Bernie Madoff: “The banks had to know.”

In his first interview since being incarcerated, Bernie Madoff stated that “the banks had to know.” Madoff did not specify which banks or funds might have known about the scheme and he didn’t say that any of them were accomplices or otherwise implicate them.

Does this have any legal ramifications for the lawyers attempting to recover any of the funds? Is there a de facto “don’t ask, don’t tell” system that bankers can use to plausibly deny any culpability? Client privilege or something similar?

Also, why did they have to know? What financial red flags might a banker had to have seen to realize that something illegal (or at least questionable) was going on?

I did a search and got nothing on this here at the SDMB, but if you’ve already hashed this out please disregard and kindly direct me to the thread.



He didn’t say just what they had to know.

Many of his investors ‘knew’ that he was running a crooked scheme. But they thought he was doing insider trading using information he got from his position in the markets, and they were glad to share in the high returns he was getting this way. They didn’t know that the whole thing was a Ponzi scheme.

That’s one of the most common features of a con game tricks – make the greedy victim think there is something mildly illegal about it – that prevents/delays him reporting it to authorities. That’s the basis of the saying “Can’t Con an Honest John”.

Thus many of the email scams “I am the widow of a deceased Nigerian General, and need help recovering his millions …” often say something to the effect ‘your share will be paid in a cashiers check from a foreign bank, unreported to the IRS/Inland Revenue’.

Aswan:, I would’ve thought someone would have sent you to another thread by now, at least 2, maybe more threads have suggested that many people should have noticed that Madoff’s claims were too high, and he had to have been cheating. Sorry I’m not running the search for you, but the SDMB’s search function makes me want to drop-kick my laptop. So, you know, BUMP for one of those posters.

Perhaps someone should have realized he was running a Ponzi scheme, I think one person in authority did, but his superiors didn’t let him follow up. Many people on this board have said other people should have suspected he had insider information. Many small investors looked at their yields and just kept investing for their retirement – actor Jeremy Irons gave an interview where he seems to have done just that.

Finally now, I understand the ending of the movie Trading Places. Yes, I’ve read the online descriptions, and spoken to my friends in finance – Buy low, sell high, or in the case of the film, sell high then buy low. The important point is the Duke brothers make a big deal about how secret the info handed to them by Beaks is, but within minutes of their arrival at the exchange, everyone knows what they’re up to:

Hey, the Dukes are tying to corner the market.
– They must know something. Let’s get in on it.
(off camera: Hey, what are Whintorp and Valentine doing?
– Shaddap, and buy, Buy, BUY, you idiot.)

Then when it all goes south, they just take all the Duke’s assets with a look of smug satisfaction.

Oh wait, turns out that a SDMB search wasn’t so hard at all:

Not only the banks, but the SEC, and the “feeder funds” that invested with Bernie. If any of them had bothered to read the bogus statements he sent out, they would have realized that he wasn’t making the trades he claimed.
Also, they might have wondered how he was reporting 8-9% gains in down markets.
Of course, they didn’t care…as long as they were making money. When an obscure accountant named Harry Markopolos reported his doubts to the SEC (4 times) they ignored him-they were too busy watching porn online.
What amazes me is the low level employees working for Madoff-they were part of the con, yet they did’t blab.

while what he said is probably true, it smacks of “it’s their fault for not stopping me.”

Do you have a cite for this assertion?

Yes-simple logic: Madoff ran his con for 25+ years-not one investigation (launched by any one of his employees) was ever launched.
Pretty good proof that none of them talked-or if they did, they were ignored.
Just like ENRON- Skilling sent out totally worthless statements-it was a investment firm that started shorting the stock (their ananlysts didn’t believe Enron’s claims).

Perhaps the banks should have noticed that there was no trading going on a volume necessary to support the Madoff accounts? I mean, if he was buying or selling billions of dollars of securities, other banks and investment houses would have had to have been selling or buying an equivalent amount.

As I understood it, Madoff had TWO companies; one was a legit investment firm, the other (the Ponzi) he ran by himself, on another floor of the Third Ave. building both firms were in.

Pretty much every crim who gets caught tries to distribute blame in order to dilute their own responsibility. In the absence of specifics, why think this is anything different?

Practically every fraudster who stole from their boss that I have known has at some time tried to run some variant of the argument that goes:

  • what I was doing was eventually discovered,
  • therefore the bosses could have known what I was doing,
  • therefore they did know what I was doing, and because they didn’t stop me, I assumed they didn’t object.
  • therefore I should be treated as though the bosses knew what was going on and consented.
    The success rate is inversely proportional to the rate at which the claim is made, of course.

The vast majority of Madoff’s employees worked solely for the legitimate side of the business. What reason would they have to start an investigation?

And there are at least two employees that worked for the Ponzi scheme, Jerome O’Hara and George Perez, who have been indicted in the scheme and face lengthy prison sentences.

Also, I can’t see how a bank can really be aware of a Ponzi scheme unless they are actively in on it. I am not really familiar with the Madoff scheme beyond the superficial facts, but, I think banks only take money in, rent it out, and suck the life out of people. They don’t monitor investors, do they?

Best wishes,

If one, obscure, accountant had it figured out, then surely the banks with all their massive resources should have as well.

If you read the article to which you link, he wasn’t just some obscure accountant. He was a very senior executive in a competing firm who made a point of studying Madoff to try to figure out how he was doing so well so his firm could market a comparable product.

I suspect that banks could have done the exercise if they had some reason to do so, but they didn’t.

Just because they have massive resources doesn’t mean that they *should *monitor anybody, or investigate what crimes anybody may be committing.

Best wishes,

They knew. They absolutely knew. Unfortunately, I can’t be really specific here about how I know this, but they knew. They knew there were no trades. Some were told by their own accountants that Madoff’s operation was a scam. Some banks and investment banks refused to do business with Madoff.

The key is that there were no trades, and this was transparently obvious to those institutions that purported to be Madoff’s clearing houses. His “statements” were so clearly bogus that it is simply ***not possible ***that anyone in business with him (aside from small investors, the “little old ladies on fixed incomes” you hear so much about) could not have known.


I don’t know how his employees could launch an investigation, but it’s worth noting that there were multiple official investigations of his scheme…they just weren’t any good.


hh, The “banks” we’re talking about here aren’t like the outfits where you have your checking or savings accounts.

These are *investment *banks. Like Goldman Sachs or Bear Stearns (now deceased). Not like Wells fargo or the First Bank of Nowheresville. They are in the business of making investments and channelling investment money from their clients (big businesses & rich folks) into high-performing investments.

It’s *exactly *their business to know who they are dealing with, how successful those folks are at investing, and where all the money they’re pumping in is going & most importantly, when & where it’s going to come back out.

I have zero insight into the details of the whole Madoff affair, but the investment banks which sent him the money had a duty to understand what was happening.

That so much didn’t pass the smell test for anyone who even bothered to sniff indicates a lot of smart people had observed the high returns, sniffed, then were deliberately holding their nose as long as it was working for them. Most stayed in the game just a *leeettle *too long & got burned.