Madoff Fraud

It is almost beyond belief - US$50 billion for upto 4 years!

Bernard L. Madoff's fraud is almost big enough to give "a Ponzi scheme" a bad name. The fact he was "turned in" by his 2 sons almost makes it read1 like a segment of TV sitcom "Arrested Development". The question on everyone's mind? How such an incredible manipulation so large, (itself suspicious as Madoff's firm reportedly only had US$17 billion last January) could have happened and been undetected for so long. This truely was a master stroke as it would have required massive complicity or gross incompetence by someone. The NYT has reviewed some client statements and notices without finding anything extraordinary, unless they were all completely false (I note that they were not custodial account statements, but brokerage account statements, itself a potential red flag as it is not common for brokerage account to segregated such accounts.) Another issue was the murky division of "trading from safekeeping" functions so activity can be properly audited. Madoff reportedly operated on the 17th floor, separate and distinct form the market-dealing/making operations below.

Among one of the largest effected is HSBC Bank who gave Madoff a $1 billion mandate. It is noteworthy that many of the investors were very large and sophisticated clients who would have been wise to any obvious fraudulent behaviour. Apparently there were rumours of some problems with Madoff in 2001 and a number of investigations were undertaken but nothing was found. The fallout will be to shake the confidence of many private money-management clients in their managers and raise the volume on demands for greater oversight of Wall St. from the SEC and other regulators.


Footnotes
1) In Season 1, the family patriarch George BLUTH (played by Jeffery TAMBORE) is arrested for SEC fraud.