$50B Ponzi scheme
Zbicyclist
"Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a
force in Wall Street trading for nearly 50 years, was arrested by
federal agents Thursday, a day after his sons turned him in for
running what they said their father called "a giant Ponzi scheme."
"The Securities and Exchange Commission, in a civil complaint, said it
was an ongoing $50 billion swindle..."
http://online.wsj.com/article/SB122903010173099377.html [$]
An interesting point is that his sons turned him in. His sons are
"the firm's senior managing director and chief compliance officer" and
its "director of trading". Supposedly they didn't know because this
part of the business was on a different floor and "Mr. Madoff kept the
financial statements from the firm under lock and key and was
'cryptic' about the firm's investment business." That's a bit thin.
One possibility is that the 70 year old father is going to take the
fall for the family.
Dover Beach
news:799e5f28-993c-496d...@w34g2000yqm.googlegroups.com:
I thought the other two employees turned him in. I know the WSJ and
Bloomberg radio were all gaga about this story this morning, but it's a
bit too inside baseball for me. I think it's more compelling if you're
accustomed to seeing ol' Bernie around the charity circuit.
I'm betting he'll off himself.
--
Dover
Les Albert
I thought the humorous part of the AP story was that Madoff confessed
to the FBI agents, but his lawyer then says that Madoff is "a person
of integrity" and he intends to fight the charge.
Les
Zbicyclist
>
> I thought the humorous part of the AP story was that Madoff confessed
> to the FBI agents, but his lawyer then says that Madoff is "a person
> of integrity" and he intends to fight the charge.
Yes, that was just bizarre -- assuming the press reports are accurate.
Dover, early reports said "2 employees" turned him in -- they seem to
have been identified later as two of his sons. And, yes, the story
struck me as "inside baseball" until I found some of the humorous/
shocking details.
So, where were the accountants?
"Until at least November, 2006, the firm, which claimed to manage
billions of dollars and be among the largest market makers in the
stock market, used as its auditor Friehling & Horowitz, a small New
City, New York firm.
"Mr. Vos says his firm hired a private investigator and determined
that the accounting firm had only three employees, one of whom was 78
and lived in Florida, and another was a secretary, and that it
operated in a 13 foot by 18 foot office. His firm felt that was too
small an operation to keep an eye on such a large firm operating a
complicated trading strategy. A message left for the accounting firm
was not returned."
http://online.wsj.com/article/SB122910977401502369.html?mod=googlenews_wsj
"Vos ... runs Aksia LLC, a firm that advises investors"
There's also a guy who's been writing that Madoff's a fraud since
1999, and has met with at least two SEC offices.
Sano
news:Xns9B727C89FA4ACmo...@130.133.1.4:
My sister went to the funeral home today to sign some papers for
transfering her husband's body. Tomorrow she goes to ID the asshole.
Positively.
Less dollars and cents, but the last straw before he drank himself to
death was "allegedly" stealing money out of his mother's bank account.
Oh, she had a nasty stroke about 6 months ago.
Mark Brader
>> to the FBI agents, but his lawyer then says that Madoff is "a person
>> of integrity" and he intends to fight the charge.
>
Well, geez, he *confessed*, didn't he? How much integrity do you *want*?
:-)
> -- assuming the press reports are accurate.
There is that too.
--
Mark Brader | "Oh, especially if it's accurate. There's nothing worse
Toronto | than *accurate*, ill-informed, irresponsible press
m...@vex.net | speculation." -- Lynn & Jay: "Yes, Prime Minister"
Bill Bonde { Remember, Remember, to Vote on the 5th of November )
He's going to run for governor of Ill, he'll make back his losses
in a fortnight.
--
"I'm sorry, too, Dmitri... I'm very sorry... *All right*, you're
sorrier than I am, but I am as sorry as well... I am as sorry as
you are, Dmitri! Don't say that you're more sorry than I am,
because I'm capable of being just as sorry as you are... So we're
both sorry, all right?... All right." Peter Sellers, "Dr
Strangelove", 1964.
Opus the Penguin
> Pushing Blago farther down the front page today is this:
>
> "Bernard L. Madoff,
Was his name not a clue?
--
Opus the Penguin
Nothing says "I mean it!" like a flame thrower. - The AnsaMan
Paul Ciszek
In article <799e5f28-993c-496d...@w34g2000yqm.googlegroups.com>,
Zbicyclist <zbicy...@yahoo.com> wrote:
>
>"The Securities and Exchange Commission, in a civil complaint, said it
>was an ongoing $50 billion swindle..."
I hope someone here understands how these things work and can explain
it. I keep hearing that $50 billion was "lost" in the Ponzi scheme.
Now, as I understand it, a Ponzi scheme takes money from people buying
new shares, and uses some of that money to pay dividends to people who
have already bought shares, and the preson running the scheme keeps some
money for themself. So, my question is, where did the "lost" $50 billion
go?
Some people bought shares and made some money back. Did any of them earn
more in dividends than they paid? I suppose that money is "lost" in the
sense that the lucky buggers have no legal obligation to return any of it.
