On Thursday, special agent Patrick Duffy of the Federal Bureau of Investigation delivered a lecture on the largest known white-collar crime in U.S. history. Duffy discussed his perspective as one of the lead agents on the case in the Bernie Madoff Ponzi scheme fraudin the Jordan Auditorium at the Mendoza College of Business.
Duffy is currently assigned to the FBI’s White-Collar Crime Squad that specializes in corporate and securities fraud. With a B.A. in accounting, Duffy previously worked at KPMG for six years before joining the Philadelphia division of the FBI, where he would become the lead agent on a case CNBC called the “Scam of the Century.”
On Dec. 10, 2008, financier Bernie Madoff confessed to committing fraud to his wife, Ruth Madoff, and his two sons, Mark Madoff and Andrew Madoff, leading to Madoff’s arrest by two FBI agents on Dec. 11, 2008. Madoff’s Ponzi scheme cost approximately 10,000 victims billions of dollars collectively.
“He was an absolute sociopath,” said Duffy.
After being taken into custody, Madoff granted the FBI access to his investment advisory business, Bernard L. Madoff Investment Securities (BLMIS), located on the 17th floor of the Lipstick Building in midtown Manhattan, where Madoff claimed there were 30 to 50 boxes of evidence related to his crimes.
“When the FBI went to go collect the 30 or 50 boxes that Mr. Madoff told us he had, we actually found a lot more than that. We actually found 1,500 more boxes,” said Duffy.
Inside the boxes, Duffy said, were “accounting records, trading records, account statements, trade confirmation slips, payroll records, bank records, employees, personal effects, you name it. It was in there, and it was all fake.”
Later, the FBI discovered Madoff’s disaster recovery warehouse. “In this warehouse, the FBI actually found approximately another 8,000 boxes of evidence … that’s now close to 10,000 boxes of evidence the FBI had to pour through to work our investigation,” said Duffy. The investigation lasted six years.
Duffy detailed the business structure of BLMIS, sharing that it claimed to offer proprietary trading, market making and investment advisory.
“The investment advisory business, that’s the block you could stamp with a fraud sign. That is the Ponzi scheme. That is the 17th floor. That’s what we were investigating,” said Duffy.
He explained that the operation of Mr. Madoff’s scheme relied entirely on backdated trades, saying, “They backdated stick trades onto client account statements, mailed those client account statements out to customers, as well as with their trade slips and trade confirmations.”
“That trading was impossible in real life. We saw trading that was done on weekends, and the stock market is not open on Saturday or Sunday. We saw trading that was done on federal holidays. Again, the stock market was not open,” said Duffy.
In short, Duffy said, “the trading in the investment advisory business was not real. It never happened. There never was anything.”
Madoff pleaded guilty in 2009 and was sentenced by a federal judge in Manhattan to 150 years in jail. At the time, he was 71 years old. In April 2021, Madoff died in prison in Butner, North Carolina at 82 years old, battling the final stages of kidney disease.
According to Duffy, the amount of money BLMIS clients thought was being invested in Madoff’s firm was $64.8 billion. In reality, the actual amount of actual cash losses to investors was $17.5 billion, with more than 10,000 people affected by this scheme. The amount of money recovered by the Federal government related to Madoff’s case was more than $15 billion, or 82 cents for every dollar related to Madoff’s fraud.
Duffy explained that usually Ponzi schemes’ rate of return is zero and there is no money left to return to victims.
“This is probably one of the numbers I’m most proud of personally as it relates to this investigation. Because you want to hold people accountable … You also want to make victims of these schemes as whole as possible,” Duffy said.