Bernard Madoff and his securities firm were an operation that, for over 18 years, managed to lose \(\$ 50\) billion in investors' funds. Madoff, the former chairman of NASDAQ, was able to dupe employees; regulators, and, of course, investors, with nothing more sophisticated than a Ponzi scheme for 18 years. When Mr. Madoff was indicted for federal securities fraud, Mr. Madoff's lawyer offered, "We will fight to get through this unfortunate series of events." "Unfortunate series of events" is the name of a children's book series but may not be appropriately descriptive of a gigantic fraud.

Madoff was an iconic CEO. He was instrumental in creating NASDAQ and had served as a board member at NASD, the precursor organization to FINRA. Even Arthur Levitt Jr., the former head of the SEC for eight years, was known to consult with Madoff on market issues. Mr. Madoff was an icon, and in classic Ponzi fashion, when anyone questioned his operation, he gave the person's money back. Folks clamored to get their money in with Bernie.

Still, Mr. Madoff kept his operation close to the vest. Bernie Madoff s direct reports were his sons and brother. Mr. Madoff limited access to the seventeenth floor of his headquarters, the Lipstick Building, where the supposed trading computer was housed. However, the computer was terribly outdated. No one ever wondered why it was never replaced. The reason was simple: a new computer would require someone looking at the old computer and transferring files-files for nonexistent trades. No one ever wondered why such a large investment firm employed a strip-mall accountant. \({ }^{706}\) No one ever wondered how Madoff was able to use only 20 people to do the work that would have required \(200 \mathrm{in}\) another firm. They just knew that only those 20 people ever got access to the seventeenth floor. The SEC was in to investigate at least three times, but the red flags were not obvious. Mr. Madoff even commented on how his niece had married an investigator from the SEC...................

Discussion Questions 1. Mr. Markopolos was dismissed by his bosses and friends even as he provided a list of 28 red flags. What do we learn from his experience about raising questions on the accounting and returns of companies? What can we learn about the reception whistleblowers receive? Did the market, regulators, and investors not want to raise questions because of the steady returns Madoff provided? What role does a questioning attitude play in preventing company collapses?
2. Should investors have suspected the continuing higher levels of returns that never faltered?
3. The Madoff empire could not have lasted as long as it did without complicity from employees.
Mr. Madoff's second-in-command, Frank DiPascali, who entered a guilty plea, told the federal judge, I'm standing here to say that from the early 1990s until December 2008, I helped Bernie Madoff and other people carry out a fraud. I knew no trades were happening. I knew what I was doing was criminal. But I did it anyway. \({ }^{712}\) Mr. DiPascali's compensation was \(\$ 2\) million per year. He had not completed college at the time Mr. Madoff hired him in the early years of the firm. What might have helped Mr. DiPascali resist the temptation to participate in the fraud?