The money that the scam artist keeps for themself can be confiscated when
they are caught. Now, no doubt Mr. Madoff has spent some of the $50
billion, but unless he has built himself a mansion made of solid cocaine
or something, most of that money is in recoverable forms--bank accounts,
real estate, etc. I assume that having turned himself in, he is going
to turn over the Swiss bank account numbers and what not. Though I
suppose he could confess to the crime, serve the time in jail, but refuse
to tell where the money is hid. I doubt that is his plan.
So, it seems to me that the only money "lost" would be whatever was spent
on perpetuating the scam such as paying for office space and employees,
whatever Mr. Maddoff spent on consumable luxuries, whatever personal
investments he has made that have lost their value, and any dividends
paid out to shareholders above and beyond their original investments.
Am I missing something here?
--
Please reply to: | "The anti-regulation business ethos is based on
pciszek at panix dot com | the charmingly naive notion that people will not
Autoreply is disabled | do unspeakable things for money." -Dana Carpender
Invisible Lurker
Yes. As he took in new investors, he not only paid older account
members an eleven percent return that it is unlikely he actually
achieved, but likely had even wider losses than the market
average as he attempted to leverage himself to make up what
he had lost. Further, with the current conditions, he likely paid
a considerable number of people seeking redemptions the
full amount they believed they were owed. The first people
out got their money and the people who are left get nothing
perhaps save 300 million that he had planned to distribute to
family, friends and employees before the whole thing collapsed.
His defense is going to tell the tale about how he continued
to pay 11 percent because his pride and social position was
caught up in his performance and that he fell further and
further behind as the markets became more difficult and
he started to take losses when the market turned south in the
fall of 2007. If the market had continued on his upward
trend and he made some good deals, he might have even
caught up, but the combination of redemptions and market
losses led him to take greater and greater risks by leveraging
that eventually virtually wiped out the principle he had to
work with.
--
Invisible Lurker
http://ansaman.posterous.com/
Paul Ciszek
In article <1d21l.7707$dc4....@bignews2.bellsouth.net>,
Invisible Lurker <ans...@gmail.com> wrote:
>
>Yes. As he took in new investors, he not only paid older account
>members an eleven percent return that it is unlikely he actually
>achieved, but likely had even wider losses than the market
>average as he attempted to leverage himself to make up what
>he had lost. Further, with the current conditions, he likely paid
>His defense is going to tell the tale about how he continued
>to pay 11 percent because his pride and social position was
>caught up in his performance and that he fell further and
>further behind as the markets became more difficult and
>he started to take losses when the market turned south in the
>fall of 2007. If the market had continued on his upward
>trend and he made some good deals, he might have even
>caught up, but the combination of redemptions and market
>losses led him to take greater and greater risks by leveraging
>that eventually virtually wiped out the principle he had to
>work with.
Are you saying that he was trying to run an actual investment
fund that turned into a Ponzi scheme, and that the losses would
have been less if he had been running a straightforward Ponzi
scheme and pocketing the money instead of trying to invest it?
Mark Brader
> Are you saying that he was trying to run an actual investment
> fund that turned into a Ponzi scheme,
Yes -- in 2005, according to the SEC, according to Time:
http://www.time.com/time/business/article/0,8599,1866154,00.html
> and that the losses would
> have been less if he had been running a straightforward Ponzi
> scheme and pocketing the money instead of trying to invest it?
That must be true for the losses in recent months since the bear market
really got going, anyway.
--
Mark Brader "By this time I was feeling guilty. No, correction,
Toronto I was feeling that I *should* feel guilty ..."
m...@vex.net -- Jude Devereaux
Invisible Lurker
> In article <1d21l.7707$dc4....@bignews2.bellsouth.net>,
> Invisible Lurker <ans...@gmail.com> wrote:
>>
>> Yes. As he took in new investors, he not only paid older account
>> members an eleven percent return that it is unlikely he actually
>> achieved, but likely had even wider losses than the market
>> average as he attempted to leverage himself to make up what
>> he had lost. Further, with the current conditions, he likely paid
>
>
>> His defense is going to tell the tale about how he continued
>> to pay 11 percent because his pride and social position was
>> caught up in his performance and that he fell further and
>> further behind as the markets became more difficult and
>> he started to take losses when the market turned south in the
>> fall of 2007. If the market had continued on his upward
>> trend and he made some good deals, he might have even
>> caught up, but the combination of redemptions and market
>> losses led him to take greater and greater risks by leveraging
>> that eventually virtually wiped out the principle he had to
>> work with.
>
> Are you saying that he was trying to run an actual investment
> fund that turned into a Ponzi scheme, and that the losses would
> have been less if he had been running a straightforward Ponzi
> scheme and pocketing the money instead of trying to invest it?
He always awarded significant yields even in markets that
could not justify such yields. His involvement in social
circles, charities, and his relationships with the hoi polloi
were anchored in his help in founding NASDAQ and his
reputation. Reportedly, it was even difficult to get an
account as one had to have some sort of contact within
his social set. Some people joined country clubs simply
to get access.
My serious theory is that he lived for this type of attention
and honestly cared for the investors and charities he allowed
to invest in his fund. His attempt to keep up appearances
and provide an outstanding yield so as not to disappoint
went beyond reason, figuring he could make up ground.
I believe he had considerable money of his own and this
was not a money issue.
