Bernie Madoff

[montmorencyt2w]

Just reading a book about Bernie Madoff ("Madoff - The Man who stole $65 billion" by Erin Avedlund).

Interesting ... he was one of the early movers behind electronic trading (although he did not invent the NASDAQ, although it seems he sometimes let it be thought he had done, a bit like Al Gore and the Internet) and his electronic trading business was apparently straight, although controversial in some respects. It was his "advisory" business that was crooked, and had been for a long time apparently.

Will update when I finish the book.

[Clearly this is not a trading "resource", except perhaps as a cautionary tale, but I was not sure where else to put this]. Edit: oops, mean to put this in "Books". If a bored administrator would like to move it, that would be fine with me].

 

[montmorencyt2w]

Mini-update: It's curious that his legitimate broker-dealer business was actually quite successful, pulling in something like $50-60M a year. OK, not huge in the grand scheme, but not to be sniffed at either. He didn't need to be crooked to be able to live quite comfortably thank you (although admittedly not the luxury life style that his crooked business allowed him to).

 

[Waterfield]

Look up his funds equity curve.

did it for you:

http://seekingalpha.com/article/111367-madoff-equity-curve-should-have-raised-red-flag

 

[DionysusToast]

Look up his funds equity curve.

did it for you:

http://seekingalpha.com/article/111367-madoff-equity-curve-should-have-raised-red-flag

looks like one of ODTs :whistling

 

[montmorencyt2w]

Yes, apparently, what was fishy about Madoff's returns was not that they were spectacular, but that they were spectacularly consistent. He actually "marketed" himself (not that he openly marketed himself, it was much more subtle than that), as safe, regular returns, a bit like Treasury bonds, but better, and not like "risky" hedge funds.
Thus the people he took in were not people looking for a quick buck, but people looking for a safe return, although clearly greed must have played a part to some extent, leading to people not asking the questions they should have asked.

 

[tomorton]

These schemes are interesting psychologically, as they show the dilemma of the victim.

Suppose you've put 1,000,000 into Madoff's fund, and you expect 100,000 profit per year and you plan to invest for 10 years. After 3 years you suspect he's crooked and its a Ponzi scheme. But what if you notify the authorities? If he's crooked, will the SEC get your money back? Probably not - you're down at least 700,000. If he's straight, will he close your account after being found innocent? Probably - so you'll be down 700,000 on missed future returns, but then along come the law suits for defamation: you could be the one wiped out.

Its impossible that nobody in the scheme suspected there was a rat. But if you're that smart, the smartest thing to do is keep quiet, don't panic anyone, and trickle the money back into the bank.

 

[montmorencyt2w]

These schemes are interesting psychologically, as they show the dilemma of the victim.

Suppose you've put 1,000,000 into Madoff's fund, and you expect 100,000 profit per year and you plan to invest for 10 years. After 3 years you suspect he's crooked and its a Ponzi scheme. But what if you notify the authorities? If he's crooked, will the SEC get your money back? Probably not - you're down at least 700,000. If he's straight, will he close your account after being found innocent? Probably - so you'll be down 700,000 on missed future returns, but then along come the law suits for defamation: you could be the one wiped out.

Its impossible that nobody in the scheme suspected there was a rat. But if you're that smart, the smartest thing to do is keep quiet, don't panic anyone, and trickle the money back into the bank.

One of his "selling points", as well as consistent returns, was that withdrawals could be made within 30 days, which was (is?) unusual in such funds. There was even, apparently, someone suspicious enough to withdraw his money every year (but who it would appear, then re-invested it with him). The people who come out worst in this, apart from Madoff and his closest cronies and perhaps some of his family, are the SEC who were downright negligent on this one. They could not have prevented the fraud, but they could have stopped it going on for as long as it did do. It seems that some of his investors were suspicious of him to the extent that they thought that he was doing something illegal, i.e. front-running his clients in his (legitimate) broker-dealer business, but that this was in their interest, and better to turn a blind eye to it. They didn't make the further step of imagination that if he could cheat one lot of clients, then he might be cheating all of them.

 

[DionysusToast]

Bernie 'scratched the backs' of the SEC a number of times.

They simply turned a blind eye to his activities because of this...