MICHELE NORRIS, host:
Staying on the topic of people with power and the scandals they get into - until this week Bernie Madoff was a lion of Wall Street. He managed more of the most successful hedge funds. Then yesterday, FBI agent swept into his apartment and arrested him. They say his hedge fund was little more than a Ponzi scheme and that he appears to have lost tens of billions of dollars of his investors' money. NPR's Jim Zarroli reports.
JIM ZARROLI: People who put money into hedge funds often do so because of the personalities behind them. George Soros, Steven Cohen and Julian Robertson are seen as superstars of money management who prosper even when the market is down and investors tend to run after them like groupies. Seventy-year-old Bernard Madoff was very much in the pantheon. Sandy Gross runs an executive search firm called Pinetum Partners, and Madoff was one of her early clients.
Ms. SANDY GROSS (Pinetum Partners): People always held him in the highest regard. And you know, people would say, you know he only knew how to make money. You know, that Bernie Madoff, he has done a great job, he makes money and he's a good guy.
ZARROLI: Madoff's reputation stemmed in large part from his long tenure on Wall Street. He operated a trading firm that bore his name. He'd been chairman of the Nasdaq stock market. Reporters often solicited his expertise on the markets. Last year he spoke at a panel discussion in New York about the future of Wall Street. He said, firms like his are very well-regulated by the government.
Mr. BERNARD MADOFF (Hedge Fund, Ascot Partners): In today's regulatory environment, it's virtually impossible to violate rules. When this is something that the public really doesn't understand and if you read things in the newspaper and you see somebody you know, violating a rule, you say, well, you know, they're always doing this. But you - it's impossible for you to go on the - for a violation to go undetected.
ZARROLI: As it turned out, Madoff was right. What brought him down was a hedge fund that he ran separately from his trading firm. He was said to exert almost total control over the fund, and it was famous for providing unusually high returns. Barron's once questioned how Madoff could do so well even in bad times. Madoff declined to answer. The information he said was proprietary. Yesterday, authorities asserted that Madoff's fund was a big Ponzi scheme, taking money from new investors to pay fat returns to old ones. Madoff's sons worked at the firm, and The Wall Street Journal reported that they were the ones who turned him in. According to the criminal complaint, Madoff acknowledged yesterday that the fund was quote, "a big lie." Former federal prosecutor Dan Richman says the comments will make prosecuting the case easier.
Mr. DAN RICHMAN (Former Federal Prosecutor): His own comments are spectacularly damning and in the classic white-collar prosecution, you have the paper trail, and it's the only question is what the defendant intended. Here are the defendant's intent or at least his knowledge is clear in a way one rarely sees.
ZARROLI: Meanwhile, investors are left to sift through the fund's wreckage to determine how much is left. The fund's investors are likely to include a lot of rich people. But Wall Street veteran Dan Strachman, whose books include "The Long and Short of Hedge Funds," says a lot of institutional investors probably invested in it, too.
Mr. DAN STRACHMAN (Wall Street Veteran): The ripple effects could extend to, you know, endowments, foundations, family offices, pension plans. I mean, you know, six months ago everyone wanted to be in Bernie Madoff's products. Today, those who weren't able to get in are wiping the sweat off their brow saying, thank goodness this happened.
ZARROLI: Those who did invest are expected to lose all or most of their money. What they'll have left will be lots of questions about how Madoff was able to fool so many people for so long, and why regulators didn't stop him until it was far too late. Jim Zarroli, NPR News, New York.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.