Ponzi Schemer Bernie Madoff Asks to Be Released From Prison Under “Compassionate Release,” Igniting Debate Over Fairness

81 year old Bernie Madoff has asked to be released from Federal prison under the “First Step” law that came into effect in 2018, after having served 11 years of a 150 year sentence for the biggest Ponzi scheme in history, which cost investors billions in losses. The aim of the program was to increase the number of Federal prisoners set free under “compassionate release” programs. Advocates and even the Department of Justice’s Inspector General had fiercely criticized the then-existing regime for being far too stringent in deciding who to free, as well as often foot-dragging so as to make the petition moot.

Madoff is the highest profile prisoner to apply under the revamped compassionate release scheme. Madoff’s fund collapsed in November 2008, wiping out its claimed value of nearly $65 billion. Trustees eventually recovered $13 billion from Madoff assets, which the SIPC estimated still left investors with $18 billion of losses (see Wikipedia for a longer discussion, since various estimates differ markedly; some investors were winners because they redeemed, taking their fictive gains with them, before the scheme collapsed).

Madoff had seemed unimpeachable by virtue of being the former chairman of Nasdaq, and having impeccable connections and the right demeanor. The Financial Times’ Gillian Tett recounted how disconcerting it was to interview him in prison:

For two hours, we talked. There was nothing about his manner that told me he was a crook, madman or psychopath; on the contrary, he seemed perfectly charming and plausible.

“He sounds like my father!” I thought to myself, reflecting that, if I had met Madoff before the scandal erupted, I, like so many others, would have assumed he was entirely credible.

More specifically, Madoff ran an affinity fraud, daisy-chaining his way through wealthy Jews and prominent Jewish foundations, such as Hadassah, the Women’s Zionist Organization of America, the Elie Wiesel Foundation and Yeshiva University. Individual investors included Ruth and Carl Shapiro ($400 million), Jerome Fisher ($150 million), Mort Zuckerman, and Henry Kaufman. Some of his victims didn’t know Madoff and were even shocked to learn they’d invested with him, since they’d put their money in funds that in turn invested with Madoff. The size of the losses led to the shuttering of some Jewish hospitals and federations.

The Madoff case opens up the question of when convicted criminals who have not yet served their term nor are eligible for parole should nevertheless be released for humanitarian reasons. You can read the new rules here which list medical and non-medical categories. Madoff can petition by virtue of having a terminal medical condition with less than eighteen months to live. His doctors say he is dying of kidney failure, is refusing dialysis and has cardiovascular disease and other serious conditions. Madoff says if released he would live with a friend and would rely on Social Security and Medicare.

So should a heinous criminal like Madoff be set free? He didn’t cooperate with prosecutors. Remarkably, Judge, Denny Chin received no letters describing mitigating deeds; he deemed Madoff’s conduct to be “extraordinarily evil” and pointed out it was literally off the charts, since Federal sentencing guidelines for financial fraud topped out at $400 million. Judge Chin also stated that Madoff appeared to be concealing information. Commentators at the time speculated that Madoff had been trying to protect his wife and children (his wife was almost certainly knowledgeable) and had squirreled some funds away in secret bank accounts.

Four people close to him, including a son, killed themselves, as did some of his investors.

There are four reasons to incarcerate people: deterrence, retribution, safety, and profiteering. Prison-related money-making is not a desirable societal behavior, so we will not consider it in considering the Madoff petition (and in fact, a big argument for these compassionate release programs is that keeping really sick people behind bars is costly, so letting them go is commonsensical as well as a good moral choice). And Madoff is not a danger to anyone but himself.

Judge Chin cited deterrence as the big reason for giving Madoff a 150 year sentence. And as readers know all too well, far too few executives and top professional ever wear orange jump suits. It’s hard to think of examples once you get past Mike Milken, Enron’s Jeff Skilling (and Enron CFO Andy Fastow), the odd case of Martha Stewart (who got herself in hot water not so much for making a trade on inside information, but for doctoring records and lying rather than confessing, groveling and paying a big fine), and recently, pharma executive John Kapoor for opioid bribes. Admittedly, there are also the ongoing prosecutions of perps and parents in the college bribery scandal, but overwhelmingly, they were in the top 10%, since otherwise, they would have gone the 1% route of securing their child’s future by giving a big donation.

