A Crime Script Analysis of The Madoff Investment Scheme: John Hardy Peter Bell Douglas Allan

Crime Prevention and Community Safety (2020) 22:68–97
https://doi.org/10.1057/s41300-019-00082-6
ORIGINAL ARTICLE
A crime script analysis of the Madoff Investment Scheme
John Hardy1 · Peter Bell2 · Douglas Allan3
Published online: 6 August 2019

© Springer Nature Limited 2019
Abstract
The Madoff Investment Scheme was a long-term and large-scale fraud which
involved both an affinity fraud and a Ponzi scheme. Numerous studies have exam-
ined financial and legal aspects of the case, but relatively few have explored the case
from a criminological perspective. This study applies crime script analysis (CSA) to
the Madoff case in order to conceptualise the procedural elements of complex fraud
offences and to identify crime prevention opportunities for investigators and regula-
tory bodies. CSA identifies 12 steps in the offence, occurring in three phases which
create a relationship between earlier and later victims, with earlier victims providing
credibility to the scheme and later victims generating the resources to sustain it. The
study finds that crime prevention techniques which harden targets and extend guard-
ianship could reduce criminal opportunities for offenders and techniques which
strengthen formal surveillance and assist natural surveillance could control the capa-
bilities required to perpetrate similar offences.
Keywords Crime script analysis · Financial crime · Fraud · Madoff · Situational

crime prevention
* John Hardy
jhardy@ra.a.ca.e; drbell003@gmail.com
Peter Bell
p.bell@griffith.edu.au
Douglas Allan
doallan@csu.edu.au
1
Rabdan Academy, Dhafeer St, Post Box 114646, Abu Dhabi, United Arab Emirates
2
Griffith Asia Institute, Griffith University, Brisbane, Australia
3
Australian Graduate School of Policing and Security, Charles Sturt University, Canberra,
Australia
Vol:.(1234567890)
A crime script analysis of the Madoff Investment Scheme 69
Introduction
Few white-collar crimes have demonstrated the longevity, sophistication, finan-

cial impact or social harm of the Madoff Investment Scheme. In December 2008,
when the news of the scandal broke, Madoff was a financial titan who had rubbed
shoulders with elites on Wall Street and was well known across New York’s high
society (Kirtzman 2010). While running what had been the most exclusive finan-
cial club in the world, Madoff had defrauded thousands of people out of billions
of dollars over a period of at least 30, but more likely 40, years (Oppenheimer
2009). Despite numerous red flags, investors and regulators alike missed the great
fraud that was transpiring in the halls of Madoff’s offices. Beyond the reaction-
ary and symbolic questions of how and why the crime persisted, deeper ques-
tions remain. There is still much to be learned about the procedural elements of
the scheme and how the network of people involved conducted what was, by all
accounts, an incredibly sophisticated fraud (Committee on Financial Services
2009). The Madoff Investment Scheme contains lessons which can be applied to
the study of complex frauds and which can be used to capitalise on opportunities
to apply crime prevention strategies to white-collar crimes.
Numerous studies have examined the Madoff case, often focusing on the per-
sonal story of Madoff and his close family members (Ross 2009; Sandell 2011),
or the regulatory failures (SEC 2009) which enabled the slickest fraud of the
twentieth century to evade detection despite a succession of investigations and
examination by the US Securities and Exchange Commission (SEC). Some have
attempted to learn lessons from the Madoff case for business disciplines, such as
risk management and financial regulation (Clauss et al. 2009; Morrison 2014).
Others have explored the wide-reaching implications of the Madoff case for law,
business and society (Eren 2017; Smith 2010; Langevoort 2009). Meanwhile, rel-
atively few studies have focused on the procedural elements of the Madoff case,
rather than legal aspects of the offence and court proceedings (Rhee 2009; Hurt
2009). Fewer still have taken a criminological approach to analysing the case.
Similarly, while previous criminological studies have explored the relationship
between the procedural elements of offending (Cornish 1994) and crime preven-
tion strategies (Clarke 2005), none have applied these techniques to the Madoff
case, which is widely held to be the worst case of a Ponzi scheme in history
(Markopolos 2010).
This study applies crime script analysis (CSA) to the Madoff Investment
Scheme to identify the procedural elements of the fraud and crime prevention
opportunities which may be useful to financial regulators, law enforcement and
researchers working on similar cases in the future. The study begins with an over-
view of the Madoff scandal, discussing the key issues which make Madoff an
important case study for sophisticated fraud offences. The study then explains the
CSA methodology and discusses how CSA was applied to the Madoff case. It pre-
sents a CSA of the Madoff scandal in three stages: the development of a function-
ing scheme, the misappropriation of funds and the continuation of the Ponzi ele-
ment of the fraud through further compliance offences and repeat victimisation.
70 J. Hardy et al.
Finally, the study derives opportunities to apply crime prevention strategies to

potential offender cases from the Madoff CSA data. The study concludes that
reducing opportunities for offenders to deceive victims into participating in suspi-
cious financial schemes and regulating critical skills and capabilities required by
offenders could be beneficial in reducing the efficacy of sophisticated frauds.
The Madoff Investment Scheme
On a Thursday morning in March 2009, Bernard Lawrence Madoff entered a plea

of guilty to 11 felonies relating to a financial crime that had spanned decades and
defrauded billions of dollars from thousands of victims (Arvedlund 2009). The exact
financial impact of the fraud depends on how it is measured. Conservative estimates
focus on the amount of actual money that was present in Madoff’s accounts. In
December 2008, when the scheme collapsed, that figure was approximately $17.3bn
(USA v. Madoff 2009c). More sensationalist measures focus on the total amount that
Madoff’s companies had reported holding in their accounts, a figure closer to $65bn.
However, the majority of that money was fabricated as part of Madoff’s fraud
and had never actually existed (Smith 2010). Madoff was ultimately sentenced to
150 years in prison due to the scale, duration and impact of his crimes. In sentenc-
ing, Judge Denny Chin noted that the effective life sentence was largely symbolic,
but necessary due to the severe impact that Madoff’s fraud has wrought on his many
victims and the extreme abuses of trust which accumulated over the decades that the
scheme endured (USA v. Madoff 2009d).
At the core of the sprawling, Madoff Investment Scheme was a long-term, com-
plex financial crime based on the principles of a Ponzi scheme. Like the eponymous
con artist, Charles Ponzi (Zuckoff 2006), Madoff used his companies, Bernard L
Madoff Investment Securities (BLMIS) and Madoff Securities International (MSI),
to attract investments in fraudulent feeder funds which his companies managed and
then used new victims’ money to pay returns on prior victims’ accounts (Kirtzman
2010). BLMIS, Madoff’s central business, had begun as a brokerage firm in the
1960s. By the late 1980s, it had become a significant presence in the New York
Stock Exchange. BLMIS also operated an advisory service, which would have been
illegal if it was genuine as Madoff did not register as an investment advisor until
2006 (Hurt 2009). By the late 1990 s, Madoff’s fund was widely known as a suc-
cessful investment advisory service, even though it was never actually a hedge fund.
In 2008, BLMIS had full trading authority over 23 brokerage accounts which had
been opened by feeder funds. Victims were directed by Madoff to invest with these
intermediaries and did not invest directly with BLMIS (Gregoriou and Lhabitant
2009: 6).
One of the most abrasive aspects of the Madoff Investment Scheme was that it
targeted victims from behind a veneer of exclusivity. Opportunities to join were by
invitation only, and Madoff personally vetted prospective clients. Worse still, many
victims were referred to Madoff by other victims (Gregoriou and Lhabitant 2009).
While Madoff’s scheme was structured as a Ponzi, his methods more closely fol-
low those of an affinity fraud (Nolasco et al. 2013), in which members are from
a specific community and which are often perpetrated by members of the targeted
community (Smith 2010; Fairfax 2003). The Madoff Investment Scheme is a nota-
ble case not only due to the scale, duration and value of the Ponzi scheme fraud but
also due to the immense social harm created by Madoff’s personal betrayals of his
victims, including close personal friends, vulnerable people and charitable organisa-
tions (USA v. Madoff 2009c). It is also a peculiar case because, unlike typical Ponzi
schemes which tend to be constrained by a limited supply of investors, Madoff’s
scheme was open-ended (Langevoort 2009). Although Madoff claimed that he ini-
tially believed that his scheme would be a short-term measure, he acknowledged that
the scheme was destined to collapse and that he fully expected to be caught and
prosecuted when it did (USA v. Madoff 2009a; USA v. Madoff 2009b).
When his scheme finally collapsed, Madoff made a deliberate attempt to insu-
late others from his crimes. Throughout the criminal and regulatory investigations,
and during his court proceedings and sentencing, Madoff claimed that he had acted
alone. Subsequent convictions in the Madoff case indicate that at least 14 others were
culpable. These accomplices included: Madoff’s younger brother, who had served as
a director at BLMIS and MSI (USA v. Madoff 2012a; USA v. Madoff 2012b); ten for-
mer BLMIS employees who had completed false trading documents; and facilitators
(Farah 2013), such as David Friehling, who assisted Madoff in filing SEC oversight
paperwork without proper compliance auditing (USA v. Friehling 2009), and David
Kugel, who backdated trades for Madoff accounts (Henriques 2011). How a rela-
tively small network of individuals was able to perpetrate such a large-scale fraud
over as long as 40 years remains a perplexing question. Being both an affinity fraud
and a Ponzi scheme, the Madoff scandal was a complex and sophisticated criminal
enterprise which can provide insight into detecting and reducing opportunities for
investment manager fraud (Dimmock and Gerken 2012) and adopting crime preven-
tion strategies for affinity frauds (Blois and Ryan 2013).
Theoretical foundation: criminal opportunity framework
The criminal opportunity theoretical framework encapsulates rational choice theory

