# Madoff admits to $50 Billion fraud **URL:** \ **Category:** In My Humble Opinion\ **Created:** [December 12, 2008, 5:22pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907 "2008-12-12T17:22:40Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [December 12, 2008, 5:22pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/1 "2008-12-12T17:22:40Z")
Story [here](http://news.bbc.co.uk/1/hi/business/7779442.stm). Just wow. Turns out it was a huge ponzi scheme. What are the ramifications of this? On the plus side for him, he won’t have to worry about accommodation in his declining years. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [December 12, 2008, 5:50pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/2 "2008-12-12T17:50:19Z")
What I thought was funny was that at any other time, this would be the lead story in the paper, but today it’s been overshadowed by news about the auto bailout. Apparently a $50 billion fraud doesn’t earn as much respect as it once did. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [December 12, 2008, 6:09pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/3 "2008-12-12T18:09:19Z")
I read about this last night and it was jaw dropping. This guy had been chairman of the NASDAQ board of directors and on its board of governors. Considered one of the biggest players on NASDAQ. Lots of important connections. OTOH, I suspect the $50B is hyped. You have to figure he is far from alone in doing this sort of thing. Some numbers I have seen suggest to there is a ratio of something like at least 5 to 1 of phony money vs real money being carried on the books on Wall Street. (And I hope new people can be put in place before Paulson spends most of that $700B buying the phony paper.) ---
**Author:** ![Tapioca\_Dextrin](https://avatars.discourse-cdn.com/v4/letter/t/3d9bf3/32.png) [@Tapioca\_Dextrin](https://boards.straightdope.com/u/Tapioca_Dextrin)\ **Post date:** [December 12, 2008, 7:01pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/4 "2008-12-12T19:01:37Z")
I loved the quote from his lawyer “Bernard Madoff is a longstanding leader in the financial services industry. We will fight to get through this unfortunate set of events.” ---
**Author:** ![ZipperJJ](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/zipperjj/32/211_2.png) [@ZipperJJ](https://boards.straightdope.com/u/ZipperJJ)\ **Post date:** [December 12, 2008, 7:04pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/5 "2008-12-12T19:04:14Z")
How do people hide this kind of money from agencies that control this sort of thing? I have like $200 in cash I want to hide from my roommate and I can’t even figure out where to put it. Surely these schemers aren’t literally stuffing their pockets, are they? ---
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 13, 2008, 1:56pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/6 "2008-12-13T13:56:31Z")
I just read the _New York Times_ on this. It is huge. Families that were well-off last week are down to their homes and cars now. How the heck can something like this happen in the modern age? We got regulatory agencies, we got computers. The scheme was huge and remarkably old-fashioned. I just read about a guy who’s dad invested with Madoff, and he just kept the family fortune there for 34 years. I suppose he is down to nothing. It just keeps getting worse. Lots of charities were invested. Madoff just resigned from the board of Yeshiva University. He was the treasurer. He was turned in by his sons. This ought to be an opera. ---
**Author:** ![PunditLisa](https://avatars.discourse-cdn.com/v4/letter/p/4af34b/32.png) [@PunditLisa](https://boards.straightdope.com/u/PunditLisa)\ **Post date:** [December 13, 2008, 3:23pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/7 "2008-12-13T15:23:44Z")
The thing that baffles me is that he was immensely wealthy to begin with. The dishonesty and the corruption among our businessmen, politicians, etc., etc., is just so disheartening. ---
**Author:** ![drm](https://avatars.discourse-cdn.com/v4/letter/d/a88e57/32.png) [@drm](https://boards.straightdope.com/u/drm)\ **Post date:** [December 13, 2008, 4:48pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/8 "2008-12-13T16:48:28Z")
Lets see if I’ve got this right: -He starts a hedge fund, it tanks. -He finds more investors to pay off the original investors. -repeat step two Where’s his out here? Clearly this went on for a while, how was he hoping this would eventually work out? The logic here is completely lost on me. A lot of this seems like pure desperation and I kind of feel bad for the guy, it isn’t like he netted a ton of money on this deal. What I don’t understand is, can’t the initial investors monitor the hedge fund in some way? Aren’t they able to figure out that there isn’t any money there? ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [December 13, 2008, 5:04pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/9 "2008-12-13T17:04:02Z")
