Madoff May Make the Crazy Bernie Defense

In what could be the worst legal strategy since George Bluth faked a heart attack, New York Daily News gossips Rush & Molloy report hedge fund hustler Bernie Madoff is considering an insanity defense.

Their source ("a Madoff acquaintance"), says the money manager — accused of making $50 billion vanish in a Ponzi scheme — may claim that "somewhere along the line, he had a mental break," or "he has a multiple personality disorder." A psychiatrist hypothesizes that a Bad Bernie-Good Bernie defense could involve claims that Madoff committed his frauds in periods of euphoria but couldn't figure out ways to fix them when he came back to his senses.

The biggest problem with this defense? The sheer length of time Madoff kept his scheme running. A rival trader, Harry Markopolos, alerted the SEC as early as 2000 that Madoff appeared to be running a Ponzi scheme.

And a writer for Barron's, Erin E. Arvedlund, wrote a skeptical article about Madoff's purported investment returns in May 2001. She even got Madoff on record to explain his too-good-to-be-true hedge fund performance: "It's a proprietary strategy, I can't go into detail."

By their nature, Ponzi schemes — which use new investors to pay off older ones — are short lived because money eventually runs out. The pyramid scheme that Charles Ponzi ran in 1920 lasted just nine months. That Madoff was able to keep his running for nearly a decade — or longer — suggests that he was anything but crazy.