(Cornish and Clarke 1986) and routine activity theory (Cohen and Felson 1979),
situational crime prevention approach (Cohen et al. 1980; Cornish and Clarke 1987)
and CSA (Cornish 1994). The framework focuses on the immediate causes of crime
and situational strategies for preventing it. The criminal opportunity perspective pro-
vides a set of tools to better understand criminal phenomena and to also develop
practical crime prevention strategies.
Rational choice theory
Rooted in economics, rational choice theory is concerned with the decision-making

process. Within the criminal context, rational choice theory suggests that offend-
ers are rational beings who make decisions hoping to achieve the greatest level of
benefit or satisfaction for themselves, given the choices available. It is therefore
72 J. Hardy et al.
expected that offenders would see an opportunity for crime in situations they per-
ceive as being low risk and low effort but high reward (Cornish and Clarke 1986,
2008). Many contemporary mainstream theories and practical approaches to crime
prevention, such as routine activity theory (Cohen and Felson 1979) and situational
crime prevention, are predicated on the assumption of offender rationality.
Routine activity theory
Routine activity theory describes the circumstances that facilitate criminal oppor-
tunities. Cohen and Felson (1979) argue that offenders encounter opportunities in
the course of legitimate routine daily activities (on the way to work, while shop-
ping, etc.) and decide whether to commit crime if the perceived benefits of the act
outweigh the costs/risks. From a routine activity perspective (original formulation),
the opportunity is encountered through a spatio-temporal convergence of motivated
offenders and suitable targets in places where capable controllers are not present
(Cohen and Felson 1979; Felson 1986; Eck 1994). Here, controllers are anyone or
anything discouraging crime (Felson 1995). Controllers—guardians—may deter the
offender by simply being present at the scene of the crime or by active intervention.
Controllers—handlers—usually friends or family and so on—prevent crime by dis-
couraging the offender from committing crime by using their emotional connection,
while controllers—place managers—usually regulatory bodies, law enforcement or
compliance organisations and so on—prevent crime by implementing crime preven-
tion strategies at the places they manage (i.e. place managers) (Felson 1986; Hollis
et al. 2013; Tillyer and Eck 2011; Eck 1994).
Running counter to controllers, criminal facilitators promote crime by assist-
ing the offender and neutralising the prevention efforts of controllers (Clarke 1992,
1997). Facilitators could be anything from physical objects or parts of the physical
environment to chemical compounds and individuals who make crime more likely
(also known as social facilitators). Given the facilitators’ ability to ‘blunt crime pre-
vention’ (Clarke and Eck 2005: 66), understanding how they operate is critical to
counteracting their crime promotion activities. Recognising this, a growing body
of research focuses on examining the effect of facilitators in different contexts, for
example robbery (Gill 2001), drug trafficking (Natarajan et al. 1995), money laun-
dering (Europol 2015) and others.
Situational crime prevention
Situational crime prevention builds on routine activity theory by suggesting that crime
can be prevented by modifying the environment to affect the offender’s perception of
risks/rewards associated with criminal activities (Cornish and Clarke 2003). Specifi-
cally, Cornish and Clarke (1987) argue that it is possible to reduce the likelihood of
crime by changing the environment to: (1) increase risk, (2) increase effort, (3) reduce
rewards, (4) remove excuses and (5) reduce provocations. For example, handlers (e.g.
friends and family) who remind potential offenders of the possible consequences of
their actions effectively discourage crime by negating excuses such as, ‘I did not know
it was illegal to do it’. Cornish and Clarke (1987) suggest that, for a crime preven-
tion strategy to be effective, it must be crime-specific and underpinned by an in-depth
understanding of the crime commission process (see also Cornish and Clarke 1989;
Cornish 1994). To achieve the necessary depth of understanding of the phenomenon,
Cornish recommends that a CSA be undertaken as a first step in developing effective
situational crime prevention strategies.
Crime script analysis
Vakhitova and Bell (2018) noted Crime scripts were originally proposed by Cornish
(1994) as a way of unpacking the crime commission process and identifying the poten-
tial points of intervention for crime prevention. It has been argued that the concept of
crime scripts originated from the cognitive sciences, where they were originally con-
ceptualised as ‘hypothesized knowledge structures, or schemata, considered to organize
our knowledge of people and events’ (Cornish 1994: 157–158). A behavioural script in
the context of the crime commission process is simply a sequence of steps necessary
to commit a specific offence. It includes the actions involved in preparing, executing
and completing the offence. Crime scripts are seeded in the underlying assumption that
behaviour—in this specific case, criminal behaviour—is made routine:
… although each individual offense will have its unique characteristics, any one
class of offending will have sufficient elements in common to allow … [for some]
generalization, and thus facilitate the kind of preventive intervention that might
be applied to the whole class of offending rather than treating each offense as [an]
individual incident. (Hancock and Laycock 2010: 173–174)
To assist in developing crime scripts, Cornish (1994) produced a set of guidelines
around the notion of the universal script—a standardised sequence of the stages of the
crime commission process. The universal script involves preparation, entry, precon-
dition, instrumental precondition, instrumental initiation, instrumental actualisation,
doing, post-condition and exit scenes (Cornish 1994). Working within this procedural
analysis framework, crime scripts have been developed for a range of crimes, includ-
ing the operation of clandestine drug labs (Chiu et al. 2011), public sector corruption
(Rowe et al. 2013), online trading of stolen data (Hutchings and Holt 2014), transna-
tional illegal markets in endangered species (Moreto and Clarke 2014), active shooter
events (Osborne and Capellan 2015), jihadist foreign fighter operations (de Bie et al.
2015) and occupational pharmaceutical counterfeiting schemes (Kennedy et al. 2016)
to name a few. CSA is especially suited to analysing sophisticated fraud offences, such
as complex Ponzi schemes, with their array of supporting activities, individuals and
resources.
74 J. Hardy et al.
Methodology
Data
Clarke and Eck (2005) suggest investigative reports are a good source of infor-
mation regarding criminal systems and processes. As such, in order to under-
stand the complex structure and process underpinning the Madoff Ponzi scheme,
the researchers analysed more than 97 scholarly peer-reviewed articles, 72 sworn
Affidavits, 61 interview transcripts provided by the SEC and 10 New York Dis-
trict Court transcripts relating to the trial and subsequent conviction of Madoff
and nine other co-offenders made available online by the US Department of Jus-
tice and the SEC. All analysed documents are available via open-access online
from the US Department of Justice and scholarly databases. The list of specific
affidavits and interviews referred to in this paper can be found in Appendix A. It
should be noted that the researchers considered the validity of the witness state-
ments contained in documents analysed during the course of this study. While
certain biases are likely inherent in these statements, they have been made under
oath and are to the required evidentiary court standards. Furthermore, state-
ments provided by the witnesses were cross-referenced and corroborated by
other witnesses and evidence. As such, the researchers deemed these documents
to be both valid and reliable to be used as a data source in this research project.
Analytical strategy
The study used thematic analysis (Braun and Clarke 2006), using NVivo version
11 (a software package for qualitative analysis) to examine the procedural ele-
ments of the Madoff Investment Scheme. The purpose of the thematic analysis
was to identify patterns in the data that are relevant to stages of crime com-
mission. The coding was performed by two independent coders, with a kappa
coefficient of inter-rater agreement of 0.8 (Neuendorf 2002), which indicates a
strong level of agreement between the coders. As recommended by Braun and
Clarke (2006), the researchers carefully reviewed the documents, developed and
applied initial data codes, grouped these initial codes into larger themes and
then re-examined the original documents to ensure that the identified themes