Actually, according to a New York Times [article](http://www.nytimes.com/2008/12/13/business/13fraud.html?hp) on this, it was not a hedge fund. That’s important because had it been a hedge fund, outsider auditors most likely would have detected that there was a problem. As for why the investors didn’t notice a problem, here is a relevant part of that article: > [@](#): > > Sam Englebardt, a media investor in Los Angeles, said several relatives had entrusted virtually all of their assets to Mr. Madoff — and he understood why. > > “It seems like a huge over-allocation, I know,” Mr. Englebardt said. “But remember, they had started out small and invested over 5 years, 15 years, 30 years — and every year they got a great return, and they could always take money out without ever having a problem.” > > As that track record lengthened, his relatives gradually entrusted more of their savings to Mr. Madoff, he said. “I suspect that is what has happened across the board,” he added. “People came to trust him so much that, eventually, they trusted him with everything.” ---
**Author:** ![monstro](https://avatars.discourse-cdn.com/v4/letter/m/ba9def/32.png) [@monstro](https://boards.straightdope.com/u/monstro)\ **Post date:** [December 13, 2008, 5:04pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/10 "2008-12-13T17:04:23Z")
> [@drm](#): > > A lot of this seems like pure desperation and I kind of feel bad for the guy… He’s a sociopathic thug who deserves to rot in prison for the rest of his life. Save your pity for his victims. ---
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 13, 2008, 5:11pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/11 "2008-12-13T17:11:37Z")
> [@drm](#): > > Where’s his out here? Clearly this went on for a while, how was he hoping this would eventually work out? The logic here is completely lost on me. Have you noticed how much fraud is committed by Doris in Accounting who never takes vacation or misses a day of work? Years ago a wise man pointed out how tough it is to end a fraud. Suddenly you have to explain why revenues went up six percent. A massive fraud is easy to start but darn tough to stop. ---
**Author:** ![drm](https://avatars.discourse-cdn.com/v4/letter/d/a88e57/32.png) [@drm](https://boards.straightdope.com/u/drm)\ **Post date:** [December 13, 2008, 5:42pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/12 "2008-12-13T17:42:09Z")
Damn hard to stop is right. These are REALLY big numbers we’re dealing with here. I can’t imagine being one of his clients right now. I have a feeling the torch and pitchfork markets are going to go up over the next few days. > [@monstro](#): > > He’s a sociopathic thug who deserves to rot in prison for the rest of his life. Save your pity for his victims. To be fair, I DID say ‘kind of’…you’re right though. Thanks **Dewey Finn** , now it makes a bit more sense. I DID take a finance class in university but it was a decade ago and I only got a B-. ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 13, 2008, 5:49pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/13 "2008-12-13T17:49:21Z")
This gives a bit more inside info and an insight into the social connections and relationships at work. [Bernard Madoff and the Jews of Palm Beach](http://www.huffingtonpost.com/laurence-leamer/bernard-madoff-and-the-sh_b_150624.html) Make no mistake it’s a LOT of money and the old school wealthy (in the US that’s about 25 years ago) are going to be very hard hit. His clients (and he turned lots of people away) were the top rung of society. ---
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 13, 2008, 5:59pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/14 "2008-12-13T17:59:45Z")
Wow. The guy ripped of his friends. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [December 13, 2008, 6:51pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/15 "2008-12-13T18:51:53Z")
> [@Paul in Saudi](#): > > Wow. The guy ripped of his friends. That’s what people creating Pyramid schemes generally do. Each time I heard about such a (small scale) scheme, the victims were friends (or even relatives) or had eventually come to befriend the crook. The only difference here seems to be the scale. And the fact that the victims were wealthy people, generally assumed to be investment-savy. Yet another evidence that people at the top of the food chain often aren’t any brighter than most of the ordinary folks. ---
**Author:** ![Hodge](https://avatars.discourse-cdn.com/v4/letter/h/5f9b8f/32.png) [@Hodge](https://boards.straightdope.com/u/Hodge)\ **Post date:** [December 13, 2008, 10:02pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/16 "2008-12-13T22:02:45Z")
One thing not mentioned here yet is that a number of his investors KNEW something was fishy. They’d run the numbers and decided that he wasn’t playing by the rules but they assumed Madoff was insider trading. Presumably, if they’d know if it was something so disreputable as a ponzi scheme they’d have pulled their money out :rolleyes: ---
