“I really think very highly of him, people make mistakes,” wrote a Madoff confidant and NYSE broker. At a party over the weekend I met a nice girl from Boston University, and I forgot to ask for her number when I left. THAT was a mistake.
Bernard Madoff, former chairmain of the board at the NASDAQ stock exchange stealing $50 billion through a Ponzi scheme is no mistake. The losses stem from a deliberate and deceitful crime of a magnitude only rivaled by Ken Lay and his chefs that cooked Enron’s books in 2001. The day before his arrest, Madoff told his sons that his investment firm “is all just one big lie.” And with great deciet, comes a captivating storyline including big name victims, a surfacing video of Madoff claiming an “impenetrable regulatory system”, a decieving investment strategy, and another SEC failure.
Mr. Madoff initially used his Wall Street reputation as a former chairmain of the NASDAQ board to recruit early investors at the finest country clubs around the country. He then created fictional returns that attracted more investors….investors who would eventually tell their friends, “I’ve got my money invested with Madoff and he’s doing really well. You can’t get in unless you’re invited…but I can probably get you in.”
Whenever a firm or individual requested money, Madoff would pay them with principal from other investors. Even though Madoff claimed gains throughout this 2008 financial crisis, many of his clients asked to withdraw their stock investments, until the withdrawls got overwhelming and he wasn’t getting new investors to furnish the old.
Among the big names with considerable investments in Madoff Securities were international banks, hedge funds, and wealthy private investors; some of whom invested 50-95% of their assets. New York Mets owner Fred Wilpon invested tens of millions of dollars of both his and the Mets organization’s money with Madoff. Other notables include Steven Spielberg’s charity, real estate magnate Mort Zuckerman, the Elie Wiesel Foundation for Humanity (Why couldn’t Madoff just say no to charities? Does he have no heart?) and Norman Braman, the former owner of the Philadelphia Eagles. Investment firms taking the biggest losses include Spain’s Gruopo Santander, France’s BNP Paribas, and Fairfield Greenwich Advisors.
Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff’s clients. “Every big divorce that came through my office had portfolio positions with Madoff,” he says.
Two of his investors said that among his clients, Mr. Madoff was considered a money-management legend; they would joke that if Mr. Madoff was a fraud, he’d take down half the world with him.
– WSJ.com: Fund Fraud Hits Big Names, December 13, 2008
Mr. Madoff’s words to his sons “it’s all just one big lie,” is definitely not an understatement..
Older, Jewish investors called Mr. Madoff ” ‘the Jewish bond,’ ” says Ken Phillips, head of a Boulder, Colo., investment firm. “It paid 8% to 12%, every year, no matter what.” Mr. Madoff explained his smooth returns by claiming that he bought baskets of stocks, and in case the market crashed he placed put-options. Hedging with options is a pretty damn common practice, but it never delivers small gains for dozens of consecutive quarters of changing market environments the way Madoff’s fund did.
“He was a low-key guy,” said Ms. Manzke of Maxam Capital Management, “he would say, ‘Look, I’m a market-maker, and I don’t want anyone to know I’m running money.’ It was always for select people. He was always closed, he wasn’t taking new money.”
I’m going to go on a limb and assume that no one at the SEC has heard of Frankie Valli or his hit lyrics, “you’re just too good to be true, can’t take my eyes off of you.” Clearly Madoff’s 1% monthly gains every month should have set off flags – either he was cheating the market or he was cheating his clients.
“Madoff Securities is the world’s largest Ponzi Scheme,” Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.” Markopolos was one of many members of the investment community baffled by Madoff’s returns, see: “Madoff tops charts, skeptics ask how” from a 2001 hedge fund magazine.
The SEC investigated Madoff Securities when they last filed in 2006 and the commission didn’t find any reason to further their investigation.
I thought the SEC was asleep at the wheel when it missed a decade of banks overleveraging and designing fantasy CDOs, but I’m getting the feeling they’ve been wide awake, just inept.
I need your help, I can’t remember the phrase… something about “good” and “true”? No one beats the stock market, not even Madoff the “market maker.” For every trade their is a buyer and a seller; both of whom might be the most “sophisticated” of investors, but only one will have made the right decision a year from now. Thousands of speculative investors may be early buyers into the next hot industry, but its doubtful they will be correct for years in a row. There is no game if someone always wins.