How Ponzi mastermind Bernie Madoff enabled the US retail trading boom

Bernard L. Madoff ran the world’s largest Ponzi scheme. He was also a key pioneer of the business model that helps underpin “commission-free” stock brokerage for everyday traders. In some respects, Madoff is the godfather of today’s retail trading boom.

Madoff ran his investment fraud from the 17th floor of Manhattan’s Lipstick Building at 885 Third Avenue. Two floors up, he and his family had a separate trading operation that burnished his credentials on Wall Street. The trading division of Bernard L. Madoff Investment Securities was auctioned off  after the Ponzi scheme unraveled in 2008, and the money was used to compensate victims. This is the story of that trading operation, which was seen as a respected trailblazer on Wall Street, and is based on interviews with people in the industry during Madoff’s day, as well as books and articles about the events.

Madoff’s firm was an important advocate of payment for order flow (PFOF), which has become a critical money maker for brokerages like Robinhood and Charles Schwab (Schwab was an early Madoff customer). Brokerages get paid for their customers’ orders from market makers—contemporary versions of what Madoff’s trading company was.