If 71-year-old Bernie Madoff gets 150 years in jail for a $65bn fraud, what deterrent is there against going for a $130bn scam - or $260bn? Or why not do a serious crime?

The US is the land of the long sentence. Even death penalties take forever. But if someone born in 1788 – before George Washington became president – had received the same sentence at Madoff’s age, he would be coming out of prison this year.

His victims like the century-and-a-half sentence but surely the judge has devalued the language and the penal structure by describing his ponzi scheme as “extraordinarily evil”. Even if the victims had lost $65bn, Madoff never made that much.

Only $1.3bn has been recovered so far. Even if we imagine Madoff siphoned off $3.7bn – and while the judge thinks he’s not told all, there is little sign of such wealth – that still leaves $60bn. Where has it gone? To his early investors and nowhere at all. That’s how ponzi schemes work.

That’s why they are such inefficient frauds. It would have been better all round if Madoff had stolen $5bn rather than laundered $65bn for such little personal gain.

Except that the $65bn is a fictional figure. Investors who deposited $1m and were told it had soared to $3m have not lost $3m when the fund collapsed: they have lost their original $1m plus, perhaps, the modest return they would have received in a real bank.

Not that there original $1m is there either. That was paid to earlier investors who were told their money had soared at ridiculous rates. These early investors profited far more from the scam than Madoff, even if they are innocent of everything except greed and gullibility.

If the 13,500 losers who were still with Madoff at the end want their money back they should ask the early exiters to return their excess profits. Indeed, the Securities & Investments Commission is doing just that, but don’t hold your breath.

Madoff’s long sentence may be intended to deter others but it is so excessive it could merely encourage small fraudsters to think big. Even Jeff Skilling of Enron and Bernie Ebbers, the Worldcom chief executive, will be released in 2028; publisher Conrad Black should be out in 2013 – a mre long weekend compared to Madoff’s incareration.

Madoff is in prison until 2159, if anyone can imagine a date so far ahead. Except, of course, he will die first  – and surely the US judge does not want that indignity on its hands of him dying in prison.

Share this: