Friday, December 12, 2008

A Massive Ponzi Scheme

A Massive Ponzi Scheme

A guy who apparently defrauded investors of $50 billion --and was turned in, apparently, by his sons, who worked for the same firm. From the December 12, 2008 Wall Street Journal:
The Securities and Exchange Commission, in a civil complaint, said it was an ongoing $50 billion swindle, and asked a judge to seize the firm and its assets. "Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew M. Calamari, associate director of enforcement in the SEC's New York office.
In a separate criminal complaint, Federal Bureau of Investigation agent Theodore Cacioppi said Mr. Madoff's investment advisory business had "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars."
Mr. Madoff's Fairfield Sentry Ltd., a hedge fund run by Madoff Investment Services to invest in shares in the S&P 100, claimed to be up 5.6% through the end of November, a period when the Standard & Poor's 500-stock index was down 37.65%. In October, Fairfield Sentry was said to be down 0.06%, a month when the S&P 500 lost 16.8%. Since its inception in December 1990, the fund averaged a 10.5% annual return, according to fund documents.
Such returns sparked widespread skepticism for years on Wall Street. News stories raised questions about his approach. A number of traders suggested his firm could be buying shares for its own account just before it filled orders for customers, an illegal act called front-running.
In 2001, Mr. Madoff told Barron's that charges of front-running were "ridiculous."
An executive in the securities industry, Harry Markopolos, contacted the SEC's Boston office in May 1999, urging regulators to investigate Mr. Madoff. Mr. Markopolos continued to pursue his accusations over the past nine years, he said in an interview on Thursday, and according to documents he sent to the SEC that were reviewed by The Wall Street Journal.
"Bernie Madoff's returns aren't real and if they are real, then they would almost certainly have been generated by front-running customer order flow from the broker-dealer arm of Madoff Investment Securities LLC," Mr. Markopolos wrote to the SEC in November 2005.
Now, before the left starts whining about those nasty Republicans:
According to a 1986 report in a monthly financial magazine, Financial World, titled "The Highest Paid People on Wall Street," Mr. Madoff owned three homes and kept a yacht moored in the Bahamas. The report said he earned $6 million in 1985. Property records show at one point he owned a home in Montauk, N.Y., and paid more than a $1 million in annual taxes. He has made major donations to Democratic candidates and organizations.
The Democratic Party for a very long time has been largely a tool of a lot of people like this. Do you remember Ken Lay's involvement with Senator Kerry's wife? I thought not. And the scandal that peripherally touched Senator McCain in the early 1980s? Those who were most deeply involved in the Keating Five scandal--were Democrats. That's part of why Democrats continually rail about "Republican fat cats"--to distract attention from the fact that the Democrats are at least as much the party of fat cats as Republicans.

I've always been a bit nervous about having "investment advisors" helping me manage my wealth--and it is because of scandals like this. I don't do as well as I might with someone competent managing it--but I don't have sleepless nights wondering if my advisor is stealing my wealth, and giving it to the Democratic National Committee.

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