If you haven’t noticed, Bernie Madoff’s secutities fraud operated not just as a Ponzi scheme but as a pyramid scheme as well. It seems that several of those who helped draw money into Madoff’s scheme collected money for bringing in the investors. Whether they were operating an illegal securities firm, like Frank Avellino and Michael Bienes, or a fund of funds, like Fairfield Greenwich, they enriched themselves by enrolling others in Madoff’s scheme. Having your profit derived from recruiting other people into the scheme is the basic element of a pyramid scheme.
It was, in some sense, the investment version of something like a multi-level marketing company. And its pitch was very similar to those of the multilevel marketing types. MLM programs are pitched by those people who preach that you’ll get rich off of selling a product and recruiting others to sell a product. You’ve probably seen the “get rich quick” promotional videos. But you may not have noticed how close of a family resemblence the pitches of the the MLM programs bear to how Madoff raised money.
Take a look at this video about the MLM technique called the “Cash Flow Recruiting Machine.” In it, a woman named Diane Hochman describes how she built a “network marketing company” selling diet products. The coy refusal to chase down customers and recruits, making them believe that they have found their way into something special rather than being recruited into a marketing scheme, could have been designed by Madoff himself. “I don’t call anyone,” Hochman says. “I make them call me.”
Oh, one other thing about this Hochman woman. She may be related to Madoff. Madoff’s father in law, Saul Alpern, had five surviving grand children according to a paid obituary notice in the New York Times from 1999. One of them was a woman named “Diane Hochman.” Is the woman from the video who practices Madoff like sales techniques the same person as the granddaughter. We haven’t been able to confirm this yet. But we strongly suspect they are the same person. She even looks a bit like Ruth Madoff.