Bernie Madoff: Predator of his own kind

(This article is available through SSRN)


There were two types of executive fraudster that emerged from my qualitative exploration of fraudster and non-fraudster executives: The Arrogant Fraudster and the Likeable Fraudster (Sheridan 2010). This paper is concerned with the profile of the Arrogant and Bernie Madoff. Two years after the Madoff Ponzi scheme hit the headlines, there is a large amount of information that is found in the media and there seemed to be many similarities to the Predator executive fraudsters. While my own doctoral research was based on cases drawn from convicted executives who stole from their employer’s company and Madoff was never an employee, there still was a strong pattern that emerged which pointed to Madoff being an archetype Predator – a career senior corporate fraudster. If this is the case, then the typology appears likely to have implications for future due diligence processes accorded by risk managers and investors.

Trawling through the media it came with some surprise to this researcher that there was so much information about Madoff, which was strikingly similar to that shown in the Arrogant profile. Although Bernard L. Madoff ran his own investment firm and never worked for others, the typology could easily be extended from executive to an employer. The executive steals from the employer and the employer steals from customers/ creditors employees.

What is particularly gruesome– although quite logical to the type, is about the modus operandii – Madoff preyed on his own people first. He grew up in a Jewish enclave in New York and continued in life to prey on Jewish individuals and institutions. With much success there, outside money poured into his Ponzi scheme from hedge fund investors and the like. It is estimated that there were 16,000 aggrieved investors who were bilked of an amount closer to $20 billion rather than the $50-60 billion as first reported (Vinod, 2009).

Bernie Madoff's mugshot. Photo

My research into Mr Madoff’s life was aimed at looking for early childhood accounts. My hypothesis is that those children who have a Dismissive attachment type grow up to be Sociopaths/Psychopaths and some of these will be executive fraudsters. So my objective was to get as much information about Madoff’s childhood as possible. Much had been written and regurgitated in the media about Bernie Madoff, but there very little about his childhood. I am somewhat surprised that no one has taken an investigative approach to what happened to the little boy as he grew up in the care of two ‘hustler’ parents: Ralph and Sylvia Madoff. He was the middle child, Sondra (Sonnie) was the oldest and Peter the youngest. We only know that Bernie dominated his brother Peter and treated him badly in front of staff.[1] As well as later in life, he cheated his sister, Sondra, who invested money with Madoff as well as her son and nephew Charles, and they lost millions along with thousands of others.[2]

Scholarly work

There is not much published at this point in time, given the lengthy timeframes for publication in journals and books it would be expected that more will be published in 2011. The work that is available can be categorised into two areas: The normative or prescription approach to the problem and the second area focussed on the investment decisions – as people ignored the Red Flags or other warning signs.

Normative Approach

Risk managers concentrating purely on the financial returns, says Scharfman (2009), is illusory. The Madoff scandal has elevated due diligence to higher levels – to include non-investment risks, that is, operational risks in their assessments.  Whereas Clauss, Roncalli, and Weisang  (2009) argued that greater regulatory control, coordination and direct supervision of hedge funds would have avoided such a disaster.

An interesting observation by Hurt (2009) is that the Madoff case has redefined white collar crime into a victim-based crime, this has always been contentious by many scholars including the Australian Institute of Criminology (2004)and Freiburg (2000), the large sentence handed out by Judge Chin was in part based on the public’s redefinition of fraud in the media.

Red Flag or Warning Signs Approach

The collapse has brought attention from some authors about basic performance issues. Easy to say after the horse has bolted say Bernard and Boyle (2009) but anyone looking at the miracle “split-strike conversion strategy” used by Madoff to explain high profitability and low volatility attracting even more investors – will see that analysis of earnings data would have proved otherwise. The authors conclude:  “We find that Madoff’s returns lie well outside their theoretical bounds and should have raised suspicions about Madoff’s performance”. Furthermore, Fuerman (2009) states that the use of a low quality solo auditor for a substantial hedge fund should have been regarded as the Red Flag that it truly was. Whereas Dimmock and Gerken (2010) conclude that investors could have simply used a review of the intended fund’s past regulatory and legal violations, conflicts of interest, and monitoring, as these are significantly associated with fund fraud, explaining 24% of total variation.

