MADOFF MAY HAVE CHEATED BEFORE HE SWINDLED

BERNIE Madoff was a cheat before he became a crook.

The now infamous alleged perpetrator of a $50 billion Ponzi scheme apparently honed his skills by using his position as head of the little-known Cincinnati Stock Exchange to cheat traders who were doing business on the much-bigger NYSE.

Two former seat holders on the New York Stock Exchange asked me to get this story out: Madoff would use his position on the Cincy - and perhaps even later with Nasdaq - to get advanced warnings of trades that were about to be executed on the NYSE.

Then Madoff would put in his own order on the Cincinnati exchange as a principle "below the bid side on the NYSE or above the offer side."

"He'd immediately turn around and sell the stock he just traded on the Cincy exchange for an automatic profit in New York," says one source, who had the misfortune of getting stung numerous times by Madoff.

When traders in New York complained, Madoff or his goons would claim that they had done their trades first and that the profit was legitimate.

In essence, the seat holders allege, Madoff was front running trades that were being handled in New York - meaning that he knew ahead of time that his orders would be profitable because he could see what was about to happen on the bigger exchange.

"He was a cheater," said one of the sources, who said nobody ever won a complaint they filed against Madoff because of his status at the Cincy, which became the first all-electronic trading system in the country.

The high-tech nature of Madoff's exchange, the seat holders say, is precisely what gave Madoff the ability to cheat.

"Every day there would be 20 complaints. Nobody ever did anything about it," my source says. Things changed for Madoff in 2000 when the NYSE started trading stocks in pennies instead of fractions. Then, my sources claim, Madoff couldn't squeeze his bogus trades in between the ones being legitimately executed on the NYSE.

With his opportunities to cheat his competitors reduced, the NYSE traders surmise that Madoff needed a new business model, which he stole from an early 20th Century guy named Charles Ponzi - the originator of the modern-day pyramid scheme.

Authorities are still trying to figure out how Madoff pulled off what seems to be the biggest con in history.