There's more than meets the eye in the Madoff scheme

[sixmile]

Call it a hunch. Call it common sense. I think even with a crack team of FBI investigators now pulled off homeland security and assigned to dig through the Madoff scandal http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5380550.ece that we will never know the truth about how he pulled it off, IF he pulled it off, and who helped him - http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aodwWsCGHTFQ as it was nearly impossible to do alone.

I have a thousand questions and I am fascinated with the daily developments in the case.

For instance - where did the money go? It's a simple question that I fear will never be fully answered.

I know people who lost money with Madoff. I also know that there's more than meets the eye.

THE BIGGEST LOSERS

Fairfield Greenwich Group (investment management firm) $7.5 billion

Tremont Group (hedge fund) $3.3 billion

Banco Santander (Spanish bank) $2.87 billion

Bank Medici (Austrian bank) $2.1 billion

Ascot Partners (hedge fund founded by J. Ezra Merkin) $1.8 billion

Access International Advisors (New York investment advisers) $1.4 billion

Fortis Bank Nederland (Dutch bank) $1.35 billion

Union Bancaire Privée (Swiss bank) $1 billion

HSBC (British bank) $1 billion: one of these guys has laready found a way out-
'Top Banker Found Hanged in Hotel Room' http://www.independent.co.uk/news/uk/home-news/top-banker-found-hanged-in-hotel-room-1206752.html

RBS (British bank) $599 million

Natixis (French investment bank) $554 million

Carl Shapiro (founder of Kay Windsor) $545 million

BNP Paribas (French bank) $431 million

BBVA (Spanish bank) $369 million

Man Group (British hedge fund) $360 million

Reichmuth & Co (Swiss private bank) $327 million

Nomura (Japanese broker) $304 million

Maxam Capital Management (fund of funds based in Connecticut) $280 million

EIM (European investment firm) $230 million

Aozora Bank (Japanese bank) $137 million

AXA (French insurer) $123 million

Yeshiva University (private, New York) $110 million

UniCredit (Italian bank) $92 million

UBI Banca (Italian bank) $86 million

Swiss Life Holding (Swiss insurer) $78.9 million

Great Eastern Holdings (Singapore insurer) $64 million

Nordea Bank (Swedish bank) $59 million

M&B Capital Advisers (Spanish broker) $52.8 million

Hyposwiss (Swiss private bank) $50 million

Banque Bénédict Hentsch & Cie (Swiss private bank) $48.8 million

Fairfield, Connecticut (town pension fund for firefighters, policemen and teachers) $42 million

Half of these investors are professional financial institutions loaded with financial professionals whose sole pupose is to keep track of investments. How, oh how, could this guy put ALL these organizations over? I don't' think he did. Go ahead and scream 'tinfoil hat' but this whole story stinks to high heaven.

Madoff's 'scam' also conveniently avoided the attention of all his employees; accountants, compliance officers, traders, auditors and the US regulators, all of whom are also financial professionals.

As I have said before, (to the disagreement of others) money is never made or lost it simply changes form. Therefore, for every one of the $50 billion dollars lost by Madoff it was likely made somewhere else as a profit. Who made it? Let's find them and put them in charge of the Treasury.

As Bloomberg says, the dominos have not yet started falling. http://www.bloomberg.com/apps/news?pid=20601087&sid=aMHnWKA6LqMU

Updates:

Blumenthal may investigate charities ripped off by Madoff http://www.forbes.com/business/2008/12/22/madoff-blumenthal-charities-biz-wall-cz_cc_1222charities.html
'Robert Blumenthal, attorney general for the state of Connecticut, has asked the court-appointed trustee responsible for Madoff's liquidation for the names of Connecticut-based victims, including nonprofit organizations. The attorney general says the issue of nonprofit board liability "is, obviously, by no means crystal clear."

"If they failed recklessly to do the necessary due diligence, we would certainly investigate and take action," Blumenthal told Forbes.com. "If the claim is that a trustee or a board member or that the board itself failed in its fiduciary responsibilities, there would be legal action and they could be held personally and financially responsible."

Financial Times in depth coverage
http://www.ft.com/indepth/madoff-scandal

Madoff feeder Investor warned it's clients
http://www.ft.com/cms/s/0/56537fba-d076-11dd-ae00-000077b07658.html

Probe eyes auditor Frank DiPascali
http://online.wsj.com/article/SB122999256957528605.html
Investigators probing the alleged fraud carried out by Bernard Madoff are looking at a key lieutenant at the firm and have issued a subpoena to the accountant who audited the firm's financial statements, seeking documents going back to 2000, people familiar with the matter said.