Madoff an Arrogant Fraudster?

Because my work is new and unpublished I was not expecting to see scholars working from the theory of impression management and this was indeed the case. So I set about looking at what available information there was on Bernie Madoff . From this initial trawl the information began to fit into the categories developed from my thesis as the Arrogant Fraudster. This was drawn from what the co-workers reportedly said in the media. This is an exploratory account, and cannot be used in a quantitative context for example, a “sample of 1”.

Despite the fact that  I was looking for any information I realised that the amassed collection of opinion and news reports began to describe an Arrogant fraudster. Below  is a review of those categories borrowed from my executive impression management study.

Wife and children kept in the dark

One of the most contentious issues today, is that those closest to him deny that they had knowledge of, or involvement with Madoff’s fraudulent investment scheme. His wife and sons Mark and Andrew denied all knowledge. In fact, it was the sons who turned him in. This ignorance was common in all spouses and younger children with my investigation’s executive fraudsters. Indeed, upon finding out what is really going on most spouses disconnect from the fraudster entirely.[3] And this proved true with the Madoff sons.

It is very likely that Bernard Madoff spun a tale to his family around the fortune that he was making. If Madoff could make a poor elderly widow part with her money, it is very likely that the façade was convincing enough at home. And with that, their father would have fiercely contested any questioning. The sons obviously were taken in with the story in as they borrowed millions of dollars from their father. Also they worked on a different floor away from the fraud perpetrated on the 17th, given other tasks to do with software development and marketing. There have been no criminal charges laid against them and their mother Ruth issued the following statement in June 2009: “I am breaking my silence now because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie’s crime, which is exactly the opposite of the truth,” she said. “I am embarrassed and ashamed. 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.” [4]

Wikipedia reports that Peter, Madoff’s brother: “Since 1995, Peter Madoff had invested only $14M, but withdrew over $16 million. Mark and Andrew Madoff withdrew more than $35 million from a small original investment.”[5] But this could have been on the falsehood that this was their return on their investment. At this point we do not know. Furthermore, the closest henchman to Madoff, DiPascali is said to be “…telling prosecutors they [the sons] were not participants in the scam. After all, nobody, apart from Bernie Madoff, is better positioned to describe who took part.”[6] Apparently he loved his sons, but he never showed it.[7]

Need to look successful

Arrogant Fraudsters in my study exhibited a preoccupation with looking successful. Similarly Madoff developed such a concern. According to Creswell and Landon, (2009) his offices were immaculate and furnished down to the last black push in tacks and black pens.[8] The private jet, the multi-million dollar mansions were all part of the success look. They report that Bernie Madoff “…was closely attuned to his image…” He wore Saville Row suits and expensive watches. There is a wealth of media attention spent on the successful look of the Madoffs. Suffice to say Bernard Madoff played his part well.

Lack of trust/ secrecy

Madoff demonstrated his lack of trust by installing two cameras in the New York Office. This was meant to be so he could view tradings from overseas. No one was allowed to go to the 17th Floor except for trusted lieutenants such as DiPascali. As one trader remembered: “…Employees in those parts of the firm knew there was a different, lucrative business on half of the 17th floor, but they didn’t know exactly what it did. “We were all aware of this hedge fund that had had great returns for 20 years,” recalls one trader. “We knew it was statistically impossible [to have the steady gains for which Madoff became famous]. As a collective, we always kind of wondered: How the hell does he do it? Every person was curious.”[9]

Fear of him

According to Seal (2009), many feared Madoff: “People were afraid of Bernie. He wielded this influence. They were afraid of his temper.” This would be for his sons (and probably for his wife too), as he never showed his love to his sons, he ruled by tough love and fear[10]. This observation is reinforced by another story of his vehement and strong reaction to a hedge fund manager’s death: The employees recoiled. “I never saw him react like that before,” says a Madoff trader who witnessed the outburst.[11]