So one big argument for not releasing Madoff is the extreme infrequency of prosecutions of people at his level, as the aftermath of the financial crisis too vividly illustrates. And even though mercy is in theory not limited, and showing one individual some compassion does not in theory come at the expense of being generous to others, in a prison setting that is unlikely to be the case.

Under the old regime, prison officials approved only 6% of compassionate release applications from 2013 to 2017. Even with the new guidelines, it’s not hard to imagine they’ll still give them reluctantly. And the reality is that there is almost certainly only so much capacity to consider petitions like these. If we suspect these releases to be limited, someone who lived an astonishingly lavish life before his fall would seem to deserve less consideration than, say, the many felons in prison for drug dealing decades ago?

I’m not sympathetic with retribution as a reason for incarceration, but some people took such serious hits that seeing Madoff released would seem wildly unjust. From CNBC:

But one of Madoff’s victims, Gregg Felsen, had no sympathy for the arch-scammer who decimated his savings.

“He’s terminally ill? I’m terminally broke,” Felsen told the Washington Post. “He ruined a lot of people’s lives and changed them forever.He deserves no leniency whatsoever.”

One could argue for an additional another category to justify imprisonment, “Paying your debt to society” or making penance. But that would not appear applicable here. First, 10 years out of a 150 year sentence seems a bit out a whack on the “doing your time” front. Second, there doesn’t seem to be any evidence that Madoff has attempted to make amends, even in small ways like being a model prisoner, say by teaching fellow inmates, as Martha Stewart did in her short prison term even though it would not have gotten her out any sooner.

But this discussion is likely moot. If Madoff has advanced kidney disease and is refusing dialysis, he is on death’s door. And Judge Chin would have to approve Madoff’s release, which seems unlikely. Either way, kidney failure is a bad way to go.

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  1. Pavel

    Once they release all the black kids busted for penny-ante drugs crimes while Wall St brokers and fashion models and — let’s not forget — former presidents are doing coke with zero penalties, perhaps then I’ll find time to feel sympathy for Madoff.

    Just my 2p.

    1. Jon Cloke

      Well said – it should be a thing that in cases of really heinous crime (murder, rape, this..) the sentencing judge gets to set conditions for parole or release to be considered, particularly where someone like Madoff hasn’t cooperated and/or shows no remorse.

      I.e., admit everything you did and show us where the all the bodies, are should be a minimum condition to be considered for release

  2. John A

    One question that intrigues me. He is alleged to be suffering from kidney failure but is refusing dialysis. Would he continue to refuse dialysis if he were released?
    Otherwise, this has shades of Ernest Saunders, a businessman who was given a 5 year sentence in England for fraudulent share price manipulation in the so-called Guinness trial. He was released after 10 months on the grounds that he was suffering from Alzheimer’s disease, which is incurable. He subsequently made a full recovery. The only known case of recovery in history.

  3. Bugs Bunny

    Considering the number of lives he ruined, this would be the equivalent of releasing a major organized crime leader from prison.

    That said, US prison terms are egregiously long, compared to other developed countries, and the conditions for the “average” con are horrifying.

  4. PlutoniumKun

    At the time I knew a woman who worked as a fundraiser for a number of Jewish/Israeli childrens charities, and most of their funding came from wealthy East Coast Jews. She told me that she reckoned from the damage done to their fundraising that Madoff had many more victims than were made public, mostly people who could be described as ‘comfortably-off’ as opposed to rich. Many seem to have been more or less wiped out by Madoff, with life savings and pensions all incinerated.

    Much as I don’t agree with incarcerating someone in their 80’s, I think it should be a basic requirement for anyone getting early release that they acknowledge their crimes and where relevant, give up all relevant information to the authorities. Its almost certain that he has enough money squirrelled away to be able to retire somewhere in a lot of comfort, unlike many of his victims.

  5. Marlin

    I think the 150 year punishment was much too large in the first place. I can’t imagine, that in any European country someone would do more than 15 years in prison for this. On a fundamental level, what did he do? He lied, so investors gave money to him. On a moral basis, is this really so much worse than claiming you will have full self driving autopilot soon retroactively installed on the cars sold right now, when you know this isn’t true? And don’t tell me Elon Musk believes his own BS.

