Bernie Madoff’s Ethno-Nepotistic Ponzi Scheme

James Murray


Haaretz has run an article claiming that anti-Semites will jump on Madoff’s $56 billion fraud against Jewish investors to besmirch the good name of Jews. Some Jews have proclaimed Madoff’s fraud to be a new Kristallnacht. The Jewish Journal connects Madoff to the perpetrators of the Holocaust. Some Jews eveninsist that “Christmas came early” for anti-Semites because of the collapse of the Madoff scheme, implying that some Jews think that Christmas is a holiday of pure hatred toward Jews. Perhaps.

However, the demographics of the Madoff scheme deserve some ethnic analysis: Was this really a story about how a Jewish turncoat victimizes Jewish-millionaire Holocaust survivors, leading to gloating among anti-Semites at Christmastime? Or … could it be that the dirty little secret of the Madoff scheme that Jews are desperate to conceal is that Jews were not the victims but rather the beneficiaries of the scheme?

First, it is important to realize that Jews lost only a relatively small amount of the money in Madoff’s fraud scheme. As the New York Times shows, those who invested early and withdrew profits — many of them presumably Jews — did not lose a penny but rather profited rather grandly.

Second, a quick glance at the table in the December 17, 2008 Wall Street Journal (reproduced below) makes clear that of the top 30 investors in the fund, only 2 are Jewish, and relatively small investors at that. Granted, the list is incomplete. It omits, for the sake of respect I suppose, the $37 million reportedly lost by Elie Wiesel and his foundation (modestly named after himself). (As an aside, it should be noted that Wiesel, the Holocaust promoter and Jewish moralizer, is absolutely indifferent to the extermination of the Palestinians.)

Although many other versions of this table have appeared (and many major investors who lost will try to keep their identity secret), it is worth noting that the identifiable Jewish share of monies lost through Madoff in this compilation of victims is precisely 2.31%. While this omits the Jewish petty-millionaires who were the mainstay of Madoff’s scheme for decades, even if there are 1000 Jewish petty-millionaires, the Jewish share of the Ponzi scheme is surely less than 5%. And since the best compilation so far argues for only 2.31% of the victims being Jewish, are the crocodile tears of Jewish columnists for the Jewish millionaire-victims really appropriate? One is reminded of the Jewish book on the Katyn Forest Massacre, in which 20,000 Polish Catholics and a few   identified Jews were slaughtered: Of course, that book, written by a Jew, focuses only on the few Jewish victims. The non-Jewish victims are simply meaningless. Then and now.

There are many articles about Jewish petty-millionaries who have lived on their profits from Madoff for years or decades of retirement (10–20% a year in payouts). (See herehere, and here.) These articles make the structure of this Ponzi scheme immediately clear. That there was something wrong was certainly clear to many investors; they just did not know what was wrong. Anecdotally, many Jewish investors thought they were buying into a long-lived insider trading scam. Does the fact that some of Madoff’s early Jewish investors always believed that their “profits” were derived from financial crimes make them more or less sympathetic? 

Madoff is described as having spent decades building a carefully structured Ponzi scheme (which large European investors note was one of the American investments highest rated for return and being risk-free for decades by the SEC and rating services). Yet, Madoff’s scheme was something else and something more: It was, in fact an Ethno-Nepotistic-Ponzi scheme, a Ponzi scheme where most of the payouts were to the investors of the same ethnicity as the conspirators.

And here is how it worked:

In the first period (perhaps two decades), beginning in the 1960s, Madoff ran a carefully structured Ponzi scheme, possibly beginning when he really could not get the returns he thought he could get by legitimate means. But once started, there was no turning back. Madoff’s genius (linked to guaranteed super-safe investment ratings from the rating agencies) was to have the larger investors reinvest a lot of their imaginary “profits”, while using their money to keep the scheme going. Madoff carefully structured his scheme and limited the number of investors. (He was notorious for refusing to accept all potential investors—many relate how they begged him for years before he allowed them to invest; many joined his country clubs just to stalk him. And I suspect he required a high rate of reinvestment). Madoff was therefore able to meet the payouts he promised since so much of the imaginary “profits” were simply reinvested and because bigger non-Jewish investors were brought in to keep the scheme going.

