Financial Crime and Compliance

On 10 December 2008 Bernard Madoff told his sons that his investment-advisory business was "all just one big lie" and "basically, a giant Ponzi scheme" (as reported in the criminal complaint). He could not meet about $7 billion of redemption requests from clients who needed cash in the financial crisis. He was arrested the next day. His firm, Bernard L. Madoff Investment Securities, founded in 1960, had been one of Wall Street's largest market makers and a pioneer of electronic trading, and Madoff had served three one-year terms as chairman of Nasdaq. Inside it, the advisory business had reported smooth returns of about 10–12% a year for decades from an options strategy it never executed. Customer statements at the end showed about $64.8 billion; the principal actually lost was about $17.5 billion. Madoff pleaded guilty to eleven felonies, was sentenced to 150 years on 29 June 2009 and died in prison on 14 April 2021.

The fraud was not undetectable. From May 2000 a securities analyst, Harry Markopolos, told the SEC repeatedly that Madoff's returns were impossible, and the SEC examined or investigated the firm several times without checking his trades with an independent custodian. Banks that handled the money missed it too: JPMorgan Chase, Madoff's main banker for decades, paid about $2.6 billion in January 2014, including a forfeiture under a deferred prosecution agreement for Bank Secrecy Act failures. The SIPA trustee, Irving Picard, had recovered about $15.37 billion by 31 January 2026, and the Justice Department's separate Madoff Victim Fund paid about $4.3 billion to 40,930 victims. This chapter explains the three ways crime touches a financial company, what a compliance programme does and costs, and how two very different firms, a crypto exchange and a large bank, came to pay billions for treating it as optional.