I know what a Ponzi scheme is and I realize that alot is not known at this time.
I’m wondering how his firm was set up such that some investor didn’t see a problem.
Were there no quarterly statements?
Were there “brokers” in between who got the reports and ignored them such that the ultimate investors were somewhat in the dark.
Apparently. Madoff made NO trades at all, for the last 10 years! he had a very sophisticated computer program, that generated fictitious trading histories (one client/mark got a statement that was 8 pages long!) Madoff “baffled em with b-shit”. i also wonder how many of his investors were also pulling cons of their own-a mutual fund manager sends millions to madoff-after raking in his cut-then claims losses on the fictitious earnings that Madoff told him he made.
These wall street types are looking more and more like vermin!
As I understand it, he put whatever he wanted on the statements, showing great returns on the money people invested. Whenever someone requested a payout, he was able to use money from new investors to make the payment. Eventually, this new money ran out, he wasn’t able to make these payments, and the whole scheme collapsed.
Does that help, or am I simply re-stating what you already know? If so, I don’t think anyone knows much more than this at the moment.
There were statements, but as other posters pointed out, Madoff just put whatever he wanted on them.
Due to how he structured the funds, he wasn’t required to file many disclosures with the SEC.
All that said, it’s not like nobody was suspicious. Several people alerted the SEC to possible shenanigans years ago, but they just took the word of Madoff’s (fraudulent) accounting firm rather than doing their own investigation.
ETA: posted better link
there’s one more aspect of Madoff’s trickery that has never been explained:
If none of his clients were suspicious of him, why didn’t they give him more of their money?
I can understand why a naive investor wouldn’t want to probe too deeply into just how this genius broker and personal friend is making such high profits. People are greedy…
But so many of his clients (big charities, universities,etc )are now saying that the millions they lost are “only” 2% or 10% of their total funds.
I don’t get it–if you are managing a huge endowment fund, and you trust your personal friend Mr. Madoff, and he gives you great profits, every single month for years, why do you only invest a small percentage of you money with him?
And if you are smart enough to follow the market and spread your risk, then presumably you look at each of your investments and ask intelligent questions. (like gee whiz, my high-tech fund lost money, and my real estate fund made money, and my guess about the Widget corporation turned out well----so maybe I should ask Madoff how much he puts into high-tech or real estate and the Widget corporation)
But apparently, nobody ever confronted Madoff personally, either formally at his office or informally at the golf course. Sure, some people are naive, and only investing their personal money… But why didnt the professional money managers ever ask Madoff how he did it? They could boost their own careers by increasing their profits. And if they were so sure that Madoff would always make a good profit, why didn’t they give him more of their assets? Or were they ipart of the fraud, too?
My WAG is that those who did are too embarrassed to talk about it. NPR’s show Talk of the Nation just interviewed one woman who did “put all the eggs in one basket” with Madoff, and she wrote an article called “I Was Fleeced By Madoff” for salon.com. She said she was ripped to shreds on their forums by people gloating over how stupid she was. Her justification was that she’d lost on everything else (bought house high, sold low, etc.) and that a friend who’d invested with Madoff for 30 years for a small but steady return had offered her an investment opportunity with the guy. They also believed that their investigations into his background and dealings were sufficient. She (and I) was under the impression that the SEC had actually done full investigations three separate times (looks like they found some issues but didn’t go deep).
So what did his floor full of traders, analysts, and flunkies DO all day? Hard to belive that one young Madoff employee (after a 9-martini “lunch”) didn’t start blabbing…“I work for a guy named Bernie Madoof-and we spend all day making paper airplanes…”!!
and how did all his broker-friends not talk about work with him? Everybody “talks shop” when his friends work in the same profession.
His social circle included a lot of people in the world of high finance. And those people are pretty conscious of social status and name dropping. During simple conversation at the country club, didn’t anybody ever ask him which prestigious office building he preferred to bestow his name on, or which famous wall street names tried to hire him, or which expensive club he was hosting the office’s annual dinner, or which famous lawyers/accountants he used?
I saw a bunch of articles by people pointing out various things that should have warned people that something was wrong with Madoff’s scheme (10% return in good years and bad, small accounting firm doing the audits, etc.). The funniest was the one Wall Street guy who was amazed that no one suspected anything from someone who wasn’t charging investment fees, because on Wall Street, everyone charges fees.