adequately represented the data. Finally, guided by Cornish’s (1994) idea of the
universal script, themes most relevant to the main objective (in this case, devel-
oping a crime script) and most representative of the data were selected to form
the basis of the crime script. These themes focused on: the details of the events,
the actions of those involved, their decision-making process, the involvement
of third parties, the involvement of the authorities, the resources necessary for
successful commission of the offence and the situational factors affecting the
decision-making process and third parties involved in the commission of the
offence(s).
Madoff Investment Scheme crime script
The crime script for the Madoff Investment Scheme consists of 12 steps, organ-
ised into three stages. Each of the steps identified in the crime script relates to the
overarching Ponzi scheme which perpetuated the case. While the scheme involved
a broad range of criminal activities, this analysis focuses on the macro-level Ponzi
scheme at the centre of the scandal. There were many contingent offences which
could also be analysed at the micro-level. In particular, there are several micro-level
methods that Madoff and his network of accomplices used in order to avoid due dili-
gence probes, comply with regulatory oversight requirements and escape SEC inves-
tigations relatively unscathed. However, these methods and contributing offences are
at a narrower level of analysis and are outside the scope of this study.
The three stages identified in this crime script are development, misappropria-
tion and continuation (see Fig. 1). The development stage consisted of establishing a
legitimate business, planning the mechanics of the Ponzi and a range of precursory
crimes to facilitate the main components of the investment scheme. The misappro-
priation stage involved screening and meeting with potential victims, including indi-
vidual investors and feeder funds, and culminated in receiving funds from victims.
The continuation stage had multiple purposes. First and foremost, the scheme relied
on false trading documents to deceive both victims and regulatory authorities. It also
leveraged the false earnings of previous victims to build a false sense of prestige
and exclusivity to the scheme, attracting interest from future victims and lowering
potential victims’ suspicion of Madoff’s implausible returns. Finally, the continua-
tion stage relied on new investments in order to pay redemptions to previous victims
and perpetuate the fraud.
Stage 1: Development
The development stage was primarily preparatory. It involved: devising the scheme;
establishing legitimate and fraudulent business structures; creating trading accounts,
which were supplanted by trading records for later victims; and then entering the
market with the offer of fraudulent services.
Step 1: Devise investment scheme (preparation)
Madoff structured his investment scheme so that it looked like he was able to match
the returns of the S&P 500 using a non-existent investment strategy which he called
a ‘split-strike conversion’ (Gregoriou and Lhabitant 2009). Madoff’s strategy pur-
portedly combined a long equity position together with a long put and a short call
(Bernard and Boyle 2009), although specific details were not disclosed to investors
under the pretence that it was proprietary information. It is not clear if Madoff’s
legitimate dealer–broker business existed prior to his intention to create a Ponzi
scheme within his companies. During his sentencing, Madoff claimed that the fraud
had begun in the early 1990s as an emergency measure from which he had never
76 J. Hardy et al.
Fig. 1 Madoff Investment Scheme crime script
been able to extract himself (USA v. Madoff 2009b; Arvedlund 2009: 8). Five years
later, after numerous investigations and prosecutions, it seems that the scheme began
much earlier, either in the 1960s or in the early 1970s (USA v. Bonventre 2013).
Regardless of the specific sequencing of Madoff’s actions, it is almost certain that
any existing businesses would have been restructured out of necessity in order to
accommodate the fraudulent activities which became the centrepiece of Madoff’s
financial empire. Therefore, preparation by planning the mechanics of the invest-
ment scheme preceded creating the necessary business structures to perpetrate the
fraud.
Step 2: Establish business structures (instrumental precondition)
In the late 1960s, Madoff created BLMIS and marketed it as a pure brokerage busi-
ness. Officially, BLMIS executed transactions on behalf of clients—something that
Madoff continued to present as its core business to SEC investigators until at least
2006 (Committee on Financial Services 2009). In the 1980s, BLMIS embraced the
technological revolution that was underway on Wall Street and began executing
trades off the floor of the New York Stock Exchange and using computer systems to
trade faster and more cheaply than most of its competitors (Gregoriou and Lhabitant
2009). Meanwhile, Madoff opened and operated bank accounts with Chase Manhat-
tan Bank, which later became JP Morgan Chase & Co following a merger. Madoff
used these accounts for both legitimate and fraudulent purposes (Seal and Squillari
2009), but it appears that most of the illicit funds were held with JP Morgan Chase
(Davis and Wilson 2011). These business structures were an instrumental precondi-
tion for Madoff to offer trade services to prospective victims.
Step 3: Create trading accounts (instrumental initiation)
Madoff used BLMIS to create false trading accounts and, over time, established
records to monitor and respond to victim inquiries. These trading accounts were
mixed with legitimate business accounts which Madoff used to provide brokerage
services (Gregoriou and Lhabitant 2009), and evidence the instrumental initiation of
Madoff’s fraud. Once the trading accounts were established, Madoff had the capabil-
ity to move investors’ funds into the Ponzi scheme he had devised.
Step 4: Market entry (doing)
By all accounts, one of the Madoff’s earliest victims was his close friend Carl Sha-
piro (Kirtzman 2010). Beginning in the 1960s, Madoff began offering what were
effectively unregistered investment advisor services to a handful of wealthy clients,
many of whom he had personal relationships with. Madoff’s fraud began as a clear
affinity fraud, before it increased in size and relied on reputation more than personal
relationships to lure new victims (Arvedlund 2009). The market entry point is the
‘doing’ step of the initial offences, which involves establishing false instruments in
order to commit fraud and ends the preparatory stage of the crime script. The second
stage involved actualising the fraud by misappropriating funds from victims, while
the third stage creates the financial loop which constitutes a Ponzi-type scheme
(Zuckoff 2006).
Stage 2: Misappropriation
The misappropriation stage involved screening and meeting with potential victims,
culminating in receiving investment funds from victims. This stage demonstrates
how a fraud offence has occurred (Button et al. 2009).
Step 5: Victim screening (instrumental precondition)
For most of the duration of the Madoff Investment Scheme, entry was seemingly
difficult for prospective victims. Many were referred by existing victims and found
that they would be turned away if they asked too many questions or expressed an
interest in conducting appropriate due diligence checks (Oppenheimer 2009: 3).
However, there were also times when Madoff leveraged the perception of exclusiv-
ity that he had cultivated in order to garner interest from very wealthy victims. This
is consistent with other types of fraud offences, which often leverage perceptions
of authority, legitimacy and exclusivity against victims (Button et al. 2014; Shover
et al. 2003). During the 1990s, Madoff reportedly used a network of recruiters and
78 J. Hardy et al.
feeder funds to raise capital (Seal and Squillari 2009). There was also a large intake
of victims after Madoff’s first feeder fund, operated by Avellino and Bienes who had
been unregistered investment advisors, was shut down by the SEC in 1992. Madoff
was quick to voluntarily return investors’ $442 million, claiming that he had not
been aware that Avellino and Bienes were not registered with the SEC (Hurt 2009).
According to Madoff’s secretary, Eleanor Squillari, many of Avellino and Bienes’
clients had not realised that their money had already been managed by Madoff
through the feeder fund arrangement. Nevertheless, many of Avellino and Bienes’
clients demanded to be allowed access to direct investments with Madoff (Seal and
Squillari 2009). Victim screening was an instrumental precondition for allowing a
potential victim to participate in the fraudulent investment scheme, as Madoff was
cautious in his victim selection practices.
Step 6: Victim communication (instrumental initiation)
Madoff often portrayed himself as indifferent to approaches from potential investors