If investors could be held to 1% a month payoffs (and this was a typical rate of payoffs), it would take 8 years, 4 months before a given investor would use up their own money in “profit” payouts. If Madoff could convince an investor to take only 0.5% a month in payouts (or less: many Jewish charities appear to have taken such lower rates of “profit” payouts), Madoff would have 16 years, 8 months before he would have to use someone else’s money to maintain the stream of “profit” payouts. These modest, if impossibly consistent returns, differentiate Madoff from normal Ponzi schemes that pay out big early on but crash and burn within a year or two. Madoff built his scheme to run for decades. These long term horizons — on the order of a decade or so — required that Madoff restructure his scheme periodically.

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The first decade or two saw Madoff operate real money-making securities services and begin to collect his portfolio of million-dollar investors. At the beginning of this period he built an innovative, heavily computerized and successful financial services business. On top of this real and profitable business, he slowly started building a portfolio of unsophisticated Jewish investors, many of whom placed their life savings with him. These are the Jewish petty-millionaire ($1–3 million) investors everyone has been crying about in the newspapers. Many of them drew substantial cash payoffs for decades — payouts that were often multiples of what they invested.

Towards the end of this period, Jewish-Zionist charities and Jewish-segregated schools came into the system, but few were as large as $10 million, and all can be presumed to have profited from Madoff’s fraud. For example, Hadassah, the Women’s Zionist Organization, was one charity that came in at this time: Its initial $7 million investment in 1988 would be supplemented by $33 million over the next decade until 1998. By including paper profits, Hadassah would ultimately claim to have lost $90 million with Madoff; that is: 7 + 33 = 90.

It is actually worse than this, since Hadassah may have actually lost nothing at all.A quick and dirty estimate of Hadassah “profits” suggests that if Hadassah had averaged $23.5 million in 1988–1998 and left all its “profits” with Madoff, there should have been about $64 million in their account, not $40 million in 1998 as reported, suggesting that Hadassah could have drawn as much as $24 million in “profits” in the first decade. Similarly, if Hadassah had started 1998 with $40 million as they report, 1% per month would yield $110 million, not $90 million as they report now, suggesting that Hadassah withdrew as much as another $20 million in the second decade with Madoff. Hadassah could have withdrawn as much as $44 million from the $40 million they invested with Madoff, and this would mean that Hadassah’s losses are not the $40 million actually invested, or the $90 million as they now claim, but rather no more than zero.

(Incidentally, some newspapers are so terrified of Jews that they will not even print the word “Zionist” unless it is in the address of a letter to the editor from an imperious Zionist organization: The cringing, terrorized Seattle Post-Intelligencerwill only call Hadassah, which is officially “The Women’s Zionist Organization of America,” “a Jewish women’s charity.”)

Interestingly, Madoff was so immune from regulatory oversight that he would not even be correctly registered as an investment firm until 2006, when SEC investigators were credibly informed that Madoff had committed numerous violations but settled for asking him to please, please, please register his firm in an appropriate manner… after it had been operating outside the law for over 40 years!!!! (Madoff would marry off a daughter, Shana, to one of the investigators in that 2006 inquiry.)