Yes, if he had indeed just been a thief, he could have
siphoned off considerable money...it is not a hard thing
to get substantial money out of a fund of 50 billion.
As I said before, his paying yields he did not make
while hoping to make them up, coupled with the
market disaster, and the call for over 7 billion in
redemptions sunk him. There is probably very
little left and I bet you will find that he actually
stole very little other than inflated fees based on
his ficticious yields. He could not spend fifty
billion, but he could lose it.
Greg Goss
Back in 06, I doubled my money in a "real estate bridge loan"
business. That is how ponzi schemes work. The people who don't
"reinvest" escape with significant amounts of money. This is where
the money goes so that it's not claimable by later people.
Some people do escape with their profits from these schemes. I titled
my journal entry "Escape From the Great Pyramid" The escapees take
away much of the capital of the people remaining in the scheme.
http://gossg.livejournal.com/182115.html
--
"Recessions catch what the auditors miss." (Galbraith)
Les Albert
>Back in 06, I doubled my money in a "real estate bridge loan"
>business. That is how ponzi schemes work. The people who don't
>"reinvest" escape with significant amounts of money. This is where
>the money goes so that it's not claimable by later people.
>Some people do escape with their profits from these schemes. I titled
>my journal entry "Escape From the Great Pyramid" The escapees take
>away much of the capital of the people remaining in the scheme.
>http://gossg.livejournal.com/182115.html
What was the amount of your investment in the real estate bridge loan?
Les
Greg Goss
$10K, for $14K payback. Payback was written up as 3 months, but
expected to be under 5 weeks.
At the 5 week mark, he offered an extra $1K if the payback could be
bumped another month. (the formal contract for 3 months seemed to be
completely forgotten.)
At the 9 week mark, he offered another $2K if he could pay it back at
the 3 month mark as in the original contract.
At the three month mark, I got a document in the mail. It was a
photocopy of a lien he'd filed on his own house, with no cover letter
or any explanation whatever. The original contract authorized a lien
on his house if payment failed, so pre-liening his house was
presumably so that there was no equity left in it after prior liens.
He stopped answering my phone calls. I essentially gave up on my
investment and shrugged it off.
At the six month mark, I was answering a year-end questionnaire for my
livejournal blog. On the "What do you regret doing this past year", I
mentioned him and his long-term ongoing project name. Google,
bizarrely, rates my livejournal very highly, and a week later my
"regrets" were showing on google searches for either "shane malsbury"
or "townname polo club" (I've forgotten the name of the small town
outer-suburb of Calgary that it would be based in.) He asked me if I
would take down my blog entry if he paid me out. I pointed out that
the debt had been $17K as of the beginning of October and he had been
upping the payout by a grand a month. So he paid me out my $10K
initial investment and the $10K of payments, and I took the blog entry
private.
He wanted the payments to be structured as consulting billings. From
my side, these are the same tax rate as interest, so I agreed. But
then I forgot to set aside the money for taxes. I had to cut a
surprise $3K check for taxes a couple of months later, and was
embarrassed to be surprised by it.
Now that he's been shut down by the Alberta Securities Commission, I
don't mind mentioning his name publicly again.
One of the options that my spellchecker suggests for "Shane" is
"Shady". Maybe that should have been a clue.
xho...@gmail.com
> In article
> <799e5f28-993c-496d...@w34g2000yqm.googlegroups.com>,
> Zbicyclist <zbicy...@yahoo.com> wrote:
> >
> >"The Securities and Exchange Commission, in a civil complaint, said it
> >was an ongoing $50 billion swindle..."
There is a lot of doubt about where the $50 billion came from. He only
claimed to have $17 billion under management in the first place. But if
you are just making stuff up, I guess the sum of the reported assets on the
statements going out to investors could add up to $50 billion while the
number put elsewhere would only total $17 billion.
> I hope someone here understands how these things work and can explain
> it. I keep hearing that $50 billion was "lost" in the Ponzi scheme.
> Now, as I understand it, a Ponzi scheme takes money from people buying
> new shares, and uses some of that money to pay dividends to people who
> have already bought shares,
It was wealth under management. It was not in shares in the traditional
sense of being in shares of the schemer's own company. Rather, people
would place money with him to invest in whatever he thought would do well,
and then he lied about how well it was doing.
> and the preson running the scheme keeps some
> money for themself.
I think that this particular type of thing usually works out that the
schemer didn't set it up with the intention of scamming, but rather lost
money and to save face lied about the loses, pretending to have assets that
didn't actually exist. I'm sure he was well paid, but I suspect most of
the wealth lost (the part that ever existed) was lost in the markets or
paid out to investors, not into his pocket.
> So, my question is, where did the "lost" $50 billion
> go?
Some of it would have gone to people that withdraw money before the
collapse, or took dividends and such out as cash rather than reinvesting.
I seems like people were fairly loyal and withdraws requests were not
common, until the big ones that collapses the scheme. I haven't heard
about how common it was to reinvest distributions rather than taking them
in cash.
Much of the wealth that was "lost" never existed in the first place.