and investment managers, intending to seem unconcerned with taking on more clients
(Oppenheimer 2009). When he met with prospective victims, he pressed them with
subtlety. Madoff outlined the nature of the purported investment scheme, though not
disclosing the true nature of the Ponzi itself, while all the time luring victims with
promises of returns that were significantly higher than the industry average. Madoff
relied on his reputation as a Wall Street giant and former NASDAQ Chairman, using
vague claims that he was not able to disclose details of his fictitious split-strike conver-
sion strategy, which purportedly diversified an investment portfolio to limit losses (Ber-
nard and Boyle 2009), to deflect reasonable questions about how he managed investors’
funds (Hurt 2009). Over time, he used repeated investigations by the SEC as a selling
point. As BLMIS had been repeatedly cleared by regulatory investigations, Madoff was
able to portray the risks to investors as being low and, effectively, independently veri-
fied (Stout 2009). This communication process became the instrumental basis for con-
vincing victims to invest their money in a feeder fund managed by Madoff.
Step 7: Victim recruitment (instrumental actualisation)
Victims were recruited in one of the two ways: either through Madoff directly or
through a feeder fund. Madoff often met his direct victims personally and engendered
trust with the facade of a family-owned business (Oppenheimer 2009: 3). Direct vic-
tims were lured in through trust relationships (Stolowy et al. 2014) created by both
Madoff’s personal connections and professional reputation (Perri and Brody 2012).
These victims included individuals and entire feeder funds, all of whom were caught
in an affinity fraud (Fairfax 2001–2002; van de Bunt 2010) with Madoff at its cen-
tre. Indirect victims had invested in a feeder fund that had assigned trading authority
to BLMIS. Some victims were aware of Madoff’s role in managing their funds, while
others did not find out about Madoff or his involvement in their financial affairs until
after the scandal broke in late 2008 (Kirtzman 2010). The recruitment of new victims
was the instrumental actualisation of Madoff’s initial fraud, convincing individuals and
funds to give him access to and control over their money. This recruitment process led
directly to receiving victims’ funds, which completed the initial fraudulent financial
transaction between Madoff and his victims.
Step 8: Receiving victim funds (doing)
When victims deposited funds into BLMIS accounts with JP Morgan Chase or
accounts managed by Madoff’s feeder funds, the initial fraud was complete. However,
the ‘doing’ component of the first fraud was only a precursor to the ongoing and repeat
victimisation of unaware investors.
Stage 3: Continuation
The continuation stage served three functions. The first function was to conceal the
fraud that had already occurred by fabricating trading account documents. The sec-
ond function was to perpetuate the scheme by using previous victims’ false earnings
to attract new investors. The third function was to use incoming funds to pay returns
to previous investors with new funds. This relationship between the second and third
stages of the crime script constitutes the crucial element of a Ponzi scheme, differenti-
ating it from other types of fraud.
Step 9: Victim payments (doing/post‑condition)
Madoff provided returns and redemptions to earlier investors using the direct
investment of investors who joined the scheme later. Madoff generally used
incoming funds to pay returns, but he also relied on bank loans, transfers between
his legitimate and fraudulent businesses, and sometimes international transfers
of ‘fee payments’ between his businesses to pay out redemptions (Lewis 2016;
Seal and Squillari 2009). For new investors, these payments constituted the
‘doing’ component of the offence because their investment had been misused to
pay returns instead of being genuinely invested as they had believed. For ear-
lier investors receiving payments, this was also a post-condition of the original
offence committed against them because it perpetuated the scheme.
Step 10: Fabricating investment reports (post‑condition/instrumental precondition)
Madoff periodically provided victims with fictitious investment reports that indi-
cated steady and above-average returns on investments. Madoff’s accomplices cre-
ated detailed transaction records and generated official statements in response to
victim enquiries (USA v. DiPascali 2009). For previous victims, this was a post-
condition intended to conceal the fraud. For future victims, this was an instrumen-
tal precondition for Step 6: Victim communication and Step 7: Victim meeting, as
the history of positive investment reports and evidence of investor returns, both of
which increased over time, added significant credibility to the scheme.
80 J. Hardy et al.
Step 11: False trading records (post‑condition)
Madoff and his accomplices prepared and submitted trading account documenta-
tion when requested by the SEC to obfuscate the nature of the Ponzi scheme. This
complied with existing oversight mechanisms and contributed to the longevity of
his scheme. Creating false records served as a post-condition for both initial and
repeat victimisation, allowing the Madoff Investment Scheme to continue unde-
tected for more than 30 years.
Step 12: Collapse (exit)
The impact of the global financial crisis in 2008–2009 had investors all over Wall
Street seeking to liquidate their investments (Crotty 2009). Madoff’s final victim
was Martin Roseman, who deposited $10 million into an account held by BLMIS
with JP Morgan Chase only 5 days before the scheme collapsed (Oppenheimer
2009: 5–6). Madoff’s inability to attract sufficient new investors to meet the $7
billion in redemptions he owed to earlier victims ultimately led to his confes-
sion to his family on 10 December 2008 (Hurt 2009). It is important to note that
regulators, law enforcement and victims were unaware of the extensive crimes
committed by Madoff and his accomplices until December 2008. Even then, they
did not learn the truth through chance or circumstance. The world discovered
Madoff’s crimes at the time of his choosing (Seal and Squillari 2009).
Crime prevention opportunities
Crime prevention refers to a broad range of efforts which are intended to control,
reduce and deter crime. This includes situational crime prevention, which focuses
on reducing opportunities for crime by targeting contributory factors to specific
offences with tailored responses (Clarke 1997). Although it began as a method
of affecting the relationship between offenders and the environments in which
offences occur (Jeffrey 1977; Lab 1992), situational crime prevention soon shifted
focus to target hardening and crime displacement techniques (Wortley 1998). The
focus on a rational choice to engage in crime is not applicable to all crime types,
particularly in the case of emotive or expressive offences (Hayward 2007), but it
is readily applicable to complex or organised crimes which are intending to gen-
erate profit through deception (Liddick 1999; Edwards and Gill 2002). Situational
crime prevention has often been equated with opportunity reduction (Clarke
1997; Clarke and Weisburd 1994) but also includes focused deterrence (Braga
and Weisburd 2011), creating anticipatory benefits (Smith et al. 2002) and con-
trolling situational factors which might pressure, prompt, permit or provoke indi-
viduals to offend (Cornish and Clarke 2003: 46–48; Wortley 2001). Situational
crime prevention strategies are rarely directly applicable to types of white-collar
crimes which rely on interpersonal trust and communication. Nevertheless, situ-
ational crime prevention techniques offer insight into sophisticated fraud cases.
One way of conceptualising fraud offences is to apply a theoretical framework