This came out a number of times in front of the media and important bodies like the SEC. One issue was about Madoff himself developing the technology for the NASDAQ. According to Dick Justice: “except for Madoff’s role in it. Says Charles “Dick” Justice, who started with the National Association of Securities Dealers in 1968 and was its chief technology officer for decades (and knows Madoff), “he wasn’t involved in the founding of Nasdaq at all.” Asked about a separate Madoff comment that he was “involved in the design of the Nasdaq technology,” Justice says, “No, he wasn’t.”[12]


This became apparent on the home front when, according to Oppenheimer, Madoff had several affairs. He was a serial Casanova caught by his wife Ruth and allegedly had to pay out “hush money” to at least one female employee. And indeed, one alleged mistress came out of the woodwork afterwards and claimed an affair that lasted many years (Weinstein, 2009).[13] Oppenheimer (2009) claimed that Madoff’s parents were not honest people, due to some small time stock manipulations that were in his mother’s name. But it laid the ground for Bernie’s similar behaviour.


These were on several fronts: the typical OCD concern with cleanliness and the sense of orderliness. It should be noted that only one of the executive fraudster cases in my research exhibited this behaviour as seen by the co-workers. That too was hand-washing.


It was reported that: “The offices had to be spotless. An employee said he would put a piece of thread on the floor and wait for Madoff to notice and “freak.”[14]

Washing hands in jail. Photo from:

While Creswell and Landon (2009) related that: “…Madoff scouted the office for potential filth. Once, when he spotted an employee eating a pear at his desk in New York, this person said, Mr. Madoff spied some juice dripping onto the gray carpet. “What do you think you are doing?” this person recalls Mr. Madoff demanding. Eating a pear, the employee replied. Mr. Madoff ripped the soiled carpet tile from the floor, then rushed to a closet to retrieve a similar swatch to replace it.” Others related that: “…it was not uncommon to see him dusting his office or the two-foot sculpture of a screw behind his desk. One staffer recalls getting off the elevator to find Madoff, clad in one of his innumerable tailored suits, on his hands and knees in the lobby, straightening the rugs so that they were aligned perfectly.” [15]


Which leads to another fixation that they described, an obsession with orderliness: “Everything needed to be symmetrical and in straight lines. When Madoff was in the office, all window blinds had to be aligned at the same height, all computer screens had to be arrayed at the same angle and position, and on and on. So insistent was he on perfect alignment that, more than once, he dropped his trousers in the office — startling female employees — to ensure that the line of his shirt buttons was precisely vertical.” [16] And according to an article in The Independent newspaper: “A former secretary has described how he remodelled offices to eliminate semi-circular shapes, detailing how he squared off the interior of his New York office which had moved into the desirable, elliptical skyscraper nicknamed the Lipstick Building.” Also it was noted “…any chipped paint would have to be filled in with marker pen.”[17]

Creswell and Landon (2009) mention that: “He was, for instance, an avid collector of vintage watches and took time each morning to match his wedding ring — he owned at least two — to the platinum or gold watch band he was wearing that day.”

They go on to say that: “Associates and others acquainted with him said his punctilious ways sometimes veered into obsessive-compulsive behavior.”

Odd behaviours

These were not noted as obsessive, but odd behaviours. Again this had a parallel to the executives in my study. Some co-workers observed that there were inexplicable but odd behaviours that they saw from time to time. Madoff’s co-workers explained it as eccentricity. One employee recalled, “We were always like one big, happy family. Bernie was our god, a wonderful boss, eccentric, sometimes scary eccentric, but still wonderful.”[18]


Weinstein (2009) related how she and her friends called Madoff “Winky Dink” as he would blink rapidly at times. Others reported that: “During an allocution he read in a steady voice, but with his eyes blinking rapidly, Madoff told Southern District Judge Denny Chin that he was “so deeply sorry and ashamed” for his crimes.”[19]

Email records

There were other idiosyncrasies in Madoff’s world that might have raised suspicions. Around 2002 he proposed eliminating e-mail throughout his firm but was persuaded not to. Many Wall Street firms were talking about restricting it in the wake of corporate scandals featuring incendiary messages, but Madoff ultimately did the opposite of what would have been expected. He allowed e-mail for staffers at his trading business — the one the SEC regulated — while abolishing it for the people working in the unregulated investment business on Floor 17.

