Madoff Story Smells Funny

[godoftrading]

Madoff Story Smells Funny | The Big Picture

I have no special insight into the Madoff story.

Consider this: Running a billion dollar Ponzi scheme has to be very time consuming. Running a $50 billion Ponzi scheme by yourself, at age 70?

I don’t think it can be done.

Just generating the phony transaction receipts is a full time job. How did this son-of-a-bitch do it all by himself? Madoff HAD TO HAVE HELP.

I simply cannot believe he did it himself, all alone. His entire scheme was predicated upon finding another 1% of assets every month to payout to the prior investors. Between raising moeny and running operations, it was more than a 1 man job.

And when the market hit the skids and topped out so fast — it fell much quicker in 2008 than in 2000 — he ran out of manuevering room. Madoff had to know he was going down, and everyone who was working with him — everyone who knew of the scheme — they were going down, too.

So he confessed — TO HIS SONS. AND THEY TURNED HIM IN.

And Bloomberg reports they are already represented by Martin Flumenbaum, a lawyer.

~~~

Maybe I’ve read one too many detective novels, but consider this strictly hypothetical, based on-no-facts whatsoever, wildly imaginative hypothesis: If I were running a $50 billion Ponzi scheme, I would have to bring in someone close to help me with it.

Who is closer than my family?

When it became clear there was no where else to turn, instead of bringing down the entire dynasty,

I would have them turn me in, to protect the family and what left of the legacy.

I would take the fall so they wouldn’t have to.

~~~

As I noted, I have no special facts, no insight into this what-so-ever. Other than the story we have been fed so far doesn’t make any sense.

Who was Madoff’s accomplices? I have no idea, but there has to be some! If I were the SEC, I would be looking over close friends and family closely. Very, very closely.

Your view?

 

[dilesh23]

his sons grassed on him :-0 what ungrateful maybe they didnt like the pair of socks they got for christmas

 

[advfntrader]

where has all the money gone ??

 

[dilesh23]

dont ask me i always had 50 billion in my bank account

 

[rols]

where has all the money gone ??

Another Christmas Turkey?

Sales of matressses are going to go up - that's certain.

 

[timsk]

I quite like your take on this story G.O.T. as it offers an answer to the other big, obvious and hitherto unanswered question . . .
Assuming Madoff knew he was up to his neck in poo, why didn't he quietly disappear to some little island on the other side of the world which, surprise surprise, doesn't have an extradition treaty with the U.S.? That's what most fraudsters tend to do - and your theory about taking the fall to protect his family might explain why he didn't.
Tim.

 

[everyonerich]

yes. indeed it smells funny..

 

[tomorton]

I think we deserve to find out who the guilty accessories really are. People must have known this was a scam. Professional investment managers are not so stupid that they don't recognise a Ponzi scheme when they see one. But what do they do when they do see one?

Think of it like a fund manager - what would be the reward for telling someone about your suspicions, and what would be the risk?

After investing -
Reward = gain a reputation as an honest fund manager, even though easily hoodwinked by fraudsters
Risk = lose all investment and job. Never work again on Wall Street.

Before investing -
Reward = you can tell your clients you weren't taken in by a fraudster. But what does that count for?
Risk = you don't get to invest and you don't make the returns other investors are making, and you lose your job when your fund under-performs.

The best strategy is to invest money in the scheme, then tell everyone you meet how good it is, how the manager is a genius and get them to put their money in too. And get them to tell everyone they meet he is a genius too. Once you have broken even, quietly take your money out, claim your bonus and go on holiday.

 

[normbeef]

I just heard that He never even made a trade !!!!

 

[tomorton]

No need for him to actually trade, since his returns to investors weren't generated by the markets but by new deposits. So trading in the market would have been an unjustified risk, both for him and, if they had known the scheme's mechanics (and I suspect many did but just kept quiet), for the investors. Its a bizarre world.

 

[raysor]

There will always be loads of people willing to help these schemes continue. Greedy people. Take the loans to Icelandic Banks. Normally you just deposit the money and take your interest. But if an agent is advising you to invest and earning a commission to do so the whole thing starts to get a bit blurred.
I was looking at Bond Funds recently. The commission on a particular one was 3% initial and 0.5% annually. Now to someone unscrupulous that would be the overriding factor. OK the bond may be good or bad, but in selling it you can just avoid the bad, or potentially bad bits.
The press etc. jump on the bandwagon (bond wagon) and off we all go!!