Authorities are trying to determine who helped Mr. Madoff carry out what they say appears to be at least a 30-year scheme that may have caused at least $50 billion in losses. They are seeking information from the accounting firm that handled Mr. Madoff's audits for decades and are examining the role of Frank DiPascali

[monmouth]

1. U.S. enemies know that the ruin of the financial system in the U.S.

is the beginning of its downfall. China is going to cut back on lending. Some troubling times ahead I fear...

[sixmile]

3. China won't be able to lend if they keep heading toward recession

Since the Olympic Games their manufacturing is down dramatically, but it's not because of Madoff.

[KoKo]

2. Great Post! "K&R!"

[mrreowwr_kittty]

4. What did happen to all the money?

I get that it was a Ponzi scheme but it's nearly impossible to spend that kind of money without detection. And even if Madoff made HORRIBLE investments with it, he couldn't have lost all of it. I suspect there's at least some of it left, hidden in offshore accounts.

[pitohui]

5. you don't know what a ponzi scheme is, do you

i know someone who pulled off a similar scheme, of course he was not head of nasdaq, and so the fbi came hard on his ass in the fifth year and he had to shoot himself

the money is gone, the way the scheme works is...you use the new money to pay off the old money...the arkansas guy's scheme was bold, he claimed a 20 % return (in other words, impossible) but madoff's scheme was pretty bold since he was claiming a 12 % return in an environment where 5 % was much more likely

the trouble is, we've been hammered for 2 decades that the "average" return on stocks is 12 % annual (quite simply a lie) but the media spread the lie, madoff didn't rob this bank all on his own lonesome, the entire press, internet, EVERYONE participated

if i had a dime now for every post i left in the last decade pointing out that stocks do NOT offer a 10 or 12% annual return, and i got flamed for being negative, i'd be a fucking millionaire myself right now

so far i haven't even received one "thanks, you helped me not make a big mistake" or one "i owe you an apology, you were right"

it wasn't just madoff, the press/media/motley fool/wall street journal/everyfuckingbody was complicit in this bullshit

but madoff was claiming impossible returns, the ONLY way to provide those return was the ponzi scheme, so older victims of the fund took and SPENT money they THOUGHT they had earned thru wise investment -- now here's the catch -- you have NO right to spend or keep stolen money so they have to return this money to the ripped-off later victims

everybody's fucked!

[rhett o rick]

12. Isn't the whole "wall street" thing a giant ponzi scheme? Aren't "they" into the scheme

hundreds of trillions of dollars and Paulson wants trillions, not to fix anything, but to keep the scheme going a little longer.

[sixmile]

18. You are correct

We are being looted and not one of us is able to do anything about it. Trying calling your Rep or Senator, expect to be brushed off.
When citizens loot, the Police and National Guard are called in to put down insurrection.
Who do we get to call in while our future is being looted? Noone.
I suspect that guys like Eliot Sptizer were onto exposing the whole Wall Street casino scam, and look how he ended up.

[rhett o rick]

28. Thanks a lot. I would feel better if you told me I was crazy. nm

[alcibiades_mystery]

6. ROFL

"Madoff's 'scam' also conveniently avoided the attention of all his employees..."

:rofl:

I wouldn't be so sure. Not everyone os so stupid as the newspapers make out, and some are much more stupid than the newspapers make out: that's the real key to this Madoff business.

[sixmile]

19. His Sons as whistleblowers?

I think not. This was a criminal enterprise; a huge ball of moneyed filth.

[mrreowwr_kittty]

7. Also, they should find out who did a full redemption in the past few months.

There's got to be a list of those people, along with the ones who lost everything.

[alcibiades_mystery]

8. That proves nothing

People made full redemptions in the last few months for all kinds of legitimate business reasons, such as massive margin calls on other non-Madoff accounts, etc. In a bad market cycle, it's precisely the time when people do legitimate redemptions on funds. That's why the Madoffs of the world out during bear markets. There is no automatic connection from a full withdrawal over the last few months to some involvement in the scheme.

[mrreowwr_kittty]

11. True, but sometimes people do redemptions when they know something is afoot.

It doesn't hurt to find out who those people are and talk to them. A few Enron folks bailed out before the shit hit the fan and it was from them that we found out what happened.

[alcibiades_mystery]

13. That money is all being clawbacked anyway

It's a big shit sandwich for everybody. It's not like people who redeemed in November are going to keep those redemptions. It's a decade of lawsuits even given what we know now.

[Fumesucker]

9. money is never made or lost it simply changes form.

I disagree that money is never made.

In the beginning there was no money at all, now there are vast oceans of it.

At some point money was created (made) or there would still be none.

I agree though that money isn't lost, it just changes hands or form.

Also agree that there is no way Madoff could have pulled this off with no one knowing anything at all.