      1. Wisdom Seeker

        You might consider counting the dead who were falsely advertised “autopilot” and trusted the hype rather than reading the manual.

        1. Andrew Wilson

          Very silly remark. The Tesla auto pilot came with a clear warning that it was experimental and in development and not for use except in highly controlled circumstances. It was not a deliberately perpetrated criminal fraud.

          1. Yves Smith Post author

            One more comment like that and you will not be welcome here. You’ve utterly straw manned what Wisdom Seeker said and adopted a ‘tude on top of that.

            Plus if you had any familiarity with product liability, companies are regularly sued successfully for advertising claims even if they try to walk them back in other documentation.

            So I suggest you read our written site Policies, which among other things states that commenting is a privilege, not a right, and stop behaving like a case study in Dunning Kruger effect.

    1. Wisdom Seeker

      Robbing people of their money through fraud is no different from stealing years of their life’s work.

      Punishment years should equal the dollar value of the crime divided by the victims’ annual earnings. Plus financial restitution.

  6. Butch

    While the entirety of Wall Street has been Ponzied for years. Comical!!! I should have studied the Delusional Manual [DMX] our society seems to have completely bought into.

    1. divadab

      Nope. Manipulated, and insiders do better than the punters, yes. But it’s a real market representing real wealth. Your metaphor is hyperbolic.

  7. Michael

    A friend of mine is a top-tier consumer bankruptcy attorney in Broward County, Florida. He remembers the Madoff victims coming in, shell-shocked retirees. They’d fall apart when he’d describe how bankruptcy works, surrendering their things to a trustee to be sold off. Few were rich; they’d saved their whole lives and trusted their savings to “the Jewish t-bill.” Remember that the returns he made up were never spectacular; usually a 1% or so bump increase every month. He didn’t fall into this: he carefully engineered it to siphon as much money as possible, for as long as possible. But for the financial crisis, he no doubt would’ve been taking in funds — that he could never pay out — for a very long time, possibly until his natural death. I’m not normally the vindictive type but Madoff deserves to rot.

    1. Wukchumni

      Before Madoff, the largest Ponzi scheme i’d ever seen was Bruce McNall, who somehow ended up owning the L.A. Kings, a thoroughbred racing stable and a movie studio.

      Hard to get a number on how badly he fleeced the banks who gladly lent him money, i’d guess it was penny-ante, maybe in the hundreds of millions?

  8. agkaiser

    Should the deliberate Ponzi operator Madoff be released? Maybe the automatic Ponzi profiteers should be imprisoned?!

    What are the real estate market and stocks traded after issue by the originators? The profits on such trades don’t accrue to the issuing entities. They are paid by the latest buyers. That’s just like a Ponzi. Even though there’s no operator, after market trading makes something from nothing. That fact makes all of Wall St a fraud.

    1. Off The Street

      Madoff could be released to the Epstein mansion, given all the surveillance cameras and recording devices. /s

  9. Frank Little

    I can’t hold it against those he defrauded for wanting him to stay in prison, but even if he was given some magical potion enabling him to serve the full 150 year sentence it still wouldn’t repair the damage done. That’s at the heart of what’s wrong with the criminal justice system. You can tell from the quotes of his victims that they are still reeling from the scheme unraveling 10 years later. The government’s main way of making these people whole again is to keep an old man locked up after he already got away while the people who lost their entire savings or retirement pick up the pieces on their own.

    I mention this because any serious effort to undo mass incarceration is going to involve showing leniency to people who likely did terrible things. Most policies to address “mass incarceration” focus on those incarcerated for non-violent federal drug charges even though most people in prison in the US are in state prisons on what are normally considered violent charges. That doesn’t mean we shouldn’t undo the damage of the war on drugs, but just doing that won’t get us as far as many people think.

    Setting aside the cases of those wrongfully convicted, even those who did what they are convicted of should at least have a shot at release, and not just because of old age. I know a guy who is one of the 2,500 people convicted to life without parole as juvenile. No matter how many courses he takes or jobs he does or “rehabilitated” he gets he will die in prison, unless the law changes.

    Somehow I doubt that keeping this one guy in prison for life without even the chance at release will do much to deter people committing murder. Similarly, if Wikipedia’s list of Ponzi schemes is any guide there have been about as many in the decade since Madoff’s conviction as in the decade before.

