Image via WikipediaMadoff Associate Says Fraud Went Back to 1970s - NYTimes.com:"Madoff’s multibillion-dollar Ponzi scheme stretched back at least to the early 1970s, when his employees used historical information on stocks to create false trades that could be placed on customer statements, a former trader revealed as he pleaded guilty on Monday to criminal charges."
"The latest lawsuit contends that the Madoff fraud “could not have been accomplished or perpetuated unless the HSBC defendants agreed to look the other way and to pretend that they were ensuring the existence of assets and trades when, in fact, they did no such thing.”
It asserts that HSBC and a dozen of its subsidiaries “aided, enabled and sustained” Mr. Madoff’s fraud in two important ways: by lending the bank’s prestige and performing services for hedge funds that raised money for Mr. Madoff; and by developing complex derivative products that provided additional sources of cash for the Ponzi scheme."
"Although there had been widespread speculation that the Wilpons lost money in the Ponzi scheme, an account called Mets Limited Partnership put a total of $522.7 million into Madoff accounts and withdrew $570.5, a profit of $47.8 million, according to a 2009 bankruptcy court filing made by Picard in New York that detailed the “net winners.”
With the Wilpons said to be emerging as net winners, they remain a target for Picard, who has until midnight Saturday to file lawsuits to recover money that was withdrawn from Madoff accounts before the scheme’s collapse or to seek punitive damages from those involved in the withdrawals."
"Here's a copy of a submission said to have been made in 2005 to US market regulator the Securities and Exchange Commission by money manager and investment investigator Harry Markopolos.and later:
"As a result of this case, several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I request that my name not be released to anyone other than the Branch Chief and Team Leader in the New York Region who are assigned to the case, without my express written permission. The fewer people who know who wrote this report the better. I am worried about the personal safety of myself and my family. Under no circumstances is this report or its contents to be shared with any other regulatory body without my express permission. This report has been written solely for the SEC's internal use.It should be noted that even scenario #1 is illegal. Front running got many dealers in trouble over the years. It essentially is placing trades in advance of a large trade that you know is coming.
As far as I know, none of the hedge fund, fund of funds (FOF's) mentioned in my report are engaged in a conspiracy to commit fraud. I believe they are naive men and women with a notable lack of derivatives expertise and possessing little or no quantitative finance ability.
There are 2 possible scenarios that involve fraud by Madoff Securities:
1. Scenario # 1 (Unlikely): I am submitting this case under Section 21A(e) of the 1934 Act in the event that the broker-dealer and ECN depicted is actually providing the stated returns to investors but is earning those returns by front-running customer order flow. Front-running qualifies as insider-trading since it relies upon material, non-public information that is acted upon for the benefit of one party to the detriment of another party....
2. Scenario # 2 (Highly likely) Madoff Securities is the world's largest Ponzi Scheme. In this case there is no SEC reward payment due the whistle-blower so basically I'm turning this case in because it's the right thing to do.""
"The WSJ describes them as "ranging from in-depth mathematical calculations that purported to show the Madoff investment strategy couldn't work, to little more than rumor or innuendo." That makes Markopolos sound like a little bit of a crank, but reading through his actual allegations doesn't leave that impression at all. Obviously hindsight plays a role here, but I can't imagine anyone reading them in 2005 and not concluding that there was something deeply suspect going on. Markopolos goes to great lengths to demonstrate that the investment returns claimed by Madoff were impossible to replicate by any known strategy. But to me that wasn't the biggest of his 29 red flags. The biggest red flag was Why on earth would a prominent brokerage firm chief run a giant, mostly secret money management business on the side and not charge any fees for his services if he wasn't up to something dodgy?"
"Markopolos waged a remarkable battle to uncover fraud at Madoff's operation, sounding the alarm back in 1999 and continuing with his warnings all through this decade. The government never acted, Madoff continued his ways, and people lost billions.Markopolos reached his conclusion with the help of mathematicians like Dan diBartolomeo, whose analysis of the Madoff's methods in 1999 helped fuel Markopolos' suspicions.
"People should have seen the writing on the wall," diBartolomeo said.
Wow.
"The other red flag easily available to investors was the shallow volume in the options Mr. Madoff claimed to use as a hedge.
About $3.25 billion of stock could have been protected by the total S&P 100 options outstanding at the end of November, according to the Chicago Board Options Exchange. Mr. Madoff was thought to have had as much as $50 billion under management.
A review of open interest in S&P 100 contracts showed that nobody owns more than 6,000 contracts at any single strike price, according to FactSet.
In a more liquid hedging market like that of S&P 500 options, there are often more than 100,000 contracts outstanding at a given strike price."
"Thierry Magon de La Villehuchet, who ran a fund that invested with Bernard Madoff, was found dead at his Madison Avenue office today, a New York City police officer at the scene said. The death appeared to be a suicide, he said."
"Sixteen years ago the Securities and Exchange Commission cracked down on what was then one of largest ever sales of unregistered securities. Investors handed $440 million to two Florida accountants who promised unbelievable annual returns of 13.5% to 20%....How did the two investors deliver the promised returns? They had help from a powerful New York figure. You see, at the center of the scam was a mysterious money manager who authorities declined to name because they never charged him with wrong-doing....That man was Bernie Madoff.....accountants were represented by Ira Lee Sorkin. The same lawyer, a former prosecutor turned defense attorney, is now representing Madoff."
"Opinions about how Fairfield Greenwich Group came to incinerate $7 billion of client cash at the hands of Bernie Madoff vary from "incompetent" to "criminally negligent" to "co-conspirators." Regardless of where the truth lies, one thing is certain: FGG was very proud of its due diligence and risk management processes....They will show that, day after day, the professionals at FGG were fooled by an amazingly intricate fraud in which Madoff figured out, retroactively, at the close of business each day, bogus trades that added up to the reported return and stayed within FGG's vaunted risk parameters--and then emailed this spreadsheet to FGG so they could feed it into their system."Sure they did. But if you have doubts, you are not alone. A staggering 74% of investors agree. Again from Clusterstock:
"..a CNN/Opinion Research poll, 74% of those surveyed said they think Madoff's behavior is common among financial advisors and institutions."Can that number possibly be right? Seventy four percent? And if so what does it say given Wisdom of Crowds etc. I would like to see that survey and a definition of "common".