“Madoff took another step. He decreed that e-mails would no longer be stored electronically. First he decided that each of the firm’s e-mails would be printed and then stored in boxes, but he was persuaded by others that such a plan was impractical. In the end, Madoff ordered that old e-mails be transferred to microfiche, a cumbersome process that costs much more than archiving the records digitally. Why would Madoff want to increase his archiving costs? Perhaps it had to do with the fact that microfiche is orders of magnitude more difficult to search than electronic records.”[20]

No Apology

This is another aspect that the respondents picked up in the impression management study: that no apology was given by the fraudsters, apart from a dismal self-serving one made in court to mitigate sentencing. The website TalkLeft states: “Based on interviews with two dozen current and former inmates, and a lawyer he gave an interview to after his arrival, a portrait emerges: Repentent? Not one bit. He’s had enough of that. “F*ck my victims,” he said, loud enough for other inmates to hear. “I carried them for twenty years, and now I’m doing 150 years.”[21]

Much earlier in the story, Creswell and Landon (2009) noted that “Television footage of Mr. Madoff entering his apartment building on East 64th Street at Lexington Avenue after federal authorities charged him with fraud in December [2008] doesn’t seem to show a man exhibiting any sorrow or regret.”

And even more telling, an accidental observer in the court where Madoff is tried, tells how: “Next Madoff himself addressed the Court and the crowd. He did not mean to hurt anybody he said. He said some other things that were just wasted words. He apologized and said he did not ask for forgiveness. But it was all very odd. He said he was sorry, but he spoke of his crimes as if he were removed from them. Like they happened, and he did them, but I never heard him take responsibility for them. He bewailed the harm that he caused to his family, not to mention those who trusted him with their money, but I never heard him say those simple words: “I know I did wrong.” He never said that he knew it was wrong to steal money and that he did it anyway, knowing that it was wrong and that it was hurting people. How could he not say these things, and still say he was sorry? The observer asks.  He went on to note that even the Judge thought that there was no remorse.[22]

Stress creates cracks in the mask to appear

This was found with the Arrogant Fraudsters in the study, that stress occured and with that, corresponding cracks in the persona that was projected to others. The New York Magazine reported: “For Bernie Madoff, living a lie had once been a full-time job, which carried with it a constant, nagging anxiety. “It was a nightmare for me,” he told investigators, using the word over and over, as if he were the real victim. “I wish they caught me six years ago, eight years ago,” he said in a little-noticed interview with them.”

One telling crack was seen but not recognised, at best just a temper tantrum, happened when hearing the news of a possible murder of a hedge fund operator in 2007, was the over-reaction by Madoff as reported by one of his staff: “”Bernie,” someone casually asked as Madoff happened to walk by, “have you heard of this guy?” Madoff glanced at the screen, blanched, and exploded: “Why the f**k would I be interested in some s**t like that?” The employees recoiled. “I never saw him react like that before,” says a Madoff trader who witnessed the outburst. “It obviously hit a nerve.”[23] The outburst was very likely a stress reaction to his underlying difficulties of maintaining the impression management mask.

Continuing the façade after discovery

The Arrogant type of fraudster but not the Likeable Fraudster, the other type that was found in my study, always displayed this characteristic.  The Likeable Fraudster gave themselves up or if caught surrendered immediately and pronounced that they were guilty. The Arrogant Fraudsters, however protested their innocence strongly after discovery of the fraud. In fact, in my study they continued with the façade even after being caught red-handed. They easily explain their stealing away to the owners or Boards of Directors, and even at times that they tried to make out that they were the victim.

