The funniest part of this is the stock portfolio managers who put every dime of their client’s money with Madoff and then charged their client’s huge management fees as if they were actually working the invested dollars.
The thing is it’s not hard to believe if you have any experience in accounting. Last year I started a consulting job as an external auditor. I started the preliminary examinations.
Right off the bat I could see money, to the tune of at least $100/day was being voided off the books. I went to the controller.
“We trust our people.”
Fine, I went to the GM and reported what the controller said, in just a minor skim I already found fraud. I repeated what the controller said. The GM said “Well it’s her job to know the books, so that’s that.”
I went to the regional controller, who told me it was a local external audit and didn’t involve him.
So right now I have proof of missing money and NO ONE CARED.
So I didn’t bother taking the job as I knew something was amiss with the whole operation and it was climbing higher than the corporate level.
These guys weren’t looking for someone to stop fraud, they were looking for an outsider to “overlook” problems and give them an OK so when hell broke lose they can say "yeah we had an audit by an external source.
It’s all too common in business.
This is my feeling as well. If I would have been getting a 10% return in the last few years, I would have just felt blessed that I was investing with a “solid” Wall Street insider to protect my cash. I might look at my statements, but I wouldn’t ask too many questions for fear that I might start losing money like “regular” people.
The Nigerian scam works on this principle as well. You are sending cash out as a bribe to the banking officials. Do you start involving the authorities or asking questions when things simply seem to be off?
This is what I can’t understand either. There’s one heck of a lot of work involved in the kind of deception that Madoff was supposedly pulling. Haven’t you guys ever looked at the statements you’ve received from various funds? The prospectus? Various proxies, tax statements, etc.? Haven’t you looked at your funds’ Web sites, with all sorts of market comments, fund updates, geographic and sector distributions, breakdowns of one type and another? Statements about quarterly outlook, etc.? Running a fund results in tons of documentation. I can fully appreciate that some Madoff investors wouldn’t care about this stuff, and if they never got it, they wouldn’t notice. They’d be happy to get one statement per year saying Up 10%! Hooray! But not all of them. Some investors, especially big ones, regularly pore over and expect all of the very lengthy, detailed statements, updates, tax docs, etc. They send tons of questions to the fund managers and expect clear answers. How did Madoff fool these types of investors? Did he actually fake all of this very detailed stuff? He would have needed a big team to pull it off. He couldn’t possibly fool all his investors with a twice-yearly one-page statement that simply said all is well, we’re up 10% again.
This thing is astonishing. It made much more sense when we thought he was actually a legit manager who got into trouble and turned to the ponzi scheme out of desperation. But not to have made any trades at all? How’d he fake everything so convincingly for so many years? When I think of the docs that my funds send me, well, the mind boggles. He had to fake all of that stuff.
I haven’t been keeping up. Has this been ruled out?
-FrL-
Well, the news this weekend seems to suggest that he hasn’t made any trades at all for at least a decade with the money he’s been given by investors. So I suppose it’s still possible that he did *start out *legit, but the ponzi scheme appears to have been going on for a heck of a long time now. I originally thought he was legit, but maybe got into trouble the last couple years with mortgage-backed investments or something and then began desperately solliciting new investments to pay off exiting investors. In that scenario, he probably could’ve faked the necessary docs for a year or so until the questions got too difficult to answer, or an employee blew the whistle. But the court-appointed trustee who was all over the news this weekend says he sees no sign of any trading activity at all by Madoff for over a decade. That’s not an indication of a legit manager who recently got into trouble with some bad investments.
I’m guessing the “with his dog” is a seeing-eye dog reference; i.e. the books were audited by someone who was blind.
I think, as has been said, that there was an aura that it was an honor to invest with Mr. Madoff. The idea was that you were getting your 10%, so it was best to keep your yip shut, lest you displease Mr. Madoff and not be asked to invest anymore. Feel free to go elsewhere where they are losing their asses.
When you have an inkling suspicion that something slightly illegal is going on, you don’t demand to see it all on paper…
Well, I guess it comes down to the number and variety of clients he had. The scenario you’re depicting would require a very small number of clients, specially picked to be the sort who didn’t demand to see detailed statements/info. Maybe that’s the case. But it’s still hard to imagine. Wealthy clients, especially retired ones, often love to pore over statements, investment philosophies, etc., and attend annual meetings to ask questions. Did Madoff just show these types the door? Gave them their money back and said sorry, you’re obviously not Madoff material? I don’t do detailed statements and annual meetings? I have no prospectus and I wouldn’t reveal the geographic distribution of my holdings if my feet were held to the fire?
I was under the impression that with billions “invested”, he had a lot of clients, (even if some of them had coughed up tens of millions) and it seems to me that even if there were just a few who were ornery, sharp-eyed buzzards, the jig should have been up. I know at least one guy raised the red flag repeatedly but couldn’t get anyone to take him seriously.
I guess if all clients were hand-picked, wealthy simpletons the thing works, but didn’t he have some endowments and pension funds as investors? And didn’t any of the wealthy clients have accountants, investment advisors, etc.? These people usually don’t accept a wink and a nod. Some of them might, but all of them? It seems to me that Madoff must have been feeding out some serious docs to at least some of his investors.
In the end, all I’m really saying is, I can’t wait for the book to come out.
I thought he probably started out legit, then started doing bad things, and then couldn’t get himself out of the situation he’d created for himself, not even after more than a decade.
But it was total speculation on my part to think this, of course.
-FrL-
What I’m curious to know is how much of this stolen money he spent, and how much he used to keep the scam going.
-FrL-