You give him $10 mil and tell him to reinvest profits. Every year you
get a statement telling you there were 12% profits, and after 10 years
the statement tells you your balance is $31 mil. But the statements are
lies, and that value doesn't actually exist. When all is revealed and you
only have 37 cents, left, how much was "lost", 10 mil or 31 mil? I'm
pretty sure $31 is the one that will go into the final sum, when one comes
out.
> Some people bought shares and made some money back. Did any of them earn
> more in dividends than they paid? I suppose that money is "lost" in the
> sense that the lucky buggers have no legal obligation to return any of
> it.
That is far from clear. Lucky "innocents" sometimes have to return it,
or at least there was a serious consideration of that in a blow-up I
vaguely recall hearing about in the last year or so.
Xho
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The costs of publication of this article were defrayed in part by the
payment of page charges. This article must therefore be hereby marked
advertisement in accordance with 18 U.S.C. Section 1734 solely to indicate
this fact.
Les Albert
>Les Albert <lalb...@aol.com> wrote:
>>On Sun, 14 Dec 2008 07:15:43 -0700, Greg Goss <go...@gossg.org> wrote:
>>>Back in 06, I doubled my money in a "real estate bridge loan"
>>>business. That is how ponzi schemes work. The people who don't
>>>"reinvest" escape with significant amounts of money. This is where
>>>the money goes so that it's not claimable by later people.
>>>Some people do escape with their profits from these schemes. I titled
>>>my journal entry "Escape From the Great Pyramid" The escapees take
>>>away much of the capital of the people remaining in the scheme.
>>>http://gossg.livejournal.com/182115.html
>>What was the amount of your investment in the real estate bridge loan?
>$10K, for $14K payback. Payback was written up as 3 months, but
>expected to be under 5 weeks.
>At the 5 week mark, he offered an extra $1K if the payback could be
>bumped another month. (the formal contract for 3 months seemed to be
>completely forgotten.)
>At the 9 week mark, he offered another $2K if he could pay it back at
>the 3 month mark as in the original contract.
> ....
It's impressive that your blog influence was able to get the shark to
give you your money. Did you really believe that a 3 month investment
would provide you with a 40% profit, or did you think it was a legit
offer that would provide some lesser return?
Les
Greg Goss
I was willing to take the chance on it. The real estate market in my
area was pretty wild in 06, and he had a convincing storyline on how
he had options to purchase on these three properties, and by putting
them together he could have a saleable property worth several times
what the fragments were worth.
You could find all sorts of similar storylines in the Calgary real
estate market in that time period. The city grew from 800K population
to over a million in one big gulp, and all the communities in the
neighborhood went into spastic shuffling of their real estate.
Mark Brader
> claimed to have $17 billion under management in the first place. But if
> you are just making stuff up, I guess the sum of the reported assets on the
> statements going out to investors could add up to $50 billion while the
> number put elsewhere would only total $17 billion.
> You give him $10 mil and tell him to reinvest profits. Every year you
> get a statement telling you there were 12% profits, and after 10 years
> the statement tells you your balance is $31 mil. But the statements are
> lies, and that value doesn't actually exist. When all is revealed and you
> only have 37 cents, left, how much was "lost", 10 mil or 31 mil? I'm
> pretty sure $31 is the one that will go into the final sum, when one comes
> out.
http://www.thestar.com/Business/article/553163 was the first story I
saw about this crime in print. It mentions the number $50 billion but
also contains a quote to the effect that "at least $15 billion has
gone to money heaven". Most other news stories have not mentioned
this smaller number, and I thought it must just have been that the
total size of the fraud was not yet known when the person was quoted.
But now I'm wondering if $15B was the amount actually invested to
produce the total claimed value of $50B.
--
Mark Brader | The last 10% of the performance sought contributes
Toronto | one-third of the cost and two-thirds of the problems.
m...@vex.net | -- Norm Augustine
My text in this article is in the public domain.
Greg Goss
>> There is a lot of doubt about where the $50 billion came from. He only
>> claimed to have $17 billion under management in the first place. But if
>> you are just making stuff up, I guess the sum of the reported assets on the
>> statements going out to investors could add up to $50 billion while the
>> number put elsewhere would only total $17 billion.
> ...
>> You give him $10 mil and tell him to reinvest profits. Every year you
>> get a statement telling you there were 12% profits, and after 10 years
>> the statement tells you your balance is $31 mil. But the statements are
>> lies, and that value doesn't actually exist. When all is revealed and you
>> only have 37 cents, left, how much was "lost", 10 mil or 31 mil? I'm
>> pretty sure $31 is the one that will go into the final sum, when one comes
>> out.
>
>http://www.thestar.com/Business/article/553163 was the first story I
>saw about this crime in print. It mentions the number $50 billion but
>also contains a quote to the effect that "at least $15 billion has
>gone to money heaven". Most other news stories have not mentioned
>this smaller number, and I thought it must just have been that the
>total size of the fraud was not yet known when the person was quoted.
>But now I'm wondering if $15B was the amount actually invested to
>produce the total claimed value of $50B.
That makes sense. The "loss" claimed by the media would be the
statement value minus the value of assets on hand. But the "real"
loss would be book value minus actual value. (ignoring opportunity
value).