such as the fraud triangle. Although the fraud triangle is not a sufficient general
theory of white-collar crimes (Donegan and Ganon 2008; Coleman 1987), it is a
useful basis for more specific examination of sophisticated frauds. The fraud tri-
angle consists of three elements: pressure, opportunity and rationalisation (Kas-
sem and Higson 2012). Pressure is used to describe motivating factors which
might induce criminal behaviour (Sykes and Matza 1957). The term pressure
includes the ‘personal pressures’ of greed and lack of discipline, which are fac-
tors which could be more accurately characterised as incentives. The fraud dia-
mond concept, which builds on the fraud triangle, replaces the term ‘pressure’
with ‘incentive’, expanding the scope of offender impetus from a specific to a
general incentive to engage in white-collar crime (Wolfe and Hermanson 2004).
This creates an offender-focused model of fraud which begins with incentives and
rationales for offending, and ends with opportunities to commit offences. How-
ever, as Schuchter and Levi (2013: 112) note, opportunity is a necessary but not
sufficient condition to perpetrate a financial crime. The fraud diamond adds the
element of capability to the triangle, focusing on the necessary traits and abilities
required to perpetrate a fraud offence (Wolfe and Hermanson 2004).
The four elements of the fraud diamond offer a range of different opportunities
for crime prevention. Unfortunately, in the case of white-collar crimes, it is very
difficult to remove incentives (Coleman 1992). Frauds on the scale of the Madoff
Investment Scheme, with the potential to net billions of dollars, will invariably
present a substantial incentive for motivated offenders. Rationalisation is simi-
larly difficult to target in sophisticated financial crimes (Cressey 1950; Shover
and Hochstetler 2006), although crime prevention strategies could focus on ethi-
cal standards and individual behaviours (Bosley and Knorr 2018; Wheeler 1992).
Opportunity and capability offer better prospects for crime prevention, primarily
through opportunity reduction strategies and through regulation of critical skills
and vulnerable roles and relationships (Benson et al. 2009). When applied to
white-collar crimes, situational crime prevention concepts offer opportunities to
increase the effort required and decrease the opportunities to commit a sophisti-
cated fraud (Benson and Madensen 2007).
Opportunity reduction requires targeting the specific opportunity structure for
fraud offences. In both affinity frauds and Ponzi-style investment schemes, the
opportunity structure involves establishing contact with the victim, convincing
the victim that both the offender and their proposition are legitimate, and convinc-
ing the victim to voluntarily give something of value to the offender (Benson and
Madensen 2007: 618–619). As affinity frauds rely on trust (Perri and Brody 2012)
and Ponzi schemes tend to exploit people who lack extensive financial knowledge
(Mugarura 2017), it is important to also target individual networking within affin-
ity communities (Hipp and Perrin 2006; Totterdell et al. 2008). Opportunity reduc-
tion for offenders in trusted positions or sharing group affinity could be informed by
anti-corruption techniques, for example challenging biases about likely offenders,
particularly regarding in-group offending, and promoting awareness of fraud oppor-
tunities within affinity groups and trusted positions (Gorta 1998: 68–69).
82 J. Hardy et al.
Numerous regulation and crime prevention strategies for monitoring and control-
ling the capability to commit fraud offences already exist (Levi 1987; Graycar and
Sidebottom 2012). Examples include requirements for people with specialist skills
or in trusted positions to register with regulatory bodies, regulatory oversight of
financial transactions and controlling access to information or systems which could
be used to facilitate white-collar crime (Benson and Madensen 2007; Bosley and
Knorr 2018). Governments can also require financial services companies to desig-
nate responsibilities for fraud compliance and monitoring to specific individuals or
teams, mandate anti-fraud training and independent whistle-blowing mechanisms
and regulate vetting processes for people in sensitive or trusted positions (Brooks
et al. 2009; Tunley et al. 2018). These controls can be both systemic and localised in
order to target a range of capabilities relevant to fraud prevention (Graycar and Pren-
zler 2013). These existing techniques provide an excellent set of tools with which to
regulate the capabilities required to perpetrate sophisticated fraud offences.
Crime prevention in sophisticated frauds, such as the Madoff Investment Scheme,
could apply the fraud diamond and situational crime approaches to target the oppor-
tunities and capabilities which enable affinity and Ponzi frauds. Criminal opportuni-
ties to engage in large-scale sophisticated frauds rely on communicative access to
potential victims and either trust in affinity-based networks or status in professional
contexts. The most useful steps of the Madoff crime script for targeting criminal
opportunities are Steps 6 and 7, during which an offender must build a personal rap-
port with a victim and convince them to enter into a fraudulent scheme (see Table 1).
Appropriate crime prevention techniques for opportunity reduction include
promoting awareness of fraudulent schemes, increasing access to due diligence
information and services, and assisting victim communities to report suspicious
approaches or offers. The capabilities required—particularly the skills, licences and
permissions—can vary significantly between different fraud offences (Levi 2008:
397–398) but tend to include industry knowledge and financial expertise, which can
only be gained through education and experience (Goldstraw-White 2012). The most
useful stages of the Madoff crime script for targeting capabilities are Steps 9–11,
during which offenders must make return and redemption payments to victims, pro-
vide seemingly legitimate investment reports and submit compliance documents to
regulatory bodies. The crime prevention goal with these techniques is to regulate
capabilities and increase the risk of detection for offenders engaged in white-collar
crimes (Benson and Madensen 2007). This can be achieved by maintaining a regis-
ter for critical skills required to perpetrate sophisticated frauds, mandating vetting
processes for people in sensitive or trusted positions, requiring designated compli-
ance officers within financial services companies, regularly auditing compliance
documents and providing whistle-blowing methods for concerned employees and
victims.
Table 1 Crime prevention techniques for sophisticated trust and affinity frauds
Target Crime script Prevention strategies
Opportunity Step 6: Victim communication Target harden

Challenge potential victims’ biases about likely offenders
Instrumental initiation Promote awareness of fraudulent schemes
Step 7: Victim recruitment
Instrumental actualisation Extend guardianship
Increase access to due diligence information and services
Assist victim communities to report suspicious approaches or offers
A crime script analysis of the Madoff Investment Scheme
Capability Step 9: Victim payment Strengthen formal surveillance

Doing/post-condition Maintain a register for critical skills required to perpetrate sophisticated frauds
Step 10: Fabricating investment reports Regulate vetting processes for people in sensitive or trusted positions
Post-condition/instrumental precondition Mandate designated compliance officers within financial services companies
Step 11: False trading records Regularly audit compliance documents
Post-condition
Assist natural surveillance
Provide confidential whistle-blowing methods for concerned employees and
victims
83
84 J. Hardy et al.
Conclusion
Procedural analysis of the Madoff Investment Scheme demonstrates that the offence
followed a crime script which consisted of 12 macro-level steps which can be organ-
ised in three distinct stages. The scheme began with a development stage, during
which Madoff established both a legitimate business front and a fraudulent invest-
ment business structure to facilitate the financial management of his crimes. The
scheme then entered the misappropriation stage, which actualised the initial fraud by
screening and meeting with victims and then receiving payments. The scheme then
entered a continuation stage which was both recursive and iterative. The continua-
tion stage facilitated the cycle of victimisation required to perpetrate a Ponzi scheme
by providing false records to conceal the offence, fabricating documents to substan-
tiate victim accounts, redistributing misappropriated funds to make victim payments
and luring new victims with a pretence of legitimacy.
This crime script offers insight into potential crime prevention opportunities
which could be useful for both researchers and practitioners. Situational crime pre-
vention in sophisticated frauds, such as the Madoff Investment Scheme, could apply
the fraud diamond and situational crime prevention approaches to target the oppor-
tunities and capabilities which enable affinity and Ponzi frauds. The opportunity to
engage in sophisticated fraud offences could be addressed at Step 6: Victim com-
munication and Step 7: Victim recruitment of the crime script, where target harden-
ing and extending guardianship techniques may be most effective. The capability
to engage in sophisticated fraud offences could be addressed at Step 9: Victim pay-
ment, Step 10: Fabricating investment reports and Step 11: False trading records of
the crime script, where techniques intended to strengthen formal surveillance and
assist natural surveillance may be most effective.
These findings demonstrate opportunities for law enforcement and regulatory
organisations to consider applying several crime prevention strategies at specific
steps of complex fraud offences in order to reduce opportunities and regulate or
monitor the capabilities required to commission sophisticated white-collar crimes.
The modular application of crime script theory that has been presented in this study
could be of further utility to researchers, offering an opportunity to apply CSA
methods to both other cases of white-collar crime and a broader range of complex
criminal offences.
Appendix A: Affidavits
The Office of the Inspector General (OIG) conducted testimony on the record and
under oath of the following individuals:
1. Harry Markopolos, Chartered Financial Analyst and Certified Fraud Examiner,

