NEW YORK (CNNMoney.com) -- Bernard Madoff, mastermind behind the
largest and most sweeping Ponzi scheme ever, on Monday faces the
possibility of spending the rest of his natural life in prison.
Madoff is scheduled to appear in U.S. District Court in Manhattan
before Judge Denny Chin, who could sentence him to as many as 150
years in federal prison.
That is the maximum sentence that federal prosecutors requested for
Madoff, who confessed on March 12 to running a Ponzi scheme that stole
billions of dollars from thousands of victims. Madoff orchestrated the
scam by masquerading his investment firm as a legitimate business. But
in reality, Bernard L. Madoff Securities, which he founded in 1960,
was nothing more than a front for the elaborate scam.
In a Ponzi scheme, the scammer uses fresh money from unsuspecting
investors to make payments to more mature investors, creating the
false appearance of legitimate returns. In Madoff's case, he sent
statements to victims claiming that their investments had grown
several times over, but in actuality he had stolen, not invested,
their money.
Investigators said that Madoff maintained an aura of exclusivity,
while his alleged accomplices courted new investors because they
needed a constant influx of fresh funds. Investigators believe that
Madoff had been running his scam since at least the 1980s until he
finally ran out of money in December 2008, when he admitted the fraud
to family members.
Sentence: 150 years, or 12?
Madoff, age 71, pleaded guilty to 11 criminal counts, including fraud,
money laundering, perjury, false filing with the Securities and
Exchange Commission, and other crimes. Prosecutors with the U.S.
Attorney's office in New York requested the maximum sentence of 150
years, based on the number of victims, the amount of money he stole
and the extent of the damage he caused.
0:00 /4:18Inside Bernie's house of cards
Many of his victims were wiped out financially by the scam and they
have sent letters to the judge requesting a life sentence.
But Madoff's lawyer Ira Lee Sorkin requested a 12-year sentence.
Sorkin explained, in his letter to the judge, that his septuagenarian
client isn't likely to outlive the sentence by more than a year.
"Mr. Madoff is currently 71 years old and has an approximate life
expectancy of 13 years," wrote Sorkin. "A prison term of 12 years --
just short of an effective life sentence -- will sufficiently address
the goals of deterrence, protecting the public and promoting respect
for the law."
In his letter, Sorkin described Madoff as "non-violent," noted his
"voluntary surrender" to authorities and complained about the "desire
for a type of mob vengeance" in the victims' impact letters.
Compensating the victims
Thus far, federal investigators have identified 1,341 investors in
Madoff's firm, with losses exceeding $13 billion. They're still
tallying the damage.
A group of victims sent the judge a 141-page collection of letters
detailing the extent of damage that Madoff had inflicted on them. Many
of the victims said they had banked their life savings with Madoff's
firm and they were ruined as a result of his scam.
Eleven of the letter-writers requested, and were granted, the right to
speak in court on Monday.
There are two ways for victims to get compensated, or at least
partially compensated, for their losses: through seized assets and
through the Securities Investor Protection Corporation, an
organization that shields investors in brokerage firms.
Madoff's wife Ruth is still living in their $7 million apartment in
Manhattan. But many of their other assets have been seized, including
a home in Palm Beach, Fla., an $800,000 yacht named The Bull, and a
legitimate investment firm that Madoff kept separate from the scheme.
The value of these and other assets will eventually be used to
compensate victims, based on how much they invested in Madoff's firm.
Also, SIPC will pay up to $500,000 for any eligible claimant who lost
money to Madoff, based on how much they put in. This coverage comes
from dues paid by brokerage firms.
Some victims are unhappy with this system. Joe Stewart of Las Vegas
explained, in a written statement to CNNMoney.com, that as an indirect
investor he is not covered by SIPC. Another victim, Dana Foy of Jemez,
N.M., complained that SIPC will only compensate him for the $150,000
he invested in the firm, not the $600,000 that the firm told him his
investments were worth.
"In any other Ponzi scheme, the rule is [that] cash in, minus the cash
[that the investor took] out, is going to be the value of your claim,"
said SIPC Chief Executive Steve Harbeck to CNNMoney.com.
Harbeck said that indirect investors who unknowingly gave their money
to Madoff through a separate firm aren't necessarily barred from
compensation, depending on their particular case. "There are very few
things in law that are black and white," he said.
Harbeck said that victims have until July 2 to file a claim with U.S.
Bankruptcy Court in New York.
Madoff's next home
For three months since his December arrest, Madoff managed to avoid
jail by posting $10 million worth of bail. He spent the time under
house arrest, ensconced in his Manhattan apartment.
But since his confession in March, he has been incarcerated in the
Metropolitan Correctional Center in lower Manhattan, a holding
facility for convicts awaiting sentencing. This has given him a taste
of life behind bars.
Once he is sentenced, he will probably be transferred to a medium-
security federal prison, according to prison consultants. Madoff's
status as a non-violent offender should keep him out of maximum-
security, consultants said. But they added that the massive scale of
his crimes and his hefty sentence would make him ineligible for a low-
security prison or a minimum-security prison camp, which inmates
usually prefer because of safety, fewer restrictions and better
quality of life.
In a medium-security prison, he would live in a cell, separated from
the outer world by double layers of razor wire fencing with electronic
detection systems, according to the Federal Bureau of Prisons. He
would have to work a menial job, possibly in a kitchen or laundry
room, for 12 to 40 cents an hour.
The BOP will have the final say as to where Madoff will serve his
sentence. BOP spokeswoman Felicia Ponce said they try to place inmates
within 500 miles of their families.
Keeping that in mind, Alan Ellis, attorney and author of the "Federal
Prison Guidebook," believes that Madoff will probably get sent to
Federal Correctional Institute Otisville or FCI Ray Brook, both in
upstate New York, FCI Fairton in New Jersey or FCI McKean in
Pennsylvania.
Madoff will have to learn how to survive in the medium-security
environment, where there are many violent offenders, according to
prison consultants.
"There will be people who think that Bernie can give them stock tips,
but I don't see anyone being his big pal," said Larry Levine, founder
of Wall Street Prison Consultants who served 10 years for his ties to
organized crime. "I believe he'll be treated like an outcast."
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Day of reckoning comes for Madoff 
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