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Bernard Madoff, some questions
How do you pull off a $50 billion ponzi scheme, as the Securities and Exchange Commission alleges? How do you do it with no one seemingly knowing it's going on? Here are my questions:
-Who were Bernard Madoff's clients?
He was running a hedge fund, correct? So his clients should have been deemed to be qualified investors, which, by the SECdefinition, means someone who has a net worth of $1 million or at least annual income of $200,000. The notion of "qualified" is that this person is sophisticated about investments and understands risks. Why then are we hearing from investors who said they didn't understand what they were getting in to?
-Who could understand his statements?
It took The Wall Street Journal about a day to figure out that he couldn't possibly have transacted the volume of options trading that he said he did. So what was on his statements and did anyone ever call up and ask for an explanation?
Steve Pomeranz, a Boca Raton certified financial planner, told me he reviewed Madoff's statements and couldn't make sense of how he could do what he claimed to do.
Why, then, did anyone believe the statements were true? Does complicated equal smart, sophisticated, trustworthy? Not in my book.
-Why were people silent?
Because they were making money. Until now. They thought they had the smartest money manager ever, the one who knew more than anyone else. The one who had the secret to making money when markets were only losing money. It's a fiction. It continues because of secrecy.
It all has an air of a quiet, secretive club where it worked until it didn't.
It does not sound like the kind of investing that an ordinary working schlub does, going down to the broker or telling his employer to put his 401(k) savings into a mutual fund.
Oh yeah, and this one,
Where were the regulators?
No answers there
Harriet Johnson Brackey, the personal finance writer for the Sun-Sentinel, has been an award-winning business...
Comments
Im no expert, but I know someone who lost millions...
Madoff himself was seen as reputable, with stellar personal credentials; a pillar of wall street. Many private casual investors woudnt know about Wall Street Journal reports or what Madoff's books said. They know Madoff, his stellar (and 40+ year) reputation, and would figure that he would be legit.
Posted by: Jason Weaver | December 16, 2008 12:48 PM
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Alena
http://www.smallbusinessavenues.com
Posted by: Alena | December 17, 2008 10:24 PM
The option strategy Madoff claimed to use - the collar - is very conservative. It protects against large losses, but the profit potential is usually below Madoff's returns.
One reason Madoff wasn't 'busted' earlier is that too few people know how to use these basic option strategies and were unable to discover that his steady returns were unrealistic.
Posted by: Mark Wolfinger | December 17, 2008 11:17 PM
Oye Ve!!!!!!!!!!!! very informative story...... this epic Ponzi scheme of Madoff (made-off) continues to fascinate the world. A financial holocaust… He managed to lose or steal 50 billion dollars, which can't be easy to do no matter how hard you try….. with a busy looking stock-trading operation occupying the 19th floor, of his building…. and the computers and paperwork of Bernard L. Madoff Investment Securities (his name is on the door remember!) filled the 18th floor and on the 17th floor was Bernie Madoff's inner sanctum, occupied by another two dozen staff members but who must have been blinded to some sort of quantitative trading wizardry in order produce that mind-numbing 10-12%…and apparently rarely visited by other employees. It was called the "hedge fund" floor, where the scam was conceived…….. and nobody else knew?????????????? ...I actually feel bad for Charles Ponzi ..Ponzi scammers will be changing their name to “Madoff schemes”... in researching hedge funds I came across a few books that were also fascinating... Hedge Fund Trading Secrets Revealed by Robert Dorfman... and Confessions of a Street Addict by Jim Cramer....both these books take you on a great ride about hedge funds how they make and lose millions and expose many other scam practices in this game and Dorfman actually teaches his strategies.
Posted by: milt tomkins | December 18, 2008 12:45 PM
Oye Ve!!!!!!!!!!!! very informative story...... this epic Ponzi scheme of Madoff (made-off) continues to fascinate the world. A financial holocaust… He managed to lose or steal 50 billion dollars, which can't be easy to do no matter how hard you try….. with a busy looking stock-trading operation occupying the 19th floor, of his building…. and the computers and paperwork of Bernard L. Madoff Investment Securities (his name is on the door remember!) filled the 18th floor and on the 17th floor was Bernie Madoff's inner sanctum, occupied by another two dozen staff members but who must have been blinded to some sort of quantitative trading wizardry in order produce that mind-numbing 10-12%…and apparently rarely visited by other employees. It was called the "hedge fund" floor, where the scam was conceived…….. and nobody else knew?????????????? ...I actually feel bad for Charles Ponzi ..Ponzi scammers will be changing their name to “Madoff schemes”... in researching hedge funds I came across a few books that were also fascinating... Hedge Fund Trading Secrets Revealed by Robert Dorfman... and Confessions of a Street Addict by Jim Cramer....both these books take you on a great ride about hedge funds how they make and lose millions and expose many other scam practices in this game and Dorfman actually teaches his strategies.
Posted by: milt tomkins | December 18, 2008 12:45 PM
Oye Ve!!!!!!!!!!!! very informative story...... this epic Ponzi scheme of Madoff (made-off) continues to fascinate the world. A financial holocaust… He managed to lose or steal 50 billion dollars, which can't be easy to do no matter how hard you try….. with a busy looking stock-trading operation occupying the 19th floor, of his building…. and the computers and paperwork of Bernard L. Madoff Investment Securities (his name is on the door remember!) filled the 18th floor and on the 17th floor was Bernie Madoff's inner sanctum, occupied by another two dozen staff members but who must have been blinded to some sort of quantitative trading wizardry in order produce that mind-numbing 10-12%…and apparently rarely visited by other employees. It was called the "hedge fund" floor, where the scam was conceived…….. and nobody else knew?????????????? ...I actually feel bad for Charles Ponzi ..Ponzi scammers will be changing their name to “Madoff schemes”... in researching hedge funds I came across a few books that were also fascinating... Hedge Fund Trading Secrets Revealed by Robert Dorfman... and Confessions of a Street Addict by Jim Cramer....both these books take you on a great ride about hedge funds how they make and lose millions and expose many other scam practices in this game and Dorfman actually teaches his strategies.
Posted by: milt tomkins | December 18, 2008 12:45 PM
Jason,
I see what you are saying about individual investors. (Although it is hard for me to classify someone with millions to invest as a "casual investor".)
But that doesn't explain how other funds ,who supposedly use auditors, could have been been so blind and invested in Madoff.
My question: is most of Wallstreet completely corrupt or are most of the experts not really experts?
Posted by: dave2 | December 18, 2008 1:12 PM