Ignorance at Risk: Interaction at the Knowledge Boundary of Bernard Madoff's Ponzi Scheme

• In Event: 470 - Regular Session. Social Action and Epistemics

Abstract

Most long-lived organizational deceptions, such as those perpetuated by governments and corporations and Mafia families, can only be pulled off with the cooperation of outsiders who either do not know the secret or who deliberately limit their knowledge so as to maintain plausible deniability. The interaction of such people with insiders—those who are fully "in the know"—can be a tricky affair, yet its careful management is essential to the survival of the deception. In this article I analyze a phone conversation between Ponzi schemer Bernard Madoff and executives at Fairfield Greenwich, the investment firm that funneled him the most money. Occasioned by a planned SEC investigation into Madoff's operation, Madoff sought, in the call, to "normalize" the executives' ignorance of how he made such lucrative returns, by pressing them to affirm that their hands-off approach to his operation was entirely typical for how they did business. Because Madoff did not actually possess knowledge of their dealings with other external funds, this was an act of epistemic presumption, but one that the Fairfield executives neither wished to support nor challenge, the "preference for agreement" notwithstanding. This demonstrates the difficulty of scripting behavior for those not strictly "on the team," including behavior essential to keeping secrets and perpetuating lies.

Author

• David R. Gibson, University of Notre Dame