Bernard Madoff And His Ponzi Scheme

Bernard Madoff is the chairman of Bernard L. Madoff Investment Securities, a firm which he started in 1960. Madoff was arrested for securities fraud in December 11, 2009, the alleged fraud may be valued at a loss of up to a $50 billion in cash and securities, thereby exposing a giant Ponzi scheme at works. To date, it is the largest investor fraud ever attributed to a single individual.

Rene-Thierry Magon de la Villehuchet, the co-founder and chief executive of Access International Advisors, was found dead on Tuesday morning in his Madison Avenue office after apparently swallowing sleeping pills and slashing his wrists with a box cutter. Mr Villehuchet was said to be "devastated" and lost $1.5 billion to the Ponzi scheme perpetrated by Madoff.

The world’s wealthiest woman and heiress to the L'Oreal empire, Liliane Bettencourt, is also one of Madoff's victims. She has entrusted more than $22billion to Madoff through fund manager Access International Advisors. Many other distinguished names are also in Madoff's victims list.

Madoff's investment strategy is described as buying stocks correlated to the S&P 100 index, selling out of the money index call option and buying out of the money index put options. Rival firms tried to replicate Madoff's investment strategy but could not replicate the same "success" that Madoff had, thus raising the possibility that Madoff's gains were not from his strategy from from "front running" the firm's clients. Front running is the illegal practice of a stock broker executing orders on a security for their own account before filling orders previously submitted by their customers that will predictably affect the price of the security. The Ponzi scheme began to unravel when, in 2008, clients wanted to withdraw $7 billion from the firm and Madoff was struggling to raise $7 billion to cover redemption.