Hactar
That's in line with how they quote the "value" of drug busts. If they
seize a bale of marijuana or a trunk full of uncut heroin or some other
large quantity, the actual loss to the shipper/dealer/whoever is the
wholesale price of those drugs. And the mule, if any, will have a very
bad day. But they invariably quote the value as if it were broken up
into several-dose units, diluted (if applicable), and sold to end users.
That's a lot of free labor they're not counting.
--
-eben QebWe...@vTerYizUonI.nOetP http://royalty.mine.nu:81
LEO: Now is not a good time to photocopy your butt and staple it
to your boss' face, oh no. Eat a bucket of tuna-flavored pudding
and wash it down with a gallon of strawberry Quik. -- Weird Al
Mark Brader
>> http://www.thestar.com/Business/article/553163 was the first story I
>> saw about this crime in print. It mentions the number $50 billion but
>> also contains a quote to the effect that "at least $15 billion has
>> actually invested to produce the total claimed value of $50B.
Greg Goss:
> That makes sense.
Maybe, but it was wrong. See this later story, for example:
http://www.philly.com/inquirer/business/20081216_List_of_those_hurt_by_Madoff_grows.html
| According to court papers, Madoff had told the FBI that only about
| $200 million to $300 million was left of the $50 billion that he had
| taken in from investors, but authorities have yet to independently
| verify that claim.
--
Mark Brader, Toronto "As long as that blue light is on, the
m...@vex.net computer is safe." -- Hot Millions
Greg Goss
The SEC ignored the ponzi scheme for nearly a decade.
http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2&ref=business
>The commission said it received credible allegations about the scheme
>at least nine years ago and will immediately open an internal
>investigation to examine why it had failed to pursue them aggressively
xho...@gmail.com
>
> The SEC ignored the ponzi scheme for nearly a decade.
>
> http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2&ref=busines
> s
> >The commission said it received credible allegations about the scheme
> >at least nine years ago and will immediately open an internal
> >investigation to examine why it had failed to pursue them aggressively
Does the SEC have a database of credible-but-ignored allegations which they
queried to find these ones? Or is "credible" a purely post-hoc
determination?
Dover Beach
> Greg Goss <go...@gossg.org> wrote:
>>
>> The SEC ignored the ponzi scheme for nearly a decade.
>>
>> http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2
&ref=busine
>> s s
>> >The commission said it received credible allegations about the scheme
>> >at least nine years ago and will immediately open an internal
>> >investigation to examine why it had failed to pursue them aggressively
>
> Does the SEC have a database of credible-but-ignored allegations which
> they queried to find these ones? Or is "credible" a purely post-hoc
> determination?
>
While it amuses me to think that the SEC has two sets of files, one
labeled "credible" and one labeled "batshit", the WSJ article below makes
it sound as though some SEC types wanted to pursue the issue but just
couldn't make it happen.
Madoff Misled SEC in '06, Got Off
By GREGORY ZUCKERMAN and KARA SCANNELL
Securities and Exchange Commission investigators discovered in 2006 that
Bernard Madoff had misled the agency about how he managed customer money,
according to documents, yet the SEC missed an opportunity to uncover an
alleged Ponzi scheme.
The documents indicate the agency had Mr. Madoff in its sights amid
multiple violations that, if pursued, could have blown open his alleged
multibillion-dollar scam. Instead, his firm registered as an investment
adviser, at the agency's request, and the public got no word of the
violations.
Harry Markopolos -- who once worked for a Madoff rival -- sparked the
probe with his nearly decadelong campaign to persuade the SEC that Mr.
Madoff's returns were too good to be true. In recent days, The Wall Street
Journal reviewed emails, letters and other documents that Mr. Markopolos
shared with the SEC over the years.
When he first began studying Mr. Madoff's investment performance a decade
ago, Mr. Markopolos told a colleague at the time, "It doesn't make any
damn sense," he and the colleague recall. "This has to be a Ponzi scheme."
For Mr. Markopolos, the arrest last week of Mr. Madoff was something of a
vindication after his long campaign. At a certain point, he says, "I was
just the boy who cried wolf."
A lawyer for Mr. Madoff declined to comment on Mr. Markopolos's
allegations.
On Jan. 4, 2006, the SEC's enforcement staff in New York opened an
investigation, based on Mr. Markopolos's allegations, into whether Mr.
Madoff was, in fact, running a Ponzi scheme. The SEC staff received
documents from Mr. Madoff and Fairfield Greenwich, a hedge fund that
placed money with Mr. Madoff on behalf of its clients. The SEC also
interviewed Mr. Madoff, his assistant, an official from Fairfield
Greenwich and another employee.
Among other things, the SEC found that Mr. Madoff personally "misled the
examination staff about the nature of the strategy" used by the Fairfield
funds and other hedge-fund accounts, and also "withheld from the
examination staff information about certain of these customers' accounts,"
the SEC documents say.
The SEC report said that neither Mr. Madoff nor the Fairfield funds
disclosed to investors in the Fairfield funds that Mr. Madoff was the
investment adviser. Markopolos's Documents
A lawyer for Fairfield couldn't be reached for comment.
The SEC report also said Mr. Madoff had violated rules requiring
investment advisers to register with the SEC, which makes them subject to
inspections and examinations. Investment advisers must register if they
have more than 15 clients.
