Financial History – Sharing History

On June 29, 2009, Federal Judge Denny Chin sentenced Bernard (Bernie) L. Madoff to 150 years in prison for the orchestration of history’s largest Ponzi scheme. Over about 20 years, Madoff had swindled approximately $65 billion from almost 41,000 people.

After working on Wall Street and serving for three years as the NASDAQ director, Bernie Madoff began working hard to secure investments to Bernard L. Madoff Investment Securities. As in a classic Ponzi scheme, Madoff set up a group of initial investors and promised them huge returns on their money. He then recruited a second group of investors and used their money to pay the first group. This went on and on to the tune of $65 billion of investments. A Ponzi scheme usually collapses when the number of investors is depleted or, as in the case of Madoff’s scheme, the economy takes a turn and many investors try to pull their money at once.

Interestingly enough, a private fraud investigator, Harry Markopolos had tried for years to convince the Securities and Exchange Commission (SEC) to investigate Madoff’s fund. However, they, and many of the banks and accounting firms working for Madoff reported no fraud. In 2008, with the U.S. in an economic recession, investors began pulling their money from the fund faster than Madoff could replace it. In December of that year, Madoff was arrested by federal agents and placed on house arrest. In March 2009, Madoff was charged with several counts of fraud, money laundering, and theft. He pled guilty on all charges. Several of Madoff’s victims spoke at his trial of the tens of thousands who lost retirement accounts, college funds, and charitable donations. At its conclusion, Judge Chin stated that Madoff’s acts were “extraordinarily evil,” and sentenced him to the 150-year maximum imprisonment. With Madoff aged 71 at his trial, this sentence was largely symbolic.

To date, the Justice Department has recovered and distributed about $4 billion to those affected by Madoff’s scheme. This accounts for about 6% of the total funds lost. In 2021, Madoff died of natural causes while still incarcerated.

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On December 15 and 16, 1995 members of the European Council met together to discuss their plans for introducing a standardized currency to their countries. A decision that started with the Treaty of Paris, signed in 1951 after the Second World War, the European Council agreed to roll out the new currency between the years of 1999 and 2002.

In the aftermath of WWII, European nations were eager to ensure that the economic devastation that affected Germany after WWI would not repeat itself after WWII. They felt that the best course of action was to act together, getting rid of trade customs between their countries and uniting the production of common materials such as coal and steel. In the 70s, it was suggested that a common currency would provide further economic stability. In 1992, the Maastricht Treaty was signed, which officially formed the European Union and outlined plans for the introduction of a common currency.

When the European Council met in 1995, they wrote that during their meetings the council “adopted the scenario for the changeover to the single currency, confirming unequivocally that this stage will commence on 1 January 1999.” They also chose a name for the currency. Their criteria were that “the name of the currency must be the same in all the official languages of the European Union, taking into account the existence of different alphabets; it must be simple and symbolize Europe.” The name “Euro” was suggested by Belgian professor, Germain Pirlot and was adopted by the council. The European Council made plans to introduce the currency in stages. On January 1, 1999, the Euro began to be used for electronic banking and transfers. In 2002, they began circulating the paper bills and coins. Today, 20 European Union countries use the Euro.

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Tag: Financial History

The Madoff Scheme

A Common Currency