On June 29, federal judge Denny Chin handed down the sentence heard ’round the world: 150 years in prison for Ponzi schemer Bernard Madoff.
The sentence was the maximum possible for the massive fraud that Madoff, 71, confessed to in December 2008. It was also an order of magnitude larger than the 12 years in prison his defense lawyers proposed, reportedly with a straight face.
In many ways, particularly with respect to Madoff himself, the 150-year sentence provides closure to the saga that has dominated the financial news since his arrest eight months ago. Madoff is now convicted and sentenced and will be in prison for every minute that remains of his life. His thousands of victims have the satisfaction of knowing that Madoff’s fortune and one-time prominence did not allow him to escape the harshest of possible sentences. And Madoff has been stripped of all known assets.
There are, however, many questions that linger: How final is that sentence? Is it justifiable? How will it affect future defendants in future enforcement cases? There are also crucial questions remaining on issues that go well beyond Madoff’s personal fate. Will others be prosecuted in this scheme, which still seems to have been impossible for just one person to carry out? Will Madoff’s wife, Ruth, be able to protect any of “her” assets from the justifiably angry collection of victims seeking to recoup anything they can?
Here is my Madoff sentence post-game report on these questions:
Q: Will Madoff’s sentence be overturned or reduced to the point that he will ever get out of prison alive?
A: No. Federal sentencing guidelines provide that criminal penalties should be “sufficient but not greater than necessary” to reflect the seriousness of the offense, promote respect for the law, ensure just punishment, and provide adequate deterrence of criminal conduct. Judge Chin spoke specifically to these points in handing down his sentence, noting the seriousness of Madoff’s crimes and the need for deterrence: “The symbolism is important here because the strongest possible message must be sent to those who would engage in similar conduct … that they will be punished to the fullest extent of the law.”
Although Madoff’s attorney promptly labeled the sentence “absurd,” he also acknowledged that the sentencing statutes provide no way for Madoff to seek a reduced sentence. Any such motion would be up to the government, he stated. Although Madoff could still appeal the sentence altogether, criminal defense lawyers say Madoff would likely lose. And in any event, Judge Chin would simply re-sentence him to, say, 50 years or some other number lower than 150 years.
And remember: Parole does not exist in the federal penal system. It does provide for a 15 percent reduction from the original sentence for good behavior, which would still leave Madoff facing at least 127 years in prison. Madoff is already in his seventies. He isn’t getting out of prison alive.
Q: How does the Madoff sentence compare to other punishments for financial or white-collar crime?
A: The Madoff sentence is at least five times larger than sentences handed down in other high-profile cases such as WorldCom, Enron, and National Century Financial Enterprises. In those cases—which until now were the accepted high-end range for white collar sentences—NCFE’s founder Lance Poulsen received 30 years; WorldCom CEO Bernard Ebbers received 25 years; and Enron CEO Jeff Skilling received 24 years.
Madoff’s sentence is not, however, the largest ever handed down for a financial crime. He actually places No. 4 on the all-time charts, behind Sholam Weiss (845-year sentence related to the $450 million collapse of National Heritage Life Insurance); Keith Pound (740-year sentence, and Weiss’ co-defendant); and Norman Schmidt (330-year sentence related to a “high yield” investment scheme).
Although the 150-year sentence will hopefully deter at least some would-be financial felons, some lawyers have observed that it may also deter people who have been charged with such crimes from pleading guilty. “Nobody in Madoff’s position is ever going to plead guilty again,” said Christopher Clark, a former federal prosecutor who is now a defense lawyer at Dewey & LeBoeuf in New York. “What benefit did this guy get for pleading guilty?”
Q: Is Madoff’s conviction the “grand finale” of the prosecution’s case, which will now wind down?
A: Not at all. To the contrary, the most recent reports are that Madoff’s sentencing is simply the “end of the beginning” of the prosecution, despite Madoff’s repeated claim that he acted alone. On the day of his sentencing, it was reported that prosecutors expect to charge at least 10 more people in connection with the Ponzi scheme. These people remain unidentified, but may include:
Peter Madoff, Bernard Madoff’s brother and the chief compliance officer of his investment advisory firm. In that role, Peter Madoff would have had responsibility for the firm’s internal controls over matters such as protecting client funds and securities.
David G. Friehling, Madoff’s outside accountant, who has already been charged with securities fraud by the SEC. The SEC claims he “did not perform anything remotely resembling an audit” of Madoff’s operation, yet gave Madoff’s firm a clean bill of health every year.
Madoff “solicitors” and feeder funds, which helped market Madoff’s firm and kept the flow of new money coming in to Madoff. On June 22, the SEC charged Cohmad Securities Corp. as well as its chairman, its COO, and others with civil fraud for actively marketing investment opportunities with Madoff while “knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud.”
Madoff employees who may have assisted in creating false customer account statements showing securities transactions that were made up out of whole cloth.
Q: Will Madoff’s wife, Ruth Madoff, face criminal charges in this case, or be affected financially?
A: The most recent reports are that Ruth Madoff is not among the people that prosecutors are considering charging, as there is no evidence that she participated in or concealed her husband’s fraud. Her attorney has stated that she “unequivocally did not know of the misconduct and did not participate in it.”
Within hours of Madoff’s sentencing, Ruth Madoff broke her months of silence that she has maintained since his arrest to state that her husband “was the one we (and I include myself) respected and trusted with our lives and our livelihoods …” She said he “stunned us all with his confession” and “like everyone else, I feel betrayed and confused. The man who committed this horrible fraud is not the man whom I have known for all these years.”
Ruth Madoff’s life will be further upended financially. All of her husband’s assets have been seized by Irving Picard, the trustee charged with returning lost funds to investors—real estate, jewelry, boats, everything. In addition, the day before Madoff’s sentencing, Ruth Madoff agreed with prosecutors to give up her potential claim to more than $80 million of assets, and will keep just $2.5 million in cash. Even this money, however, is subject to possible future lawsuits by the SEC, the trustee, or private litigants.
Finally, Ruth Madoff has a problem she may have never seen coming. Her agreement with prosecutors requires her to sell and give up all of the family’s homes, including her current Manhattan apartment, but she reportedly cannot find any landlord willing to rent her a home in New York. She has even tried using her maiden name, Alpern, with no luck. “She has nowhere to go,” a top broker said. “No one wants someone with her name in their building. People like their privacy.”
People like honest dealings, too. And the Madoff case shows that from here forward as far as the eye can see, regulators won’t hesitate to enforce that standard.
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