Ripped From the Headlines: the Madoff Ponzi Scheme

He was sentenced to 150 years behind bars, guaranteeing that he would die in prison – and that’s what just happened.

No-one knows how much he stole – the emotional dollar value to those people who lost their savings was US$ 65 billion, but most of that money was fictional profits. The non-financial fallout was equally big – families and communities split, retirements lost, two investors and Madoff’s older son dead from suicide.

The ripple effect in the financial world was significant too – multiple investment managers across the globe had lost their clients’ money through investing it with Madoff.

And the SEC, which had been warned multiple times that Madoff’s business could not be legitimate, was humiliated.

How could this happen? In Module 10 of our hedge fund certification program, we look at this real-life case. How is it that some of the major players on Wall Street wouldn’t go near Madoff and his supposed “hedge fund”? Training in how to spot red flags that can indicate fraud ensured that those investment professionals were able to avoid the Ponzi scheme. Other professional investors, who should have known better but lacked the benefit of a good hedge fund training program, fell into the trap. For those thinking of investing in a hedge fund, education is a vital prerequisite. You wouldn’t invest in any other venture without a basic understanding of what can go wrong and what good management looks like, and yet the magic words “hedge fund” make people blindly commit their wealth without asking some of the most basic questions.

Interestingly, Madoff kept an entire floor of staff working on the multi-year fraud – he recruited them young and ignorant, and it’s highly likely that they didn’t know they were committing fraud until they were too far in (and by which time they had been paid huge sums of money). For people working in hedge funds, training often gets neglected, particular wide-ranging education covering more than just their own specific function. Taking a comprehensive hedge fund course is a way to protect yourself against being inadvertently sucked into any kind of fraud scheme – learning from professionals can help you to understand what is reasonable behaviour and what should cause alarm bells to start ringing.

At IPI, our hedge fund training school partners with Henley Business School, a top-rated B-School in the UK.  As a business school, Henley focuses on management best practices, and those include understanding controls like those missing in the Madoff scheme. Additionally, our programs are taught exclusively by industry practitioners – people whose many years in the industry have taught them to understand instinctively how processes should work and what red flags to look out for. Those looking for hedge fund certification courses often find technical, academic teaching, but at IPI we focus exclusively on practical management education, and help our students to Learn From Experience.