Published April 13, 2016
A new book by a UB sociologist describes the previously unexplored inner workings of Bernard Madoff’s Ponzi scheme that swindled billions of dollars from unsuspecting investors.
Lionel S. Lewis provides an explanatory blueprint through the lens of a social scientist by contributing a theoretical perspective to the Madoff saga that collects and, more importantly, assembles all the pieces of the elaborate scam into a framework that describes what happened to fuel the con’s duration and push the financial losses to staggering levels.
“My objective was to detail how Madoff’s con worked,” says Lewis, professor emeritus in the Department of Sociology, College of Arts and Sciences, whose book, “Bernard Madoff and His Accomplices: Anatomy of a Con,” has just been published by Praeger.
Madoff, a former stockbroker and investment adviser, pled guilty to 11 federal felonies in 2009 and is now serving a 150-year prison sentence related to the fraudulent practices of his Wall Street investment firm, Bernard L. Madoff Investment Securities (BLMIS).
The numbers are shocking and the con, which appears to stretch back to the late 1960s, proved incredibly durable. But how could so many people be fooled for so long and at such great expense?
Lewis, one of the nation’s leading authorities on Madoff’s scam, goes behind the scenes to answer those questions and says his examination of Madoff’s Ponzi scheme is the first to penetrate the heavily veiled criminal enterprise, explore its machinery and expose its inner workings.
Lewis says it’s critical to see Madoff’s Ponzi scheme as a form of a big con game. A Ponzi scheme is a tool, but it no more explains how cons are conducted than a hammer explains how to build a house.
Short cons happen in minutes with victims usually losing valuables they might have in their possession, but BLMIS was a big con, an extended performance that required time, willing investors and greedy accomplices, he says.
Ponzi schemes take money from new investors and distribute it to earlier investors. In addition to Madoff’s backstage gang, the accomplices — actors in this case — were ropers (recruiting potential investors) and steerers (the happy customers), who set up victims to unwittingly draw them into the performance.
Like a theater play, actors even saw props such as phony account statements that detailed investment activity that never occurred and computers with no Internet access (and therefore unable to buy or sell stocks), Lewis says. But unlike theater, the audience sees the performance as reality, not fantasy.
The con, short for confidence game, is based on a fundamental deception and it unfolds in fictional phases, with devastatingly real consequences for its victims.
Madoff’s con began when he presented himself as a stockbroker openly looking for investors while secretly searching for collaborators, says Lewis.
“This is like all social relationships that are supposed to be built on trust: You say who you are and I say who I am,” he explains. “But cons violate that basic principle of human society, which makes them particularly interesting to sociologists.
“Isolated details about Madoff’s family, education and his early life — about which we know plenty — aren’t enough,” Lewis says. “To get to the essence of the con, it’s necessary to recognize how all of these elements fit together and to place people accordingly in the scheme.”
The new book is Lewis’ second to explore an aspect of Madoff’s infamous crime. “Con Game: Bernard Madoff and His Victims,” published in 2012, focused on Madoff’s victims.
Lewis served as chair of the UB Department of Sociology and is also the author of six other books and more than 150 scholarly articles on such issues as higher education, economic and social inequality, and rational behavior.