Via Naked Capitalism

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.

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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.

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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?

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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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