As we’re all now aware from media that Madoff’s fraud in essence was a well-known pyramid or Ponzi scheme (how it’s called in US), it’s still hard to believe that he managed to fool leading banks around and stick to it for such a long time. What were the main strategies and tricks used by Madoff to make simple pyramid game to play so long and so steadily? I have picked up most essential points to understand Madoff’s fraud:

1.      The brilliance of Madoff’s strategy was that he turned away a huge number of investors and did not hawk his investment vehicle to the general public. It was really difficult for investors to find a path to his portfolio. Some investors even had to beg him for the chance to hand over their cash. This strategy contributed a lot to the deceptive trustworthiness of Madoff’s fund. At the same time such behaviour kept off any suspicions of investors that Madoff’s fund might be a piramyd.

2.      Using the communication channels from the period when he chaired Nasdaq stock exchange, Madoff moved in some of the best social circles in New York. He has been described as self-effacing and humble, a man who put family first and was hardly a social climber. He was a kind of superhero and did his best in creating this aura.

3.      The Madoff scheme is built on trust, rather than naked greed, although it is hard to describe his clientele as altruistic when they were happy taking in steady annual returns to pad their millions (or billions) in assets. By delivering what is reported to be consistent growth of 10 percent to 12 percent per year, regardless of the market environment, he played on the desire of his investors for enough money to keep them in the top 1 percent of the world’s richest.

4.      Any who questioned Mr. Madoff’s investment prowess could be summarily dismissed from the club, thus discouraging anything like due diligence. But who asks questions when you always make money, and your occasional requests for redemption are honored? No scam has ever given the money back.

5.      Madoff always advised people not to sink in a lot of money at the start, believing that if they started off small, they would increase their investments later. Of course this contributed to his “credibility”.

6.      Madoff used an unknown auditor which was listed as Friehling & Horowitz, a small accounting shop in a town north of New York City. The firm comprised a retired accountant, a secretary and a licensed CPA, with a strip-mall office that probably isn’t the size of the shoe closet of some of Mr. Madoff’s Palm Beach investors.

7.      Madoff was a generous political donor and philanthropist, and a prominent member of the Jewish community, setting up a charitable foundation.