The second decade or so began with the need for investors at least in the $10 million range, since the costs of the scheme kept growing. By the end of the decade he apparently needed investors in the $50 million range. This phase saw the development of the “feeder” system, in which investment companies — often Jewish-controlled — marketed Madoff’s services to larger, non-Jewish investors, worldwide. For example, in the mid-1990s, Jacob Ezra Merkin, from one of the most distinguished rabbinical families in world Judaism, president of the Fifth Avenue Synagogue in New York, head of the investment committee for the UJA-Federation of New York, and manager of Ascot Partners, brought in Elie Wiesel’s Foundation for Humanity. Four of the five largest “losers” in the Madoff scheme are feeder operators who lost essentially nothing of their own: Fairfield Greenwich Advisors, Tremont Capital Management, Ascot Partners, and Access International Advisors brought in other investors and lost their money for them. The end of this period came in 1999–2000: The result was that, as recently as 1999, Madoff rejected an investment by Jeffrey R. Gural, chairman of Newmark Knight Frank because he could not invest at least $20 million. By 1999, $20 million was too trivial a sum to bother with at this point in Madoff’s scheme. Madoff was entering the third and final stage of his scheme, and it required globalization and much, much larger investors.

The last decade saw bigger and bigger investors, like European banks, Arab institutional investors, a Korean pension, maybe a Saudi prince, etc., who put in hundreds of millions or billions and got nothing at all back, or very little. The costs of the scheme kept growing. This period was the heyday of the feeder system: Fairfield Greenwich Advisors, Tremont Capital Management, Ascot Partners, and Access International Advisors were bringing in billions now, and almost none of it was from Jews. The investment by Abu Dhabi Investment Authority, which placed $400 million with Madoff in 2005, is typical of the third and final period. It was large, it was non-Jewish, it was used to pay early Jewish investors, and was unusual only in the fact that Abu Dhabi Investment Authority got cold feet and pulled out $268 million in redemptions in 2005 and 2006. Bank Medici of Austria became a sub-feeder collecting monies from smaller investors in New York, Vienna, Gibraltar, Zurich and Milan, through its hedge funds in the United States and Luxembourg: Its investors were happy with 7% a year.

And the money still poured into the hands of Jewish “investors”, including the Elie Wiesel Foundation for Humanity, and the Jewish retired petty-millionaires of Florida, New York, New Jersey, Connecticut, Minnesota, etc. Year after year, they received their “profits”, extracted from unknowing, duped investors from Singapore to Dublin, from Spain to South Korea.

So, it is clear that there were at least three categories of investors:

(1) The core Jewish petty-millionaire investors, who made a lot of money for decades, living richly on their “profits” from Madoff’s fund. As the New York Times admits, many made a lot of money.

(2) More recent Jewish charities who agreed to reinvest a lot of their “profits”, like Wiesel’s loot from the Holocaust-trade: These investors got good payoffs but reinvested most of it. These people could have lost a little, but if they were really greedy they were easily suckered into big, consistent reinvestments, accumulating only large imaginary paper “profits.” In this cohort of investors, actual loses are entirely correlated with excessive greed: If they let their “profits” accumulate without payouts, they could have lost everything.

(3) The non-Jews, like Banco Santander, HSBC Holdings PLC, Royal Bank of Scotland, BNP Paribas, etc., who invested large amounts of money recently and who probably got nothing or next to nothing from Madoff. These investors now know that all their money disappeared into the hands of groups (1) and (2) and Madoff and his buddies. (Incidentally, Madoff and his family made a lot of money: One family investment firm alone had $160 million in assets until it was seized last week.)

There never was a group (4) because the market melted down and Madoff could not find people big enough to fund the next generation of the scam. (Although he did reportedly scam a Saudi Prince for $3 billion.) In fact, one finds Jeffrey Tucker, a feeder partner in Fairfield Greenwich Group complaining, in an article in HedgeWorld in November 2007, that Chinese and Thai investors are stupid and unsophisticated because they will not provide money to Madoff. When investors sought $7 billion in redemptions in November 2008, the end was near.

A careful reader will note that there were real winners. We will call them the Jews, since they were Jews, This group would ultimately have large losses of imaginary paper “profits.” And there were big losers. Let’s call them the Goys or the Suckers, since they are non-Jews. Of course, the difference between these groups is their ethnicity. It is worth noting that the Wall Street Journal and theNew York Times, and the mass media in general, see this as a fraud that essentially affected only Jews. As we have seen, this is the exact opposite of the truth. Jews were winners, and non-Jews were losers.

