization, and even the ones who were duped by him directly have the right to wonder how the Securities and Exchange Commission (SEC) allowed the Ponzi scheme to go on for more than 40 years. However, if any good can come out of this tragic story, I hope it’s a reminder to all investors that the old saying remains valid: if it seems too good to be true, it probably isn’t.

For more information on Bernard Madoff’s victims, check the following sources:

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