As investigations into Bernard Madoff’s alleged Ponzi scheme continue, two Boston University professors have been working to bring what may prove to be an elaborate fraud to light by contributing their expertise in Ponzi schemes to news outlets and congressional hearings.
BU law professor Tamar Frankel testified as an expert witness before Congress Jan. 5 in the first Securities and Exchange Commission hearing regarding Madoff because of her expertise in financial systems regulation.
In addition, BU journalism professor Mitchell Zuckoff, author of the biography Ponzi’s Scheme: The True Story Of A Financial Legend, has written about the scheme in recent weeks for Fortune Magazine and the Boston Globe.
Authorities arrested Madoff at his New York City office on Dec. 11 and charged him with securities fraud for orchestrating a Ponzi scheme.
Named after Charles Ponzi, a conman in the 1900s, a Ponzi scheme pays early investors off with funds from new investors. The former Nasdaq stock exchange chairman and founder of Bernard L. Madoff Investment Securities LLC’s scheme ended when investors began to request funds from his firm because of the recession.
Madoff told his sons he had orchestrated a Ponzi scheme the day before his arrest, according to the SEC criminal complaint. He has been confined to house arrest as he awaits trial, according to court documents. Madoff had a ‘too good to be true’ situation, Zuckoff, said in an email.
‘Through good times and bad he always was turning a big profit,’ Zuckoff said. ‘If you’re going to invest with someone like that you have to ask the question, ‘How is he doing it?” Frankel said the scheme will change the way universities and other organizations invest.
Ascot Partners, an investment firm, lost $1.8 billion in the scheme. The $20 million Tufts University had in investments with Ascot Partners were lost, spokeswoman Kim Thurler said. Thurler said the university will evaluate its investment strategies because of the loss.
‘We will look closely at our experience in this case and fully review our processes and procedures to see if there are ways to strengthen them or lessons to be learned,’ Thurler said in an email. Early investors gain money while later investors lose in Ponzi schemes, Frankel said.
‘Some [money] will be recovered no doubt. The question is how much, and from whom,’ she said. Zuckoff said Madoff built up a reputation as a brilliant investor. ‘They thought they were getting the great opportunity of a lifetime investing in him,’ he said.
The SEC’s failure to catch Madoff’s alleged scheme earlier is under fire, but it is not clear whether all blame should be laid on the SEC, Frankel said However, Zuckoff said he has no doubt the SEC failed.
‘There is no question in my mind the Securities and Exchange Commission did not do its job,’ Zuckoff said. Madoff’s prominent position as former Nasdaq chairman made a thorough investigation of his actions difficult, Frankel said.
‘You don’t take a person like that and put him under the light and interrogate him,’ she said. ‘So he was questioned with kid gloves.’
When Frankel testified as an expert witness for the SEC, she said she saw the impact Madoff’s scandal had on the livelihoods of some of his investors, one of whom stuck with her.
‘This was a man who worked hard who made a fortune of $2 million, thought he had $4 million, now he has nothing,’ Frankel said. ‘I’d like Mr. Madoff to be in the same position.’ Staff writer Taylor Miles contributed reporting to this article.
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