taken on February 5, 2009, at 9:42 a.m.
2. Alex Sadowski, Assistant General Counsel, Getco LLC, former Branch Chief,
Office of Compliance Inspections and Examinations, Securities and Exchange
Commission, taken on February 13, 2009, at 10:15 a.m.
3. Redacted name of Staff Accountant, Office of Compliance Inspections and
Examinations, Securities and Exchange Commission, taken on February 19,
2009, at 2:20 p.m., referred to as ‘OCIE Staff Accountant’.
4. Mavis Kelly, Branch Chief (now Assistant Director), Office of Compliance
Inspections and Examinations, Securities and Exchange Commission, taken on
February 23, 2009, at 10:35 a.m.
5. Walter Ricciardi, Partner, Paul Weiss Rifkind Wharton & Garrison LLP, former
District Administrator, Boston District Office and former Deputy Director, Divi-
sion of Enforcement, Securities and Exchange Commission, taken on February
26, 2009, at 10:48 a.m.
6. Redacted name of Eric Swanson’s former fiancé, taken on March 2, 2009, at
2:45 p.m., referred to in as ‘Jane Doe’.
7. Jacqueline Wood, Associate, Proskauer Rose LLP, former Staff Attorney Securi-
ties and Exchange Commission, taken on March 9, 2009, at 9:40 a.m., excerpted
portions of which are at Exhibit 7.
8. Redacted name of Assistant Director, Office of Compliance Inspections and
Examinations, Securities and Exchange Commission, taken on March 13, 2009,
at 9:29 a.m., referred to as ‘OCIE Assistant Director’.
9. Gene Gohlke, Associate Director, Office of Compliance Inspections and Exami-
nations, Securities and Exchange Commission, taken on March 16, 2009, at 2:03
p.m.
10. Matthew Daugherty, Branch Chief (now Senior Special Counsel), Office of
Compliance Inspections and Examinations, Securities and Exchange Commis-
sion, taken on March 23, 2009, at 2:06 p.m.
11. Redacted name of Staff Attorney, Office of Compliance Inspections and Exami-
nations (now Staff Attorney, Division of Trading and Markets), Securities and
Exchange Commission, taken on March 25, 2009, at 11:02 a.m., referred to as
‘OCIE Staff Attorney’.
12. Dorothy Eschwie, Assistant Regional Director, New York Regional Office, Secu-
rities and Exchange Commission, taken on March 26, 2009, at 11:50 a.m.
13. Thomas Thanasules, Securities Compliance Examiner (now Staff Accountant),
New York Regional Office, Securities and Exchange Commission, taken on
March 26, 2009, at 1:32 p.m.
14. Michael Kress, Branch Chief, New York Regional Office, Securities and
Exchange Commission, taken on March 26, 2009, at 2:04 p.m.
15. Neil Chelo, Director of Research, Benchmark Plus Management LLC, taken on
March 31, 2009, at 11:45 a.m.
16. Frank Casey, President-USA, Fortune Asset Management, taken on March 31,
2009, at 3:06 p.m.
17. Grant Ward, Senior Counsel, MetLife Group, former Assistant District Admin-
istrator, Boston District Office, Securities and Exchange Commission, taken on
March 31, 2009, at 5:10 p.m.
86 J. Hardy et al.
18. Edward Manion, Staff Accountant, Boston Regional Office, Securities and
Exchange Commission, taken on April 1, 2009, at 1:15 p.m.
19. Michael Garrity, Branch Chief (now Assistant Regional Director), Boston
Regional Office, Securities and Exchange Commission, taken on April 1, 2009,
at 10:30 am and April 2, 2009, at 2:30 p.m.
20. John Dugan, former Branch Chief and Assistant Regional Director, now Associ-
ate Regional Director, Boston Regional Office, Securities and Exchange Com-
mission, taken on April 2, 2009, at 9:25 a.m.
21. Andrew Caverly, former Staff Attorney and Branch Chief (now Assistant
Regional Director, Broker-Dealer Inspection Program, Boston Regional Office,
Securities and Exchange Commission, taken on April 2, 2009, at 1:15 p.m.
22. David Bergers, Assistant District Administrator (now Regional Director), Boston
at 3:12 p.m.
23. Eric Swanson, General Counsel, BATS Trading, former Assistant Director,
Office of Compliance Inspections and Examinations, Securities and Exchange
Commission, taken on April 15, 2009, at 9:25 a.m.
24. Lori Richards, former Director, Office of Compliance Inspections and Examina-
tions, Securities and Exchange Commission, taken on April 17, 2009, at 10:05
a.m.
25. Redacted name former Branch Chief, Office of Investor Education and Advo-
cacy, Securities and Exchange Commission, taken on April 20, 2009, at 2:05
p.m., referred to as ‘former OIEA Branch Chief’.
26. Vance Anthony, Financial Economist, Office of Economic Analysis, Securities
and Exchange Commission, taken on April 21, 2009, at 10:10 a.m.
27. Stewart Mayhew, Assistant Chief Economist (now Deputy Chief Economist),
Office of Economic Analysis, Securities and Exchange Commission, taken on
April 21, 2009, at 12:45 p.m.
28. Jonathan Sokobin, Deputy Chief Economist (now Director, Office of Risk
Assessment), Securities and Exchange Commission, taken on April 22, 2009,
at 3:20 p.m.
29. Mark Donohue, Branch Chief and Assistant Director, Office of Compliance
April 23, 2009, at 10:06 a.m.
30. John McCarthy, General Counsel, Getco LLC, former Staff Attorney, Division
of Market Regulation, and former Associate Director, Office of Compliance
April 27, 2009, at 9:45 a.m.
31. Juan Marcelino, Shareholder, Greenberg Traurig LLP, former Regional Admin-
istrator, Boston Regional Office, Securities and Exchange Commission, taken
on April 27, 2009, at 1:30 p.m.
32. William Dale, former Assistant Chief Economist, Office of Economic Analysis,
Securities and Exchange Commission, taken on April 28, 2009, at 2:43 p.m.
33. George Curtis, Regional Director, Denver Regional Office (now Deputy Direc-
tor, Division of Enforcement), Securities and Exchange Commission, taken on
April 29, 2009, at 4:33 p.m.
34. Leslie Kazon, Assistant Regional Director, Division of Enforcement, New York
at 11:12 a.m.
35. Andrew Calamari, Branch Chief (now Associate Regional Director), Division of
Enforcement, New York Regional Office, Securities and Exchange Commission,
taken on April 30, 2009, at 12:10 p.m.
36. Mark Schonfeld, Litigation Partner, Gibson Dunn & Crutcher, former Senior
Counsel, Boston District Office and former Branch Chief, Assistant Director,
Associate Director and Regional Director, Northeast Regional Office, Securities
and Exchange Commission, taken on April 30, 2009, at 2:55 p.m.
37. Redacted name of Branch Chief, Office of Investor Education and Advocacy,
Securities and Exchange Commission, taken on May 1, 2009, at 2:02 p.m.,
referred to as ‘OIEA Branch Chief’.
38. Tina Barry, Branch Chief (now Assistant Director), Office of Compliance
Inspections & Examinations, Securities and Exchange Commission, taken on
May 1, 2009, at 3:29 p.m.
39. William Ostrow, Senior Compliance Examiner (now Staff Accountant), New
York Regional Office, Securities and Exchange Commission, taken on May 5,
2009, at 9:59 a.m. and August 19, 2009, at 10:08 a.m.
40. John Nee, Assistant Regional Director, New York Regional Office, Securities
and Exchange Commission, taken on May 6, 2009, at 10:50 a.m.
41. Redacted name of Staff Attorney, New York Regional Office, Securities and
Exchange Commission, taken on May 11, 2009, at 11:00 a.m., referred to as
‘New York Staff Attorney’.
42. Redacted name of Senior Attorney, New York Regional Office, Securities and
Exchange Commission, taken on May 11, 2009, at 1:54 p.m., referred to as ‘New
York Staff Attorney’.
43. Israel Friedman, Staff Attorney (now Branch Chief), New York Regional Office,
Securities and Exchange Commission, taken on May 11, 2009, at 12:00 p.m.
44. Alex Vasilescu, Supervisory Trial Counsel and Chief of the Trial Unit, New
2009, at 12:54 p.m.
45. Jason Gettinger, Regional Litigation Counselor, Division of Enforcement, New
2009, at 2:35 p.m.
46. Linda Thomsen, Partner, Davis Polk & Wardwell, former Director, Division of
Enforcement, Securities and Exchange Commission, taken on May 11, 2009, at
2:34 p.m.
47. Redacted name of former Examiner, Office of Compliance Inspections and
Examinations, Securities and Exchange Commission, taken on May 11, 2009,
at 3:19 p.m., referred to as ‘former Examiner #1’.
48. Paul Pocress, Staff Accountant, New York Regional Office, Securities and
Exchange Commission, taken on May 11, 2009, at 3:31 p.m.
49. Redacted name of Staff Accountant (now Branch Chief), Division of Investment
Management, New York Regional Office, Securities and Exchange Commis-
88 J. Hardy et al.
sion, taken on May 11, 2009, at 3:48 p.m., referred to in the ROI as ‘IM Staff
Accountant’.
50. Robert Sollazzo, Associate Regional Director, New York Regional Office, Secu-
rities and Exchange Commission, taken on May 12, 2009, at 10:35 a.m.
51. Peter Lamore, Securities Compliance Examiner (now Staff Accountant), New
2009, at 9:25 a.m. and August 19, 2009, at 10:30 a.m.
52. Stephen Johnson, Staff Accountant (now Branch Chief), Division of Enforce-
ment, New York Regional Office, Securities and Exchange Commission, taken
on May 21, 2009, at 10:38 a.m.
53. Redacted name of Staff Attorney, Division of Enforcement, Securities and
Exchange Commission, taken on May 21, 2009, at 11:00 a.m., referred to as
‘Enforcement Staff Attorney’.
54. Redacted name of former Attorney Advisor, Office of Compliance Inspections
and Examinations, Securities and Exchange Commission, taken on May 21,
2009, at 2:05 p.m., referred to as ‘former OCIE Attorney Advisor’.
55. Simona Suh, Staff Attorney (now Branch Chief), Division of Enforcement, New
2009, at 9:35 a.m.
56. Peter Uhlmann, Chief of Staff to the Chairman (now Senior Advisor, Office of
Executive Director), Securities and Exchange Commission, taken on May 28,
2009, at 10:00 a.m.
57. Doria Bachenheimer, former Assistant Director, Division of Enforcement,
Northeast Regional Office, Securities and Exchange Commission, taken on June
3, 2009, at 12:10 p.m.
58. Meaghan Cheung, former Branch Chief, Division of Enforcement, Northeast
Regional Office, Securities and Exchange Commission, taken on June 4, 2009,
at 10:40 a.m.
59. Redacted name of former Staff Attorney, Division of Enforcement, Northeast
Regional Office, Securities and Exchange Commission, taken on June 10, 2009,
at 1:55 p.m., referred to as ‘former New York Enforcement Staff Attorney #2’.
60. Redacted name of Assistant Regional Director, Division of Enforcement, New
York Regional Office, Securities and Exchange Commission, taken on June 10,
2009, at 4:20 p.m., referred to as ‘Enforcement Assistant Regional Director’.
61. Susan Tibbs, Director, Market Regulation Department, formerly known as
National Association of Securities Dealers (NASD), now known as Financial
Industry Regulatory Authority (FINRA), taken on June 19, 2009, at 3:20 p.m.
62. Christopher Cox, former Chairman, Securities and Exchange Commission, taken
on June 19, 2009, at 3:11 p.m.
63. Jordan Materna, Director, Chicago Board Options Exchange, taken on June 22,
2009, at 2:35 p.m.
64. Gene DeMaio, Senior Vice President, National Association of Securities Deal-
ers, taken on June 25, 2009, at 2:07 p.m.
65. Susan Geigel, Director of Legal and Regulatory Compliance Depository Trust
and Clearing Corporation, taken on June 26, 2009, at 11:30 a.m.
66. Annette Nazareth, former Commissioner, Securities and Exchange Commission,