 

[normbeef]

No need for him to actually trade, since his returns to investors weren't generated by the markets but by new deposits. So trading in the market would have been an unjustified risk, both for him and, if they had known the scheme's mechanics (and I suspect many did but just kept quiet), for the investors. Its a bizarre world.

Yeah true... but the really funny thing is that alledgedly he was giving people trading statements with buy / sell prices that didnt even happen on the day he was supposed to have traded... talk about careless... I cant believe nobody spotted it

 

[tomorton]

Hi normbeef - While you say you can't believe nobody spotted it, I say some of them certainly must have spotted it - but what would those people do?

As long as fund managers' performance is gauged against other fund managers and the main stock indices, such schemes will remain concealed by the victims themselves. If you as a fund manager have put money with Madoff and its making a consistent 10% return every year when all your colleagues' investments are struggling to make 4, and some years going negative, what would you gain by inquiring too much into how he does it? If you keep quiet you'll make a lot of money. If everyone makes out Madoff is a genius, they can all evade the blame when the bubble eventually bursts - but maybe it never will. As long as he is allowed to keep working his magic, you have a guaranteed income and have not lost the original deposit.

Fund managers are not stupid.

 

[normbeef]

Hi normbeef - While you say you can't believe nobody spotted it, I say some of them certainly must have spotted it - but what would those people do?

As long as fund managers' performance is gauged against other fund managers and the main stock indices, such schemes will remain concealed by the victims themselves. If you as a fund manager have put money with Madoff and its making a consistent 10% return every year when all your colleagues' investments are struggling to make 4, and some years going negative, what would you gain by inquiring too much into how he does it? If you keep quiet you'll make a lot of money. If everyone makes out Madoff is a genius, they can all evade the blame when the bubble eventually bursts - but maybe it never will. As long as he is allowed to keep working his magic, you have a guaranteed income and have not lost the original deposit.

Fund managers are not stupid.

I quite agree with your theory but I am sure that Mr Madoff and Co must of had some private clients as well... surely he would have had to go through an audit system ???

Thing is when your sending out statements say "yes we bought Mcdonuts at $100.93 dollars on wednesday" but the price only ever got to $99.00 then even if your turning a blind eye... surely you would ring the guy and tell him to check the day's open and close before cooking the books !!!! (maybe they did lol )

I pride myself with having seen a few things in life.... but if its true then this has to take pride of place up there with WorldCom and Enron... its incredible how just a few people can control such vast wealth and complex companies with many employees, and act as if they are running it from their garage...

And as for fund managers not being stupid... well that's a whole other thread

 

[N Rothschild]

Hi normbeef - While you say you can't believe nobody spotted it, I say some of them certainly must have spotted it - but what would those people do?

As long as fund managers' performance is gauged against other fund managers and the main stock indices, such schemes will remain concealed by the victims themselves. If you as a fund manager have put money with Madoff and its making a consistent 10% return every year when all your colleagues' investments are struggling to make 4, and some years going negative, what would you gain by inquiring too much into how he does it? If you keep quiet you'll make a lot of money. If everyone makes out Madoff is a genius, they can all evade the blame when the bubble eventually bursts - but maybe it never will. As long as he is allowed to keep working his magic, you have a guaranteed income and have not lost the original deposit.

Fund managers are not stupid.

how would you not loose the original deposit? its peoples deposists that are paying that return..your not gona see it again..hence the guy had no money in the fund left when he was busted

 

[tomorton]

Hi Genics - If everyone asks for their deposit back, the fund would be bust but if one or two quietly (and it would pay them to be very discrete about this so as not to start a run) asked for theirs to be returned, before the scheme collapsed, there would be no problem. This could have happened of course to many now departed Madoff investors who are very happy with their pocketed 10% annual returns and who have redeemed their original capital too.

 

[rightbyleft]

Another interesting take:

THE MADOFF DOUBLE-BLUFF
by Rafeeq
.... snip
But why? Why would Madoff confess to fraud, when he’d really been running a legit (although ultimately unviable) hedge fund? Is he on a Jesus trip, perhaps? Is Bernie Madoff atoning for the sins of Wall Street?

Rafeeq suggests a more mudane explanation:

So why plead guilty? The answer is simple. Look on the net and you will see that because this case is being labelled a fraud, it would appear that investors are going to be able to claim their investment back under the US government’s financial fraud protection scheme. A judge has already given his approval in principle for compensation, w ithout any evidence having been presented and financial fraud being demonstrated in a court of law. And it would appear that there will never be such a demonstration in a court of law. Why? It would appear that all the funds financial records are mostly “missing” (rather like Dov Zakheim’s US$1.4tn) and those few records that do survive are in a terrible mess.
.....snip