To repeat: in Madoff’s scheme, Jews were winners, and non-Jews were losers. It was not just a Ponzi scheme, it was a Ponzi scheme structured around a massive transfer of wealth to one’s own ethnic group, a kind of previously undescribed Ethno-Nepotistic-Ponzi scheme.

Finally, this suggests that the real reason why Haaretz and Abe Foxman are so hysterical about the Madoff scandal and its possible effect of increasing anti-semitism is not because they fear irrational goyim who are overly eager to paint all Jews with the traits of Bernie Madoff. It is that there simply were very few real Jewish victims and quite a few non-Jewish victims: The so-called Jewish victims actually made money. And they made millions and millions and millions.

James Murray is the pen name of an academic sociologist.

Appendix 1: Wall Street Journal List of Madoff’s Victims.

[There are many omissions from this Wall Street Journal list, like that of Elie Wiesel’s Holocaust profits foundation with $37 million in exposure. And the Lapin foundation that was simply vaporized last week.]

* Indicates Jewish investors.

Table 1: “Madoff’s Victims: A List of Reported Victims and Their Exposure”, in Wall Street Journal, December 17, 2008. p. A14.

(Victims For Whom No Exposure Amount Is Available Are Not Shown.)

Fairfield Greenwich Advisors (investment management firm): $7500 million.

Tremont Capital Management (fund of funds run by Tremont Group Holdings): $3300 million.

Banco Santander SA (Spanish bank): $2870 million.

Ascot Partners (hedge fund frounded by GMAC chief J. Ezra Merkin): $1800 million.

Access International Advisors (New York investment firm): $1400 million.

Fortis Bank Nederland NV (Dutch bank): $1350 million.

Union Bancaire Privee (Swiss bank): $1000 million.

HSBC Holdings PLC (British bank): $1000 million.

Natixis SA (French investment bank): $560 million.

*Carl Shapiro (former chairman Kay Windsor Inc.): $550 million.

Royal Bank of Scotland (British Bank): $492.76 million.

BNP Paribas (French Bank): $431.17 million.

BBVA (Spanish bank): $369,57 million.

Man Group PLC (British hedge fund): $360 million.

Reichmuth & Co. (Swiss private bank): $327 million.

Nomura Holdings Ltd. (Japanese brokerage house): $303 million.

Maxam Capital Management Inc. (fund of funds based in Dairen, Conn.): $280 million.

EIM SA (European investment manager with $11 billion in assets): $230 million.

Aozora Bank Ltd. (Japan bank in which Cerebus Capital owns majority stake): $137 million.

AXA (French insurer): $123 million.

UniCredit SA (Italian bank): $92.39 million.

Nordea Bank AB (Swedish bank): $59.13 million.

Hyposwiss (Swiss private bank owned by St. Galler Kantonalbank): $50 million.

Banque Bendict Hoetsch & Cie SA (Swiss private bank): $48.8 million.

City of Fairfield-Connecticut (town pension fund): $42 million.

Bramdean Alternatives (asset manager): $31.2 million.

*Haredi Insurance Investments & Financial Services Ltd. (Israeli insurer): $14.2 million.

Societe Generale (French bank): $12.32 million.

Groupama SA (French insurer): $12.32 million.

Credit Agricola SA (French bank): $12.32 million.

Richard Spring (individual investor): $11 million.

RAB Capital (hedge fund): $10 million.

Banco Populare (Italian bank): $9.86 million.

Korea Teachers Pension (Korean pension fund): $9.1 million.

*Jewish Community Foundation of Los Angeles (Jewish charity manager): $6.4 million.

Neue Privat Bank (Swiss bank): $5 million.

*Clal Insurance Enterprise Holdings Ltd. (Israeli financial services): $3.1 million.

Mediobanca SpA (via its unit Compagnie Monegasque de Banque): $671000.

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