In prison, it is reported that Madoff crafted his own version of events. Madoff explained the trap he was in. “People just kept throwing money at me,” Madoff related to a prison consultant who advised him on how to endure prison life. “Some guy wanted to invest, and if I said no, the guy said, ‘What, I’m not good enough?’ ”[24]

Remarkably, his inflated ego appears to have survived intact. H. David Kotz, the Security and Exchange Commission’s inspector general, investigated his agency’s failure to uncover Madoff’s Ponzi scheme, and Madoff volunteered to speak to him—he is, no doubt, the world’s expert on the subject.

Wall Street. Photo from: Wikipedia

He quickly reminded Kotz of his stature—“I wrote a good portion of the rules when it comes to trading,” Madoff said. He insisted that he’d been “a good trader” with a solid strategy, explaining that he’d stumbled into trouble because of his success. Hedge funds—“just marketers,” he said with evident disgust—pushed cash on him. He overcommitted, got behind, and generated a few imaginary trades, figuring he’d make it up—and never did. Whatever his own missteps, Madoff saved his scorn for the SEC. He did impressions of its agents, leaning back with his hands behind his head just as one self-serious agent did—“a guy who comes on like he’s Columbo,” but who was “an idiot,” Madoff said, as recorded in the extraordinary exhibit 104, a twelve-page account of the interview that is part of Kotz’s report. Madoff is no ironist. His disdain for the SEC is professional, even if the agency’s incompetence saved his skin for years—all Columbo had to do was make one phone call. “[It’s] accounting 101,” Madoff told Kotz, still amazed.[25]

The TalkLeft website referred to Madoff in prison: “… Ego: Fully intact. Everyone wants his opinion about business. His closest buddies: those doing huge sentences like him, including convicted spy Jonathan Pollard and Mob Boss Carmine Persico.” [26]


Being in prison allowed his sense of arrogance and superiority to be displayed outside of his corporate persona. This is the feature that characterises the Arrogant Fraudster well: that they know best, know everything and or they are always right. According to The New York Magazine, he was bragging in prison: “He said something to me one day,” recalls an ex–drug trafficker, released in February. “He could spin the globe and stop it anywhere with his finger, and chances are he had a house there or he’d been there. I was pretty blown away.” And in regards to a 60 Minutes TV program: Bowler removed one earpiece. “ ‘Bernie, you got ’em for millions,’ I said to him. ‘No, billions,’ he told me.” [27]


Despite my own study being inconclusive about psychopathic traits identified by the co-workers, there was a slight trend that the Superior types, the Arrogant Fraudsters tended to show these features. Interestingly, several commentators that Creswell and Landon (2009) interviewed suggested that Madoff had psychopathic tendencies. …“Some of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,” says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioural profiles. [28] Mr. McCrary cautions that he has never met Mr. Madoff, so he can’t make a diagnosis, but he says Mr. Madoff appears to share many of the destructive traits typically seen in a psychopath. That is why, he says, so many who came into contact with Mr. Madoff have been left reeling and in confusion about his motives. “People like him become sort of like chameleons. They are very good at impression management,” Mr. McCrary says. “They manage the impression you receive of them. They know what people want, and they give it to them.”  This of course was a striking feature with the owner/managers and Boards who trusted the Arrogant Fraudsters, their trust in their own judgement was destroyed along with their self-esteem and entrepreneurial enthusiasm.

Fundamentally psychopaths believe: “ ‘I’m above the law,’ and they believe they cannot be caught,” Dr.J. Meloy says. “But the Achilles’ heel of the psychopath is his sense of impunity. That is, eventually, what will bring him down.” Dr Meloy says it makes complete sense that Mr. Madoff would have courted regulators, even if he ran the risk of exposing his own actions by doing so.