    Madoff may be a particularly unsympathetic case, but every effort to reform bail or sentencing or parole or any other aspect of this system is going to be painted as a handout to the most unsympathetic person that opponents of reform can find. That doesn’t make the US criminal justice system any more logical or effective at keeping people safe and holding people accountable for their actions, which is, in theory, supposed to be its purpose.

    1. rd

      I think the first people that should be released are people who did not do damage to other people. Many of the incarcerated in local and state prisons are people who were booked for possession (not dealing) of drugs like marijuana and cocaine, parking ticket fines that escalate into imprisonment, etc.

      Sentences should be longer and more enforced for people who actually negatively impacted other people’s lives in a major way. Madoff is in that category. He can be released after all of the people in jail on minor drug charges are.

      1. Frank Little

        I think you’d be surprised how few people in state prisons and local jails are there for drug offenses. While half of federal inmates are there for drugs, that’s a much higher percentage than in most state prison systems, especially if you include people who were charged with both drug-possession along with another violent offence.

        I’m not saying that we need to make leniency for guys like Madoff the top priority, but there is a very common belief that if we simply undo the war on drugs or stop things like crimeless revocations of parole we will make a large dent in the overall US prison population and that’s not true. Doesn’t mean we shouldn’t do the things you mentioned first, but if we did we would probably still have the largest prison population in the world.

    2. Dan

      The sentence sends a message to other potential fraudsters. If the sentence is reduced, the message is diluted. I understand that even in the face of firing squads some will still continue to do evil deeds. But many more will think twice. And that’s better for society as a whole.

      Remember, these people show no mercy to the rest of us. Give them an inch and they will take a mile. Keep them in jail. Better yet, chop off their heads in the public square.

      1. Jesper

        I believe it is impossible to have a deterrent strong enough to deter all. I might be wrong in that belief, but what are the options if there is no deterrent stopping all?
        If no deterrents are 100% perfect should we completely stop with punishments?

        If Madoff was asked what kind of deterrent would have stopped him from committing the crimes he was convicted of then what would he say?

        1. Frank Little

          I don’t want to give the impression that my heart is bursting with sympathy for Bernie Madoff. I can assure you, as someone who talks daily with prisoners who are in much worse conditions than him, that it is not.

          I think focusing on Madoff is part of the problem in that the main focus should be focusing on the people who have been harmed. As long as money is the main social determinant in society, which it is in America, I don’t think there’s any deterrent strong enough to keep people from trying to steal it.

          That doesn’t mean we make robbery legal of course, but I think it does mean that giving a 70 year old man a 150 year sentence is too little too late. It also doesn’t do anything to address what his victims are still dealing with a decade later.

  10. inode_buddha

    If I was a judge, I would say, “Sure, he can get out just as soon as he makes all those people whole again!”

  11. Brooklin Bridge

    if compassion is the order, why would we subject Madoff to the traumatic experience of putting him in the society of relatively honest, ethical and caring people? Diametric opposites. It would be vastly more merciful, and just, to instead put the entire DNC, starting with Perez, into the same cell with Madoff, so he could enjoy like minded company, and for about the same length of time.

    In that scenario, the only miscarriage of justice would be that kidney failure isn’t contagious.

    1. Brooklin Bridge

      Last sentence should end, “…isn’t contagious among scoundrels.” Wouldn’t want everyone exposed.

  12. John

    A serial killer with 200 victims, would receive a life sentence. Four people close to Madoff killed themselves; the implication of the article is that his crimes were the proximate cause. That puts four bodies on him and then there were those who were utterly ruined by his deceit. Are there other deaths that can be attributed to his fraud? He destroyed lives to enrich himself. He is old, sick, and unrepentant. He can be old, sick, unrepentant, and serving his sentence until he dies in prison, which is the intent and inevitable result of a 150 year sentence.

    1. Harrold

      Jordan Belfort spent 18 months in prison ( with Tommy Chong as his bunkmate). He admitted stealing $600 million and at one point had over 1,000 brokers stealing for him.

