Madoff 2008
Bernie Madoff’s 2008 confession revealed a decades-long Ponzi whose redemption run arrived when the GFC made people ask for cash — fraud that needed a crash to be discovered, not a crash caused by the fraud.
Definition
Reported smooth equity-like returns were fictional statements. New money paid old redemptions. Feeder funds and a captured auditor completed the scheme. December 2008 redemptions could not be met. Recoveries via the SIPA trustee took years.
Why it matters
It is the operational-risk twin of 2008: if you cannot explain the return with a book you can see, you may be looking at a statement, not a strategy.
Case
A $65bn advertised book, a much smaller real estate of remaining cash, and a legal fight over fictitious profits. Not systemic in the Gorton sense — devastating for the feeders.
How to read it
Custody, administrator independence, and whether the strategy can exist in the reported volume. Split-strike conversion at that size would have left a tape.