Madoff Judged Using the Stewart Standard

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June 30, 2009
Copyright 2009 Tony Lima.  All Rights Reserved.

Bernard Madoff has now received his punishment: 150 years in prison.  But is this punishment proportional to his misdeeds?  For an answer we turned to the standard established in U.S. v Stewart[1].  Martha Stewart served five months in jail for avoiding stock market losses (ImClone, to be specific) if $51,000.  Are the sentences proportional?

For an answer we turned to our old friend Microsoft Excel 2003®.  Mr. Excel revealed that one year of Mr. Madoff’s sentence was worth $100,000,000.  Yes, that’s right. $100 million per year.  By contrast Ms. Stewart’s sentence netted a paltry $122,400 per year.

But wait – that’s not revenue per year, it’s the amount others lost[2].  Thus we are measuring the amount of losses imposed on others per year of time served.  Mr. Madoff is easily the champion[3].

Let’s look at this another way.  How many years did each of the guilty parties serve per dollar of fraud.  This is, of course, simply the reciprocal of the numbers in the previous paragraph.  Mr. Madoff served 0.00000001 years for every dollar of investor losses.  Ms. Stewart did 0.0000081699 years per dollar.  For comparison purposes, let’s remove the first five zeroes to the right of each decimal point.  Ms. Stewart is now at 0.81699 while Mr. Madoff stands at 0.001.  In other words, Ms. Stewart served about 816 times as many years per dollar of fraud compared to Mr. Madoff.

Using the Stewart sentencing standard what is the appropriate sentence for Mr. Madoff?  Again, we turn to our friend Mr. Excel®. If sentencing was proportional to losses suffered,[4] the appropriate sentence for Mr. Madoff would have been 122,549.02 years.  The lone remaining issue is how we go about expressing such a number.

For that we turn to the ancient Mayans.[5] In their calendar one calubtun was about 158,000 years.[6] Thus Mr. Madoff should have received a sentence of about ¾ of a calubtun.

What does it all mean?  If you’re planning to steal money, go for the big filch.  If you’re going to tell a lie, make it a whopper.  But we also suggest that perhaps exposing the judiciary to some elementary algebra (not to mention Mr. Excel®) would be a good thing.

[1] US v. STEWART, 03Cr.717(MGC). (SDNY 04/11/2005)

[2] Yes, we realize that the issue of exactly who lost how much in the Stewart case is open to debate.  We simply don’t want to debate that right now.

[3] Feel free to substitute any word of your choice for “champion.”

[4] Yes, we know.  See footnote 2 above.

[5] Thanks to Thomas S. Laxar for suggesting this line of inquiry.

[6]   Accessed June 30, 2009.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.

2 Replies to “Madoff Judged Using the Stewart Standard”

  1. Touc

    This is an awesome article.

    This mirrors the point that I’ve made about the Public Company Accounting Oversight Board (PCAOB). In its role as the “regulator” of auditing firms, the PCAOB fined Deloitte and Touche $1 million for “not recognizing” $59 million on the balance sheet of Ligand Pharmaceutical.

    The restatement of earnings that followed resulted in a loss of $1.9 billion in market capitalization. The total lose ($2 billion) equaled 0.0005% of the losses incurred. In esssence, Deloitte paid a fee to be allowed to misstate the financial report of Ligand Pharmaceutical.

    At the time of the ” fine” against Deloitte, Ligand’s stock was $5.00 after the restatement of the financial report. Currently, Ligand is now priced at $1.73. This means that the total loss (market cap plus the misstated amount exceeds the $2 billion amount.

    My article on the PCAOB is located here:

    PCAOB Release No.105-2007-005


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