taken on July 9, 2009, at 10:34 a.m.
67. William Donaldson, Chairman, Donaldson Enterprises, former Chairman, Secu-
rities and Exchange Commission, taken on July 9, 2009, at 11:03 a.m.
68. Redacted name of Office of Internet Enforcement Official, Division of Enforce-
ment, Securities and Exchange Commission, taken on July 30, 2009, at 2:35
p.m., referred to as ‘Office of Internet Enforcement Official’.
69. Redacted name of Senior Counsel, Division of Enforcement, Securities and
Exchange Commission, taken on July, 31. 2009, at 10:04 a.m., referred to in the
ROI as ‘Enforcement Senior Counsel’.
70. Elisse Walter, Commissioner, Securities and Exchange Commission, taken on
August 5, 2009, at 2:33 p.m.
71. Unidentified Former SEC Examiner, New York Regional Office, Securities and
Exchange Commission, taken on August 5, 2009, at 2:55 p.m.
72. Elaine Solomon, former Secretary, Bernard L. Madoff Investment Securities,
LLP, taken on August 17, 2009, at 11:08 a.m.
Appendix B: Office of the inspector general interviews
The OIG also conducted the following interviews of persons:
1. Unidentified Chief Executive Officer (CEO) of Research Firm, unidentified inde-

pendent hedge fund research and advisory firm, conducted on January 6, 2009.
2. Unidentified Investment Bank Due Diligence Team, unidentified investment
bank, conducted on January 6, 2009.
3. Unidentified Chief Executive Officer (CEO), unidentified fund of funds firm,
taken on January 12, 2009, at 11:00 a.m.
4. Michael Ocrant, Journalist, Institutional Investor, former Managing Editor,
MARHedge, taken on January 12, 2009, at 2:00 p.m.
5. James Hedges IV, President and Chief Investment Officer, LJH Global Invest-
ments, conducted on January 22, 2009.
6. Laura Goldman, Investment Advisor, LSG Capital, conducted on January 23,
2009.
7. Ron Egalka, President and CEO, Rampart Investment Management, conducted
on February 9, 2009.
8. Edward Perkins, former Examiner (now Staff Accountant), New York Regional
Office, Securities and Exchange Commission, conducted on February 27, 2009.
9. William Dale, former Assistant Chief Economist, Office of Economic Analysis,
Securities and Exchange Commission, Securities and Exchange Commission,
conducted on February 27, 2009.
10. Thomas Thanasules, Securities Compliance Examiner (now Staff Accountant),
New York Regional Office, Securities and Exchange Commission, conducted
on March 3, 2009.
90 J. Hardy et al.
11. Redacted name of Staff Attorney, Office of Compliance Inspections and Exami-
nations (now Staff Attorney, Division of Trading and Markets), Securities and
Exchange Commission, conducted on March 3, 2009, referred as ‘OCIE Staff
Attorney’.
12. Dawn Libal, Examiner (now Staff Accountant), New York Regional Office,
Securities and Exchange Commission, conducted on March 4, 2009.
13. Harvey Westbrook Jr., former Financial Economist (now Senior Economist),
Office of Risk Assessment, Securities and Exchange Commission, conducted
on March 4, 2009.
14. Redacted name of former Attorney Advisor, Office of Compliance Inspections
and Examinations, Securities and Exchange Commission, conducted on March
4, 2009, referred to as ‘former OCIE Attorney Advisor’.
15. Gregory Stahl, Chartered Financial Analyst, SEI Investments, conducted on
March 6, 2009.
16. James Overdahl, Chief Economist, Office of Economic Analysis, Securities and
Exchange Commission, conducted on March 11, 2009.
17. Paul Broder, Risk Manager, Renaissance Technologies Corporation, conducted
on March 12, 2009.
18. Henry Laufer, Chief Scientist, Renaissance Technologies Corporation, con-
ducted on March 12, 2009.
19. Nathaniel Simons, Portfolio Manager, the Meritage Fund, conducted on March
12, 2009.
20. Joseph Cella, former Chief, Office of Market Surveillance, Division of Enforce-
ment, Securities and Exchange Commission, conducted on March 13, 2009.
21. Redacted name of former Securities Compliance, Chicago Regional Office
(formerly Midwest Regional Office), Securities and Exchange Commission,
conducted on March 17, 2009, referred to as ‘former Securities Compliance
Examiner’.
22. John Ehinger, Chief Compliance Officer and General Counsel for Placemark
Investments, former Staff Attorney, Division of Market Regulation, Securities
and Exchange Commission, conducted on March 17, 2009.
23. Redacted name of Senior Counsel, Division of Enforcement, Securities and
Exchange Commission, conducted on March 20, 2009, referred to as ‘Enforce-
ment Senior Counsel’.
24. Redacted name of Office of Internet Enforcement Official, Division of Enforce-
ment, Securities and Exchange Commission, conducted on March 20, 2009,
referred to as ‘Office of Internet Enforcement Official’.
25. Jim Adelman, General Counsel, Commonwealth Financial Network, for-
mer Associate District Administrator, Boston District Office, Securities and
Exchange Commission, conducted on March 24, 2009, and April 30, 2009.
26. Unidentified Hedge Fund Manager, taken on March 26, 2009.
27. Unidentified Chief Information Officer (CIO), unidentified fund of funds firm,
conducted on April 7, 2009.
28. Silvestre Fontes, Branch Chief (now Senior Trial Counsel), Division of Enforce-
ment, Boston Regional Office, Securities and Exchange Commission, conducted
on April 7, 2009 and April 10, 2009.
29. Grant Ward, Senior Counsel, MetLife Group, former Assistant District Adminis-
trator, Boston District Office, Securities and Exchange Commission, conducted
on April 8, 2009.
30. John Guthery, Vice President, LPL Financial, conducted on April 9, 2009.
31. Harry Markopolos, Chartered Financial Analyst and Certified Fraud Examiner,
conducted on April 13, 2009.
32. Redacted name of Staff Attorney, Division of Enforcement, Securities and
Exchange Commission, conducted on April 13, 2009, referred to as ‘Enforce-
ment Staff Attorney’.
33. Juan Marcelino, Shareholder, Greenberg Traurig LLP, former Regional Admin-
istrator, Boston District Office, Securities and Exchange Commission, conducted
on April 14, 2009.
34. Steve Luparello, Vice Chairman, Financial Industry Regulatory Authority, con-
ducted on April 14, 2009.
35. Michael Garrity, Branch Chief (now Assistant Regional Director), Boston
Regional Office, Securities and Exchange Commission, conducted on April
17, 2009.
36. Jim Fanslau, Criminal Investigator, Division of Enforcement, Securities and
Exchange Commission, conducted on April 17, 2009.
37. Sonam Varghese, Branch Chief, Office of Compliance Inspections and Examina-
tions, New York Regional Office, Securities and Exchange Commission, con-
38. Sheryl Marcus, Staff Accountant, Office of Compliance Inspections and Exami-
nations, New York Regional Office, Securities and Exchange Commission, con-
39. David Marder, Partner, Robbins Kaplan Miller & Ciresi LLP, former Assistant
District Administrator, Boston District Office, Securities and Exchange Com-
mission, conducted on April 30, 2009.
40. Azam Riaz, Staff Accountant, New York Regional Office, Securities and
Exchange Commission, conducted on May 4, 2009.
41. Redacted name of former Assistant Regional Administrator, New York Regional
Office, Securities and Exchange Commission, conducted on May 5, 2009,
referred to as ‘former Assistant Regional Administrator’.
42. Redacted name of former Assistant Regional Director, Division of Enforcement,
New York Regional Office, Securities and Exchange Commission, conducted
on May 6, 2009, referred to in the ROI as ‘former Assistant Regional Director’.
43. Richard Walker, General Counsel, Deutsche Bank, former Regional Director of
the New York Regional Office, conducted on May 8, 2009.
44. Redacted name of former Staff Attorney, Division of Enforcement, New York
Regional Office, Securities and Exchange Commission, conducted on May 18,
2009 and June 26, 2009, referred to in the ROI as ‘former New York Enforce-
ment Staff Attorney’.
45. Edwin Nordlinger, former Deputy Regional Administrator, Division of Enforce-
ment, Northeast Regional Office, Securities and Exchange Commission, con-
ducted on May 19, 2009.
92 J. Hardy et al.
46. Redacted name of former Examiner, Securities and Exchange Commission,