**Author:** ![Plan\_B](https://avatars.discourse-cdn.com/v4/letter/p/3ec8ea/32.png) [@Plan\_B](https://boards.straightdope.com/u/Plan_B)\ **Post date:** [December 13, 2008, 11:22pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/17 "2008-12-13T23:22:18Z")
> [@clairobscur](#): > > That’s what people creating Pyramid schemes generally do. Each time I heard about such a (small scale) scheme, the victims were friends (or even relatives) or had eventually come to befriend the crook. The only difference here seems to be the scale. And the fact that the victims were wealthy people, generally assumed to be investment-savy. This a\*\*hole ripped off his father-in-law. As in his wife’s father! (Somehow that sounds worse to me) [http://money.cnn.com/magazines/fortune/fortune\_archive/1998/06/08/243521/index.htm](http://money.cnn.com/magazines/fortune/fortune_archive/1998/06/08/243521/index.htm) ---
**Author:** ![brickbacon](https://avatars.discourse-cdn.com/v4/letter/b/898d66/32.png) [@brickbacon](https://boards.straightdope.com/u/brickbacon)\ **Post date:** [December 14, 2008, 9:57am UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/18 "2008-12-14T09:57:11Z")
> [@Hodge](#): > > One thing not mentioned here yet is that a number of his investors KNEW something was fishy. They’d run the numbers and decided that he wasn’t playing by the rules but they assumed Madoff was insider trading. Presumably, if they’d know if it was something so disreputable as a ponzi scheme they’d have pulled their money out :rolleyes: Exactly. This is why they say you can’t cheat an honest man. So many people we in on this in one form or another. Plus fellow investment bankers called [foul](http://www.huffingtonpost.com/2008/12/13/madoff-made-smart-folks-l_n_150762.html) on his scheme several years ago. > [@](#): > > “There’s no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags,” says Jim Vos, who runs Aksia LLC, a firm that advises investors and came away worried after examining Mr. Madoff’s operation. > [SNIP] > Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff’s stock-options strategy and was convinced the results likely weren’t real. > > \*\*“Madoff Securities is the world’s largest Ponzi Scheme,” Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999. > \*\* > Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal. > > Also striking some as odd: Mr. Madoff operated as a broker dealer with an asset management division. Why not simply act as a hedge fund and pocket big gains, rather than profit from trading commissions as the firm seemed to be doing, they asked. > [SNIP] > **Joe Aaron, for long a hedge fund professional, found that structure suspicious and in 2003 warned a colleague to steer clear of the fund. “Why would a good businessman work his magic for pennies on the dollar?”** > > Conflicts of interest also proved a concern. “There was no independent custodian involved who could prove the existence of assets,” says Chris Addy, founder of Montreal-based Castle Hall Alternatives, which vets hedge funds for clients seeking to invest money. “There’s a clear and blatant conflict of interest with a manager using a related-party broker-dealer. Madoff is enormously unusual in that this is not a structure I’ve seen.” > > Some trading pros said Mr. Madoff’s purported strategy couldn’t be pulled off profitably while managing tens of billions of dollars. Everybody knew something was fishy, they just didn’t think they were the ones getting screwed. Hard to feel bad for any of them. ---
**Author:** ![Cicero](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cicero/32/3594_2.png) [@Cicero](https://boards.straightdope.com/u/Cicero)\ **Post date:** [December 14, 2008, 10:35am UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/19 "2008-12-14T10:35:36Z")
I hide my few dollars under the kitty litter tray- who would lift that up? ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [December 14, 2008, 1:46pm UTC](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907/20 "2008-12-14T13:46:16Z")
Here’s what I think happened. He started small and was making money, maybe 10% for a year or two. Then one year he didn’t make the money and decided to fake it. After that, it got worse and worse. Some of the people who didn’t invest with him said that the real tipoff was that he was making the same 10% return year and year out and nobody’s that good. Also, he stayed and faced the music; he is not basking in the undeserved wealth in the Bahamas like most Ponzi schemers. I don’t think he is a psychopath, I think he just got in so deep that he couldn’t pull out. Pure Ponzi scheme pay better (at first) and collapse in a year or two. This guy’s been doing it for 35 years. A couple of points. He ran a brokerage so no one knew (they still don’t) if he was actually carrying out the trades he reported to his clients (my WAG: many of them he did and many of them he didn’t; whatever it took to explain the 10% return each year). And he used what was obviously a crooked accounting firm to do his books. I’d like to see them spend as much time in the clink as he will. It is not that I don’t think he should be jailed. He must be made an example, but so should his accountants. [Next page](https://boards.straightdope.com/t/madoff-admits-to-50-billion-fraud/476907.md?page=2)