[sixmile]

15. I humbly half agree with your assertion

Money is printed by the mint, or authorized as loans, but in the investment sense VALUE is created, not money.
It is value that is traded when investments are bought and sold.

[Fumesucker]

20. But value is to a big extent in the eye of the beholder..

As pointed out by the old saw that something is worth exactly what you can get someone else to pay for it.

Assume a bunch of wacky aliens come to earth who see immense artistic merit in dried cow flops and purchase them in vast quantities in order to ship back to their home planet for decorations, the *value* of cow flops will then soar but in the end they are still bovine manure.

Money on the other hand either exists or it doesn't (to a point anyway).

[sixmile]

21. Count on cow shit being privatized by corporate America then

:)

[Wapsie B]

10. One big reason why white-collar crime can be so hard to prosecute

is because of this difficulty in tracking everything. I'm sure the people that Madoff swindled weren't 8th grade dropouts working in a convenience store either, but rather well-connected, well-educated people. I remember a scam artist working a Ponzi scheme on a smaller scale, approaching small towns with his bogus investments. Thing is though the people who gave him the money had a responsibility to at least be familiar with the places in which they invested, along with the various financial instruments used. Guess what? Few if any of them had a clue. But they never said anything until after the fecal matter hit the oscillating air mover.

[rhett o rick]

14. A lot of the time the reason victims don't say anything is because they think that

what they are doing is at least a little illegal. They know that the promises of the scheme runner are too good to be true but as long as they are getting their high interest they are quiet.

[Skink]

16. Starting to look like Arthur Anderson. Some accountants somewhere had to hide the money.

Already institutional investors are filing lawsuits.

[malaise]

17. People lost hundreds of millions off two

of these schemes in Jamaica earlier this year CashPlus and Olint. Both donated generously to the two political parties and more than a few politicians made money early in the game.
What you have to understand is that eventually you have more players than money and you use your first set of money to pay the large interest to woo more people. That cannot be sustained.

Here's a CashPlus link. Note - both of these Jamaicans were schooled on Wall Street.

http://wealthmax.wordpress.com/2007/08/27/cash-plus-the-poor-people%E2%80%99s-messiah/

The Cashplus bosses were jailed until they raised bail, but they are going to prison.

[sixmile]

22. Prison?

Thank God there's some justice in this world.

[malaise]

26. That link I posted gives you a very good idea

how people think. Carlos Hill from CashPlus had links all over the world and there were rumours from early that there was money laundering and some strange links in Albania, but the stupid people wanted 10% interest a month. People were warned - over and over. Several people we know - men and women with all sorts of college degrees lost their savings. And so did several musicians. We stayed with our credit union. For a while all people talked about was their new found wealth. Several took their money from regular banks and moved to CashPlus, Olint and Higgins-Warner.

Read the blog and check out Higgins-Warner as well. I'll never understand greed.

Let me add that they won't survive prison either. They'll be killed in there if they are not killed before their trials make it to court. Jamaicans don't joke about these things.

[sixmile]

27. I believe Gandhi said of human greed

that it was the most evil thing in the world

[zazen]

23. and Martha Stewart was forced to do jail time because . . . ?

I still think she was a Dem contributer that they went after early. They did that to Meg Scott Phipps here in NC. Sure, lots of Dems committed petty white collar crimes, but they pale in comparison to the major theft going on, and the Dems were systematically persecuted/prosecuted for the most minor infractions.

I'm just disgusted that this guy gets to hang out in his penthouse all day. He'll just eat gourmet food and get professional massages for a few more months and then comfortably off himself with a prescription cocktail. In his 70s. While a guy who tossed a shoe at Bush has his earlobes seared with lit cigarettes. Hmm-kay.

[rhett o rick]

29. Martha wasn't in "the club". nm

[Libertyfirst]

24. The money Madoff collected didn't just vanish. He paid a

considerable amount of it out over the years to people who invested. Remember it was that terrific return on the money they gave him to invest that led still other investors to invest a necessary competent of the scheme. At a 12% rate of return for decades, didn't many of the early investors receive all their original investment back? Plus lots of other other new investor's funds?

And didn't he pay people a fee who found him new investors?

And then a few hundred million or billions stuck to his own hands.

I think someone good at math could probably produce model of how much was received by a person who invested a million with Madoff at different points in time. Of course, regardless of how much they received, they have evidently lost all of their capital.

[sixmile]

25. Then the $50 billion paid out to the first investors is ill gotten gains

and should be returned. Right?

[sixmile]

30. Now another death

http://www.huffingtonpost.com/2008/12/23/thierry-de-la-villehuchet_n_153147.html
Thierry de la Villehuchet money manager and co founder of Access International.
It just keeps getting thicker.