conducted on May 27, 2009, at 6:27 p.m., referred to in the ROI as ‘former
Examiner #2’.
47. John Gentile, Partner, Ascendant Compliance, former Branch Chief, Division
of Market Regulation, Securities and Exchange Commission, taken on June 10,
2009, at 11:20 a.m.
48. Demetrios Vasilakis, Chief Compliance Officer, Atticus Capital LLC, former
Compliance Examiner and Branch Chief, Northeast Regional Office, Securi-
ties and Exchange Commission, conducted on June 10, 2009, at 12:10 p.m. and
August 17, 2009.
49. Lee Richards, Partner, Richards Kibbe & Orbe LLP, taken on June 10, 2009.
50. Bernard L. Madoff, former Chairman, Bernard L. Madoff Investment Securities
LLP, conducted on June 17, 2009.
51. Arthur Levitt, former Chairman, Securities and Exchange Commission, taken
on June 22, 2009.
52. Brian Snively, Branch Chief, Office of Compliance Inspection and Examina-
tions, Securities and Exchange Commission, taken on July, 23, 2009, at 10:35
a.m.
53. Unidentified former girlfriend of Eric Swanson, conducted on August 4, 2009.
54. Kelly Bowers, Senior Assistant Regional Director, Division of Enforcement,
Securities and Exchange Commission, conducted on August 5, 2009.
55. Victoria Levin, Branch Chief, Division of Enforcement, Securities and Exchange
Commission, conducted on August 5, 2009.
56. Annette Nazareth, former Commissioner, Securities and Exchange Commission,
conducted on August 6, 2009.
57. Redacted name of former Staff Attorney, Division of Enforcement, Securities
and Exchange Commission, conducted on August 7, 2009, referred to as ‘former
Enforcement Staff Attorney’.
58. Clifford Hyatt, former Deputy Assistant Regional Director, Division of Enforce-
ment, Securities and Exchange Commission, conducted on August 7, 2009 and
August 12, 2009.
59. Redacted name of Examiner, New York Regional Office, Securities and
Exchange Commission, conducted on August 12, 2009, referred to in the ROI
as ‘New York Examiner’.
60. Redacted name of Senior Counsel, Office of Investor Education and Advocacy,
Securities and Exchange Commission, conducted on August 13, 2009, referred
to as ‘OIEA Senior Counsel’.
61. Kenneth Liebl, Securities Compliance Examiner (now Branch Chief), New York
Regional Office, Securities and Exchange Commission, conducted on August
17, 2009.
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Crime Prevention and Community Safety (2020) 22:68–97

A crime script analysis of the Madoff Investment Scheme

John Hardy1 · Peter Bell2 · Douglas Allan3

Published online: 6 August 2019

Keywords Crime script analysis · Financial crime · Fraud · Madoff · Situational

Few white-collar crimes have demonstrated the longevity, sophistication, finan-

Finally, the study derives opportunities to apply crime prevention strategies to

The Madoff Investment Scheme

On a Thursday morning in March 2009, Bernard Lawrence Madoff entered a plea

Theoretical foundation: criminal opportunity framework

The criminal opportunity theoretical framework encapsulates rational choice theory

Rational choice theory

Rooted in economics, rational choice theory is concerned with the decision-making

Routine activity theory

Situational crime prevention

Crime script analysis

Madoff Investment Scheme crime script

Step 1: Devise investment scheme (preparation)

Fig. 1 Madoff Investment Scheme crime script

Step 2: Establish business structures (instrumental precondition)

Step 3: Create trading accounts (instrumental initiation)

Step 4: Market entry (doing)

Step 5: Victim screening (instrumental precondition)

Step 6: Victim communication (instrumental initiation)

Madoff often portrayed himself as indifferent to approaches from potential investors

Step 7: Victim recruitment (instrumental actualisation)

Step 8: Receiving victim funds (doing)

Step 9: Victim payments (doing/post‑condition)

Step 10: Fabricating investment reports (post‑condition/instrumental precondition)

Step 11: False trading records (post‑condition)

Step 12: Collapse (exit)

Crime prevention opportunities

One way of conceptualising fraud offences is to apply a theoretical framework

Opportunity Step 6: Victim communication Target harden

Capability Step 9: Victim payment Strengthen formal surveillance

1. Harry Markopolos, Chartered Financial Analyst and Certified Fraud Examiner,

66. Annette Nazareth, former Commissioner, Securities and Exchange Commission,

Appendix B: Office of the inspector general interviews

The OIG also conducted the following interviews of persons:

1. Unidentified Chief Executive Officer (CEO) of Research Firm, unidentified inde-

46. Redacted name of former Examiner, Securities and Exchange Commission,

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Fig. 1 Madoff Investment Scheme crime script