In his statement to the court yesterday, Bernard Madoff explained how the scheme worked.
What he told clients: He would invest "in shares of common stock, options and other securities of large, well-known corporations."
Where the money really was: A Chase Manhattan Bank account
Whom he bilked: "Individuals, charitable organizations, trusts, pension funds and hedge funds."
When the fraud started: Early 1990s
Why: "I felt compelled to satisfy my clients' expectations, at any cost."
How long he thought it would last: Not long, he said. But ending it "proved difficult and ultimately impossible." Said he knew "my arrest and this day would inevitably come."
Investing strategy he described: Called "split-strike conversion strategy" - said he would invest in "basket of common stocks within the Standard & Poor's 100 Index;" time purchases; hedge the investments by buying and selling "option contracts related to those stocks;" intermittently move into U.S. securities, such as Treasury bills.
How he covered up with the Securities and Exchange Commission: Gave false testimony, filed false/misleading documents.
How he covered up with clients: Sent "false trading confirmations" and account statements showing "bogus transactions."
How he made it look like he was really investing: Wired money from U.S. bank account of his advisory business to London bank account of his U.K affiliate. Also wired money from the London account to a Bank of New York account. Also charged clients 4 cents per share in commission.
How he apologized: Said he was "deeply sorry and ashamed."