  13. charles 2

    An argument against Madoff’s release is the possibility of hidden assets, only known to him, that he could access and enjoy after his liberation. I know that if released on parole, he would be subject to stringent conditions, but the evasion of Carlos Ghosn proved that if one has enough assets, an exfiltration to a “safe country” would be feasible. For instance, many of the actors of the carbon tax VAT scam that cost several billions to EU treasuries have sought refuge in Israel and live a luxury life there.

    It is important to ensure that crime doesn’t pay, so an important criterion for parole should be that all monies are accounted for. If Madoff doesn’t have the records, tough luck IMHO…

  14. charles 2

    As for retribution, I, for one, am sympathetic to the psychological pain that victims experience if they feel that their perpetrator are getting away with it through a sentence that is too lenient or that is not executed properly.. Avoiding that psychological pain has a cost to society, but I think it is fair that society expresses its solidarity with the victims. It is only when this potential pain is no more, though victim forgiveness mainly, that early liberation could be considered because this cost doesn’t make sense any more : it is like taking a treatment for a disease that has been cured.

  15. BhamDan

    Bernie Ebbers of WorldCom infamy got early release after doing 13 years of his 25 year sentence and died a few days ago

  16. Felix_47

    He took a ton of money and violated the law. How many financiers have done the same thing. Madoff’s mistake was that he was an outsider from Hofstra. He did not lawyer up with ivy league white shoe firms early on to structure his ponzi legally or get a rider to a defense or other bill that would make his business legal. He transferred the bulk of his takings to other investors who were well connected. The final outcome was not unlike what befell the muppets of Goldman with Paulson’s mortgage manipulation or the myriad of other schemes prior to 2008 and ongoing. Madoff seemed genuinely ashamed and confessed. He could have spent millions defending himself and knocked the charges down quite a bit or done a plea bargain. I think the shame in front of his peers and Jewish society was so great that he fell on his sword. In comparison to so many Masters of the Universe who are living large……think Angelo Mozillo and on and on he seemed almost naive. I always felt the sentence was ridiculous when one considers all the other Wall Street bankers who will never see a jail cell. To succeed you can do Ponzi schemes but you need to filter it through a white shoe firm and a major firm like McKinsey and big name accountants and lobby key congressmen if your scheme is so outrageous it needs real protection. They need to let him out. It is doing no good holding him in jail. If we want to get serious on corruption there are plenty of places to start.

    1. Yves Smith Post author

      You really have this wrong. He was the chairman of the NASDAQ, had all sorts of exceedingly wealthy and connected people as investors and personal contacts. He was not an outsider in any sense and could have easily hired white shoe firms if he wanted to.

      Madoff also made off with $13 billion…vastly more than anyone you mentioned made. And Paulson although he had bad intent, had very little success in getting banks to play ball with him in setting up CDOs designed to fail. Even Bear Stearns turned Paulson down. The Goldman CDO at issue never got done with Paulson. The hedge fund Magnetar was the real bad guy and I suggest you read Chapter 9 of ECONNED before spouting more bullshit on that topic.

      There was absolutely no way to make a simple Ponzi scheme, which is what he was running, even remotely legal, nor lying all the time about his investment strategy and the value of investor holdings.

      Madoff was NOT genuinely ashamed and did NOT confess. His sons turned him in.

      Your comment is utterly contradicted by what the judge said: he was uncooperative and not terribly repentant.

      Making shit up is a violation of our written site Policies. You’ve taken to doing it regularly. You need to shape up.

  17. lyman alpha blob

    I’m sure he squirreled away $$$ somewhere for his family. If the authorities can find that and make some victims whole, then release him. On the condition that he must live the remainder of his life on the average social security payment given to other 80 year olds in the US and nothing more.

    That might be worse than being in prison.

    1. ambrit

      Being on a medium to low Social Security ‘pension,’ I think that you have inadvertently stumbled upon a very good idea. If “heavy hitters” like Madoff were to be relegated to such a Federally sponsored penury, the base Social Security ‘pension’ payment would quickly be raised to a livable amount. I, for one, would benefit greatly. So would millions of other “Elder Americans.”

  18. Dan

    For two hours, we talked. There was nothing about his manner that told me he was a crook, madman or psychopath; on the contrary, he seemed perfectly charming and plausible.

    A perfect illustration of why someone like Obama is in many ways much more dangerous than a Donald Trump.

  19. RBHoughton

    He was only doing what the New York Fed does. He should have been licensed to continue for the public good.

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