NPR’s Planet Money said that Madoff had his owning trading firm, so he “made all trades in house, saving money”, or so he said. There weren’t other companies handling his transactions and seeing irregularities.
They also mentioned jokingly something about the auditor being one guy with his dog. Does anyone know what they were talking about?
Dunno about the dog, but apparently Madoff’s hotshot accountants were a reputable firm with a whopping three people:
His more sophisticated clients probably thought he was engaging in a form of insider trading and they thought of it as sort of a …nudge nudge wink wink “crime” like buying Cuban cigars in Cancun.
He owned a large legitimate trading firm that placed large orders for institutional clients which gave him “insider” knowledge since he knew about large trades before they were placed. So if client X places an buy order for a gazillion shares of company X, Madoff could then place an order for his own personal clients before he places the large order. The order for a gazillion shares of company X will make shares of company X more expensive, so he could then sell the shares he bought for his clients at a profit. In a down market he could use sell orders in the same way, getting his clients out before a downturn.
That’s not what he was doing, of course. He was just stealing the money and keeping it except for what he gave to clients to keep the scam going. The fact that this seemed plausible was a vital part of the scam as it made the returns believable and made the more “sophisticated” investors inclined not to ask questions.
And why did they think this guy would cheat for them? Because he was their friend, he worked with them, contributed to their charities, joined their clubs and worshipped in their synagogues.
To quote a source whose name I don’t remember …“we all knew Bernie was cheating, we just didn’t think he was cheating us”.
He was a masterful con man, pure and simple…and he almost pulled off the ultimate long con. Last night I was reading a Tim Dorsey novel and came across this dialogue about what makes the long con so tricky.
“That’s the thing about the long game. You’re working against…the kind of people who can read other people. Businessmen who’ve built fortunes exploiting others in the gray edges of the law. The long game turns their greed against them and clouds their judgement”.
Everything I’ve read about the rules of the successful con smacks of Madoff
Establish crediblity. Dress like a nun, priest or serviceman. Become the founder and chairman of a major stock exchange like the NASDAQ.
Never ask for money. Set it up so it’s the victim’s idea to give you their money. If you can make them feel that they are really special because you will take their money, that’s the best. That’s why the people that funneled money to Madoff through feeder funds weren’t allowed to mention him, he didn’t want anyone to know how many “special” friends he had.
Make sure the people that are selling it for you aren’t in on it. You can sell it better if your salespeople really believe in you.
That said, some of his victims should’ve known better but others were truly innocent …their legitimate accountants and financial advisors recommended the fund or a feeder fund. And he was smart enough NOT to make the payoff too good, the returns were not outrageously great, just consistently great.
I really do feel for the victims (many of my clients are in the social group that Madoff targeted)…I know of three victims so far among clients and former clients and I’m sure there are many more I DON’T know about yet.
It takes a lot of people to administer a fund. Is it really possible that nobody except Madoff was responsible for everything to do with this scheme? Due to the amount of money and parties involved, it doesn’t seem likely that one person could handle it all.
Investigators find tha Madoff made NO trades in the past 13 years!
So, once again, how was this fraud constructed? What did Bernie’s traders do, to occupy their time?
He wasn’t using traders. This was his own secret fraud.
I still find it extremely unlikely that Bernie was able to handle every single aspect of administering his fund…
What administering?
It’s pretty easy when you are just taking people’s money.
But he wasn’t just taking people’s money - he was also paying out.
He’d need to keep track of all of his accounts, he’d need to send out (bogus) statements on a regular basis, he’d need to keep track of payouts, he’d need to file regularly with the IRS (which I suspect he was doing, otherwise he’d’ve been caught a lot earlier). This was not one of those “add your name to the bottom of the list” schemes, this was a huge undertaking.
Here’s a list of some of the Madoff victims:
http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html
I do feel for some of the people, but in a way it’s kind of funny. Like another poster said, the people that invested with him thought they were special and he was cheating *for *them, in actuality he was cheating them.
The thing that really makes this twisted is that I read they are going to go back and make people who took out their money months or even years ago put it back in the “bucket” for redistribution to the others who got ripped. So just because you got out last year or a few years ago doesn’t mean you’re safe. What a mess.
Most (probably all) large investment funds have internal diversification rules that limit how much money they can put into a single investment. This Madoff scam is an excellent illustration of why these rules are in place.