The staff recommended closing the investigation because Mr. Madoff agreed
to register his investment-advisory business and Fairfield agreed to
disclose information about Mr. Madoff to investors. The SEC report said
the staff closed the case "because those violations were not so serious as
to warrant an enforcement action."
Mr. Markopolos says his suspicions started in late 1999, after a colleague
returned from New York with tales of Mr. Madoff's trading prowess. Whether
the markets were up, or down, Mr. Madoff managed to clock in with steady
gains of 12% or so a year, reportedly achieving that by trading a mix of
stocks and stock-index options. Liked the Look
Mr. Markopolos says his bosses liked the look of those returns -- and
asked him why he couldn't do the same thing.
Under pressure to deliver, Mr. Markopolos and a colleague at their Boston
investment outfit tried to reconstruct Mr. Madoff's purported strategy.
Their results paled in comparison, and Mr. Markopolos began suspecting
possible fraud.
His bosses told him to go back and check the math, given Mr. Madoff's
renown as a trader.
So Mr. Markopolos turned to Daniel DiBartolomeo, a top financial
mathematician in Boston. Mr. DiBartolomeo says he spent hours poring
through Mr. Markopolos's data, and ultimately agreed: The strategy Mr.
Madoff said he used couldn't have achieved the returns he boasted of.
'Sounds Serious'
In early 2000, Mr. Markopolos shared his explosive concerns with Edward
Manion, a staff examiner at the SEC's Boston office.
In his documents, Mr. Markopolos said that there's a chance "I'm an idiot
for wasting your time." But he argued forcefully that "I believe an SEC
visit is warranted" to look into Mr. Madoff's practices.
"This sounds serious," Mr. Manion told him, inviting Mr. Markopolos in for
a meeting.
In May 2000, Mr. Markopolos says he sat down with Mr. Manion and an SEC
attorney.
Mr. Markopolos argued his case: A key part of Mr. Madoff's strategy relied
on buying and selling options on the Standard & Poor's 100-stock index.
But Mr. Markopolos said his research showed there weren't enough S&P-100
options in existence at the time to support Mr. Madoff's stated strategy,
given all the money he seemed to be managing. So something else must be
going on.
Mr. Markopolos, a native of Erie, Pa., who had trained in "unconventional
warfare," including intelligence gathering, as a reservist in the Army,
says he came to "consider Madoff a domestic enemy." Outsized Gains
In the months after the initial meeting with the SEC, Mr. Markopolos kept
hearing about Madoff's outsized gains, and how the firm was growing --
sparking frequent calls to Mr. Manion to discuss the case.
Over a year passed. Then, in late 2001, Mr. Manion told Mr. Markopolos the
case appeared to have fallen through the cracks. He asked Mr. Markopolos
to resubmit his documents and arguments, so they could be passed on to the
SEC's New York office.
Mr. Markopolos sent the documents, adding three pages arguing that the
fraud was growing in size as Madoff's assets under management grew beyond
$12 billion.
Mr. Markopolos also diagrammed how he believed the Madoff organization
seemed to work, using a Byzantine flow chart with circles, squares,
rectangles and arrows.
Mr. Markopolos continued to receive sympathetic calls from Mr. Manion.
"He's the one that kept me going, I would have stopped long ago," Mr.
Markopolos says.
But Mr. Manion pointed out that any investigation would have to be
conducted by the New York office, where Mr. Madoff's firm was based.
Mr. Markopolos says that worried him. "I was told that the relationship
between the SEC's Boston and New York offices is about as warm and cordial
as the Yankees-Red Sox rivalry," Mr. Markopolos says.
Mr. Markopolos left his firm in 2004, and started a fraud-investigation
practice. Mr. Markopolos's old colleagues, prodding him not to give up,
spoke by phone for hours at a time about Mr. Madoff.
"Some people play fantasy sports, that was how it was with us -- Madoff
was our fantasy sport," Mr. Markopolos recalls. "We wanted him nailed."
In 2005, an SEC official in Boston called to say the agency was again
looking into the case, and told Mr. Markopolos to contact Meaghan Cheung,
a supervisor in SEC's New York office, Mr. Markopolos recalls.
In November 2005, Mr. Markopolos sent Ms. Cheung a 21-page report
outlining his concerns.
He presented a series of 29 "red flags," ranging from in-depth
mathematical calculations that purported to show the Madoff investment
strategy couldn't work, to little more than rumor or innuendo -- such as
claims that a group of Arab investors were barred from using a major
accounting firm to examine Mr. Madoff's books.
He also questioned the fact that Mr. Madoff, unlike most money managers of
his stripe, didn't charge his investors a fee for handling their money.
Instead, he seemed to make profits on commissions generated by the trades
on investors' behalf.
"Bernie Madoff's returns aren't real," Mr. Markopolos said. "And if they
are real," it's because Mr. Madoff might be engaging in "front running,"
or buying shares for his investors' accounts just before filling orders
for other clients that have the potential to send the price higher, an
illegal practice.
Mr. Markopolos's allegations against Mr. Madoff were far from bulletproof.
Mr. Markopolos provided no definitive evidence of a crime. His reports
were laden with frothy opinions.
In his lists of "red flags," he occasionally got things wrong. Sometimes
he even misstated the starting date of his own campaign against Mr.
