It was a scheme that would have made even Charles Ponzi blush: Former NASDAQ chairman Bernie Madoff perpetuated a decades-long scam that ultimately raked in some $50 billion. (For the record, Ponzi lured in gullible investors in the 1920s with promises of 100 percent returns in a scam based on international reply coupons for postage stamps.).

How Could It Happen?

Of course, Madoff’s victims grew up hearing the same warning we all have: “If it sounds too good to be true, it probably is!”  Yet, throughout history, scammers have managed to consistently tap into that same powerful human emotion — greed. Now, with the economy the worst it has been in generations, they are tapping into another strong motivator: desperation.

With that in mind, let’s take a look at some timeless lessons we can learn from this latest lesson in greed run amuck:


Madoff made promises. Madoff’s investments were touted as a “can’t lose” proposition with “guaranteed returns.”

Lesson: There is no “sure thing” in investing, and legitimate investment professionals never guarantee returns.


Madoff dropped names.  Madoff was fond of dropping names of prominent people who had invested in his fund. He also played his connections with Jewish charities and organizations to full advantage.

Lesson: An investment should be able to stand on its own merits, not on who else owns it.


Madoff scammed friends. Fred Wilpon, Madoff’s best friend of 40 years, lost hundreds of millions of dollars he had invested with his “friend.”

Lesson: Even friends and family can scam you, often because of the inherent trust.

Madoff’s reputation preceded him. Madoff’s seemingly impeccable credentials and background were repeated enough times that few investors ever bothered to verify what they had heard.

Lesson: Do your own due diligence and reference checks (see resources below).


Madoff told investors what they wanted to hear. While he didn’t promise shockingly high returns, Madoff did promise something that should have aroused suspicion: unusually consistent earnings (one fund reported a steady 10.5 percent return for 17 years straight!).

Lesson: It is almost impossible to have the consistent returns that Madoff reported.


Madoff pushed. Madoff’s investors were often told to write a check on the spot with no questions asked.

Lesson: Legitimate investment advisers will never force you to make an investment decision on the spot. Always take time to check it out.


Madoff bamboozled. Madoff’s investment method was marketed as "too complicated for outsiders to understand." Investors often didn’t know what they were investing in or what the investment strategy was.

Lesson: Investment strategies and financial products should be clear and understandable. If you don’t understand the investment, don’t invest.


Madoff kept investors in the dark. Even though he was a pioneer in electronic trading, Madoff refused to provide his clients online access to their accounts.

Lesson: Monitor your investments and insist on regular reports.

Make Sure it Passes the “Sniff Test”

Wise investors do their homework before investing. Consider these resources:

The Security and Exchange Commission’s EDGAR Database provides free downloads of audited financial statements and filings of many U.S. companies (

The IRS has pages of information on scams, warning signs and questions to ask at

The Financial Industry Regulatory Authority (FINRA) Web site ( allows you to check the disciplinary history of a broker or firm.

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.