• Bernie Madoff was convicted in the largest Ponzi scheme in history 10 years ago.
  • According to researchers at Cornell University, the aftershock of Madoff’s crimes caused $363 billion in withdrawals from investment funds unrelated to him.
  • Many people who pulled their money suspected that their advisers were also fraudulent.

Bernie Madoff’s first conviction for financial crimes a decade ago rattled the financial-services industry.

Researchers at Cornell University set out to quantify just how much of an impact the largest Ponzi scheme in history had on the industry. Last year, they found that people who knew victims of Madoff’s fraud or lived in areas where they were concentrated pulled $363 billion from investment funds.

“The withdrawals were so hefty in some areas that some investment firms ended up shutting their doors and going out of business,” said Scott Yonker, an assistant professor at Cornell and co-author of the report, in a statement.

Madoff, 80, was sentenced in 2009 to 150 years in prison for an elaborate scheme that involved falsifying his firm’s returns and clients’ account statements. He is incarcerated in Butner, North Carolina.

The withdrawals boiled down to trust, and whether clients were suspicious that their investment advisors were also fraudulent. The study found that firms with clients in areas most affected by Madoff's scheme were 40% more likely to close shop than those in a control group.

The researchers used court documents to identify over 10,000 victims who lived mostly in parts of California and Miami. They found that the loss of trust spread through the social networks of people who Madoff's scheme targeted, notably elderly and wealthy Jews.

"Advisers who provided services that can build trust, such as financial planning advice, experienced fewer withdrawals," the study said. "Taken together, our results show that trust plays a critical role in the financial intermediation industry."

Most of the money withdrawn had been deposited with less risky custodians including banks, the study, published in The Review of Financial Studies, showed.

Irving Picard, the trustee who is recovering funds for Madoff's victims, has recovered $13.3 billion of the $17.5 billion investors orginally entrusted to Madoff, Yahoo Finance reported.