Madoff.
Ms. Cheung was a respected attorney known for quickly bringing
high-profile charges against executives of cable-television company
Adelphia Communications several years earlier, after that company issued a
questionable earnings report.
Mr. Markopolos thought he had a chance for his campaign to succeed.
"I had my hopes up, I thought it was a good enough package that they would
go and shut this man down," Mr. Markopolos recalls.
He sent an email adding more evidence -- noting that he might be eligible
for the SEC's bounty program if it turned out that Mr. Madoff was, in
fact, front running.
An SEC spokesman wouldn't comment on the agency's communication with Mr.
Markopolos.
In its resulting investigation, the SEC searched for evidence of "front
running" but found no indications that was happening, according to an
individual familiar with the matter.
Investigators also checked out Mr. Markopolos's claim that Mr. Madoff was
running a Ponzi scheme. But the billions of dollars of assets held by Mr.
Madoff's asset-management unit appeared to match those that various
investment firms said they had placed with Madoff, suggesting that there
weren't problems.
Today, it is now known that that Mr. Madoff had many more investors --
such as individuals and charities -- which weren't disclosed in regulatory
filings, making it harder for investigators at that time to ascertain
precisely how much money he was managing.
On Tuesday, SEC Chairman Christopher Cox also said that Madoff kept
several sets of books and false documents. That, too, could have thrown
off investigators a few years ago. Rules Violations
As part of the inquiry, the SEC did find that the firm had violated
technical rules about executing trades.
Early this year, Mr. Markopolos made one last major effort after receiving
an email from Jonathan Sokobin, an official in the SEC's Washington, D.C.,
office whose job was to search for big market risks. Mr. Sokobin had heard
about Mr. Markopolos and asked him to give him a call, according to an
email exchange between them.
With low expectations, Mr. Markopolos got in touch. "The way I figured
it," he says, "if they didn't believe you at $5 billion, and not at $10
billion, they didn't believe you at $30 billion, then why would they
believe you at $50 billion?" Funds Pulled
Mr. Markopolos also sent Mr. Sokobin an email -- with the stark subject
line "$30 billion Equity Derivative Hedge Fund Fraud in New York" --
saying an unnamed Wall Street pro recently pulled money from Mr. Madoff's
firm after trying to confirm trades supposedly done in his account, but
discovering that no such trades had been made.
It was his last try. He never heard back about his allegations regarding
Mr. Madoff.
"I felt pretty low," Mr. Markopolos recalls.
Mr. Sokobin, through an SEC spokesman, declined to comment.
Last Thursday, as Mr. Markopolos watched his children take a karate lesson
near his home in Whitman, Mass., 20 miles outside Boston, he checked his
voice mail, trying to ignore the noise from the children. Walking out to
the foyer, Mr. Markopolos returned one of the calls, and heard an old
friend tell him that Mr. Madoff had been arrested.
"I kept firing bigger and bigger bullets" at Mr. Madoff, "but I couldn't
stop him," Mr. Markopolos says. With the SEC's mea culpa and Mr. Madoff's
arrest, "I finally felt relief."
--
Dover
Greg Goss
>Greg Goss <go...@gossg.org> wrote:
>>
>> The SEC ignored the ponzi scheme for nearly a decade.
>>
>> http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2&ref=busines
>> s
>> >The commission said it received credible allegations about the scheme
>> >at least nine years ago and will immediately open an internal
>> >investigation to examine why it had failed to pursue them aggressively
>
>Does the SEC have a database of credible-but-ignored allegations which they
>queried to find these ones? Or is "credible" a purely post-hoc
>determination?
Post-hoc. I'm drowning in finals at the moment. A blog I read sent
me to that newspaper article, with a focus on that particular aspect.
I don't think I read the entire article.
xho...@gmail.com
> xho...@gmail.com wrote in news:20081218111508.383$Z...@newsreader.com:
>
> > Greg Goss <go...@gossg.org> wrote:
> >>
> >> The SEC ignored the ponzi scheme for nearly a decade.
> >>
> >> http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2
> &ref=busine
> >> s s
> >> >The commission said it received credible allegations about the scheme
> >> >at least nine years ago and will immediately open an internal
> >> >investigation to examine why it had failed to pursue them
> >> >aggressively
> >
> > Does the SEC have a database of credible-but-ignored allegations which
> > they queried to find these ones? Or is "credible" a purely post-hoc
> > determination?
> >
>
> While it amuses me to think that the SEC has two sets of files, one
> labeled "credible" and one labeled "batshit", the WSJ article below makes
> it sound as though some SEC types wanted to pursue the issue but just
> couldn't make it happen.
>
> Madoff Misled SEC in '06, Got Off
>
> By GREGORY ZUCKERMAN and KARA SCANNELL
<snip>
Now that was a nice article. Most of the questions it raises but doesn't
address are ones I can't blame them for not addressing, as I wouldn't know
how someone would go about doing so. How many other allegations of
similarity credibility are there in the SEC files? Does Markopolos have
other people he is equally skeptical about, or was Madoff a one-of-kind?
Charles Bishop
>Greg Goss <go...@gossg.org> wrote:
>>
>> The SEC ignored the ponzi scheme for nearly a decade.