“In a scheme like this, it’s very important to keep those who could threaten you very close to you,” Dr. Meloy explains. “You want to develop them as allies and shape how they go about their business and their attitudes toward you.” Which is precisely what Madoff did with the NASDAQ and the SEC and what the Predators did with the owners of the businesses and their Boards.


For all of the information that is available on the internet, not much was avaliable about Bernie Madoff’s childhood. Certainly nothing about the first two years of his life that described the type of maternal attachment that he had with his mother, Sylvia.

However, my research on Madoff outlined evidence that leads to a conclusion that Madoff is an Arrogant  – using the typology from my doctoral research on executive impression management. The media supplied information about the likelihood of keeping his wife and children in the dark about his nefarious activities; the need to look successful; his lack of trust and need for secrecy; he generated fear around him; he is attributed as being dishonest and a liar; he exhibited signs of odd behaviour – obsessions and eccentricities; he never gave a sincere apology; he showed minute signs of stress; he continued the façade after discovery as well as his overall sense of superiority lay Madoff’s profile firmly with the Predator type.

What this means is that investors and fund managers as part of their due diligence, can investigate to see if their owners fit this fraudster profile.  Bernie Madoff managed to hoodwink the SEC, Wall Street and some of the major global banks and financial institutions. But this latest research offers a new way of investigation to identify if the person of interest is a fraudster. This should be used in addition to the Red Flags and the Fraud Triangle criteria that auditors use to verify authentic funds management. The Arrogant Fraudster profile is easy enough to identify once you know what you are looking for, and who knows how many of these Predators remain out there causing financial ruin wherever they go.

[1] J. Oppenheimer (2009) ‘Madoff with the Money’ Wiley and Sons Inc

[7] Mark Seal. “Madoff’s World.” 4/2009

[8] Julie Creswell, Landon Thomas Jr. “The Talented Mr. Madoff.” 1/24/2009

[9] op cit..

[10] Mark Seal op. cit..

[11] CNN op.cit..


[13] Sheryl Weinstein, “Madoff’s Other Secret: Love, Money, Bernie and Me” St. Martin’s Press, 2009

[15] CNN op. cit..

[16] CNN ibid..

[18] ibid..

[20] CNN op. cit..

[23] CNN op cit..

[24] ibid..

[26] Talk Left op. cit..

[27] New York Magazine 2009 op. cit..

28 New York Times 2009 op.cit..


Australian Institute of Criminology. 2004. Crimes against business: A review of victimisation, predictors and prevention. Canberra: Australian Institute of Criminology.

Bernard, Carole, and Phelim Boyle. 2009. Mr. Madoff’s Amazing Returns: An Analysis of the Split-Strike Conversion Strategy. Journal of Derivatives 17 (1):62- 78.

Clauss, Pierre, Thierry Roncalli, and Guillaume Weisang. 2009. Risk Management Lessons from Madoff Fraud. SSRN eLibrary:1-39.

Creswell, Julie, and Thomas Landon. 2009. The Talented Mr Madoff. New York Times, 24th Jan 2009.

Dimmock, Stephen G., and William C. Gerken. 2010. Finding Bernie Madoff: Detecting Fraud by Investment Managers. SSRN eLibrary.

Freiberg, Arie. 2000. Sentencing white-collar criminals. In Fraud Prevention and Control Conference. Surfers Paradise, Queensland.

Scharfman, Jason. 2009. The Madoff Identity: A New Operational Due Diligence Paradigm in a Post-Madoff World. SSRN eLibrary.

Sheridan, Terry A. 2010. Exploring recipients’ perceptions of impression management in the workplace: Insights from comparing fraudster and non-fraudster executives, PhD Thesis, Graduate School of Business, Curtin University, Perth, WA.

Vinod, Hrishikesh D. 2009. Preventing Madoff-Style Ponzi Enabled by Jewish Reputation, Incompetent Regulators and Auditors. SSRN eLibrary:1-8.


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Filed under Arrogant Fraudster, Creating successful image, Ponzi scheme

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