>>
>> http://www.nytimes.com/2008/12/17/business/17madoff.html?_r=2&ref=busines
>> s
>> >The commission said it received credible allegations about the scheme
>> >at least nine years ago and will immediately open an internal
>> >investigation to examine why it had failed to pursue them aggressively
>
>Does the SEC have a database of credible-but-ignored allegations which they
>queried to find these ones? Or is "credible" a purely post-hoc
>determination?
>
This is what I wondered as well, if in different words. How many
allegations do they have now that need investigating? How many get
investigated each /time period/? Of course in hindsight, as xho points
out, all things become obvious. Was the investment plan a Ponzi scheme
from the first, or, as someone else posted, was it only that when the
returns went down and the Ponzi scheme was instituted to increase the
returns, with the thought that they'd catch up?
--
Charles
Charles Bishop
<moon.b...@gmail.com> wrote:
[snip previous posters]
>Madoff Misled SEC in '06, Got Off
>
>
>
>By GREGORY ZUCKERMAN and KARA SCANNELL
[snip lengthy, article on Madhoff]
Thanks, Dover, this answers the questions I had./
charles, librarians do it in the stacks(?), bishop
Dover Beach
news:ctbishop-181...@dialup-4.246.69.110.dial1.sanjose1.level3.ne
t:
Typically it's "Dewey? Sure we do!". Blurg.
--
Dover
Opus the Penguin
> ctbi...@earthlink.net (Charles Bishop) wrote in
> news:ctbishop-181...@dialup-4.246.69.110.dial1.sanjose1.l
> evel3.ne t:
>
>> In article <Xns9B7865331738mo...@130.133.1.4>,
>> Dover Beach <moon.b...@gmail.com> wrote:
>>
>> [snip previous posters]
>>
>>>Madoff Misled SEC in '06, Got Off
>>>
>>>
>>>
>>>By GREGORY ZUCKERMAN and KARA SCANNELL
>> [snip lengthy, article on Madhoff]
>>
>> Thanks, Dover, this answers the questions I had./
>>
>>
>> charles, librarians do it in the stacks(?), bishop
>>
>
> Typically it's "Dewey? Sure we do!". Blurg.
>
There's a "Library of Congress" pun in there somewhere, but I'm
having a hard time finding it.
--
Opus the Penguin
Nothing on earth would make me do more research on this. - Veronique
Charles Bishop
<moon.b...@gmail.com> wrote:
>ctbi...@earthlink.net (Charles Bishop) wrote in
>news:ctbishop-181...@dialup-4.246.69.110.dial1.sanjose1.level3.ne
>t:
>
>> In article <Xns9B7865331738mo...@130.133.1.4>, Dover
>> Beach <moon.b...@gmail.com> wrote:
>>
>> [snip previous posters]
>>
>>>Madoff Misled SEC in '06, Got Off
>>>
>>>
>>>
>>>By GREGORY ZUCKERMAN and KARA SCANNELL
>> [snip lengthy, article on Madhoff]
>>
>> Thanks, Dover, this answers the questions I had./
>>
>>
>> charles, librarians do it in the stacks(?), bishop
>>
>
>Typically it's "Dewey? Sure we do!". Blurg.
Library of Congress?> Sure we do! doesn't seem to swing, though there is a
pun to be made with Congress heh, heh, heh. Assuming "Blurg" means you
don't think much of the X do it in the Y constructions, I agree. They
never seem clever enough, though perhaps there is one somewhere.
--
charles
Charles Bishop
Penguin <opusthepen...@gmail.com> wrote:
>Dover Beach (moon.b...@gmail.com) wrote:
>
>> ctbi...@earthlink.net (Charles Bishop) wrote in
>> news:ctbishop-181...@dialup-4.246.69.110.dial1.sanjose1.l
>> evel3.ne t:
>>
>>> In article <Xns9B7865331738mo...@130.133.1.4>,
>>> Dover Beach <moon.b...@gmail.com> wrote:
>>>
>>> [snip previous posters]
>>>
>>>>Madoff Misled SEC in '06, Got Off
>>>>
>>>>
>>>>
>>>>By GREGORY ZUCKERMAN and KARA SCANNELL
>>> [snip lengthy, article on Madhoff]
>>>
>>> Thanks, Dover, this answers the questions I had./
>>>
>>>
>>> charles, librarians do it in the stacks(?), bishop
>>>
>>
>> Typically it's "Dewey? Sure we do!". Blurg.
>>
>
>There's a "Library of Congress" pun in there somewhere, but I'm
>having a hard time finding it.
Stop shoving your oar in ahead of people./
--
charles
Reunite Gondwanaland (Mary Shafer)
<opusthepen...@gmail.com> wrote:
> There's a "Library of Congress" pun in there somewhere, but I'm
> having a hard time finding it.
I once read a mystery short story in which a murdered librarian left a
dying clue, saying "Elsie" just before she died.
Mary "The story had other flaws, too"
--
Mary Shafer Retired aerospace research engineer
We didn't just do weird stuff at Dryden, we wrote reports about it.
reunite....@gmail.com or mil...@qnet.com
Visit my blog at http://thedigitalknitter.blogspot.com/