2001 Interview with Madoff Betrayed Fraud

Suspicious 2001 Interview with Madoff
We have often heard that there were a good many financial professionals who were suspicious of Madoff's hedge fund, based on the low volatility and almost complete lack of a month with negative returns. However, in an interview Madoff gave in 2001, there were many clues, certainly in retrospect, that something was amiss.

Here are a few quotes from that article by MarHedge in May of 2001 that are certainly interesting in hindsight:

"Those who question the consistency of the returns, though not necessarily the ability to generate the gross and net returns reported, include current and former traders, other money managers, consultants, quantitative analysts and fund-of-funds executives, many of whom are familiar with the so-called splitstrike conversion strategy used to manage the assets."

"What is striking to most observers is not so much the annual returns—which, though consider somewhat high for the strategy, could be attributed to the firm’s market making and trade execution capabilities—but the ability to provide such smooth returns with so little volatility."

"The best known entity using a similar strategy, a publicly traded mutual fund dating from 1978 called Gateway, has experienced far greater volatility and lower returns during the same period."

"And in a face-to-face interview and several telephone interviews, Madoff sounds and appears genuinely amused by the interest and attention aimed at an asset management strategy designed to generate conservative, low risk returns that he notes are nowhere near the top results of well-known fund managers on an absolute return basis."

"The apparent lack of volatility in the performance of the fund, Madoff says, is an illusion based on a review of the monthly and annual returns. On an intraday, intraweek and intramonth basis, he says, 'the volatility is all over the place,' with the fund down by as much as 1%."

"But as whole, the split-strike conversion strategy is designed to work best in bull markets and, Madoff points out, until recently 'we’ve really been in a bull market since ‘82, so this has been a good period to do this kind of stuff.'"

"As for the specifics of how the firm manages risk and limits the market impact of moving so much capital in and out of positions, Madoff responds first by saying, 'I’m not interested in educating the world on our strategy, and I won’t get into the nuances of how we manage risk.'"

"He won’t reveal how much capital is required to be deployed at any given time to maintain the strategy’s return characteristics, but does say that 'the goal is to be 100% invested.”

"Indeed, says Madoff, the firm itself has received numerous buyout offers but has so far refused any entreaties because he and the many members of his immediate and extended family who work there continue to enjoy what they do and the independence it allows and have no desire to work for someone else."

"Similarly, he adds, another firm could duplicate the strategy in an attempt to get similar results, but its returns would likely be unmatched because 'you need the physical plant and a large operation' to do it with equal success. However, many Wall Street firms, he says, do use the strategy in their proprietary trading activities, but they don’t devote more capital to such operations because their return on capital is better used in other operations."

"Madoff, who believes that he deserves 'some credibility as a trader for 40 years,” says: “The strategy is the strategy and the returns are the returns.' He suggests that those who believe there is something more to it and seeking an answer beyond that are wasting their time."

Those are chilling quotes knowing what we do now.

Read the full article here

Fairfield Greenwich Group Misled Investors Re: Madoff Oversight

Madoff Feeder Fund, Fairfield Greenwich Group, Misled Investors about Due Diligence

Fairfield Greenwich Group, a Connecticut based hedge fund and one of Madoff's largest investors, is being accused of misleading its investors about the due diligence performed on Madoff's hedge fund. This is according to Massachusetts Secretary of State, William Galvin.

According to Galvin, there was a “profound disparity between the due diligence that Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities [BMIS] and the due diligence it actually conducted . . . [We] attempted to discern how Fairfield possibly could not have discovered the fraud during their 18-year relationship [with Madoff]. The answer is that they were blinded by fees, did not engage in meaningful due diligence and turned a blind eye to any fact that would have burst their lucrative bubble.”

Fairfield Greenwich Group investors were told the firm was conducting daily monitoring of Madoff Securities, when in fact they were getting that data 3-5 days later. However, it is unclear how important real-time trade data would have been considering Madoff was not actually placing any trades at all and was in fact running a massive Ponzi Scheme.

Madoff May Plead Guilty

It appears that Bernard Madoff may be nearing a plea deal with prosecutors. Madoff was arrested on Dec. 11, 2008 and charged with securities fraud for his leading role in an estimated $50 billion Ponzi scheme. According to Bloomberg, "Assistant U.S. Attorney Marc Litt today filed a one-page document in Manhattan federal court indicating the government will file an “information,” or charging document, after Madoff agrees to waive a grand jury indictment. Defendants who agree to plead guilty to an information often first waive indictment."

According to a former SEC attorney interviewd by Bloomberg, "“Madoff is about to enter his guilty plea. A criminal information is a consented- to criminal charge used to enter a guilty plea.”

The document released today byt the US Attorney's Office does not indicate if Madoff will waive indictment.

In related news today, the SEC announced it has plans to revamp its whistle-blower policy in wake of the Madoff fraud (and presumably the Stanford CD fraud as well). This comes after years of lax enforcement and a culture which seemingly did little to encourage whistle blowers to come forward.

Mini-Madoff - Ex-Car Salesman's Hedge Fund Ponzi Scheme

Rod Stringer, a former car salesman from West-Texas was running a Ponzi scheme similar in some ways to that of Bernie Madoff's famous scam. However, the magnitude of the losses from Stringer's hedge fund is far smaller. The $45 million fund reported annual returns as high as 60%, a number the SEC claims is completely bogus.

Among Stringer's 31 clients were many elderly investors. The SEC notes that the location of the remaining funds is unknown at this time.

Prosecutor Seeks to Jail Madoff for Alleged Transfers

Assistant US Attorney Mark Litt sought yesterday to revoke Bernie Madoff's bail after allegations Madoff may have transferred as much as $1million in jewelry and other items to family members. A condition of Madoff's bail was that no money be transferred without court approval.

However, U.S. Magistrate Judge Ronald L. Ellis decided not to make any changes to Madoff's bail at this time.

Read the full article here:

Investors Sue Other Hedge Funds Over Madoff Fraud

Investors Sue Fairfield Greenwich Group, Massachusetts Mutual Life Insurance, over Lack of Due Dilligence in Madoff Scheme


Among the casualties in the Bernie Madoff (BLM Capital) scheme are hedge fund Fairfield Greenwich Group and Massachusetts Mutual, the former of which is accused of failing "to manage properly their investments and to carry out necessary due diligence that would have uncovered the massive Ponzi scheme," by investors.

The lawsuit against Fairfield Greenwich Group was filed by Pasha Anwar and Julia Anwar of Illinois.

Massachusetts Mutual Life Insurance Company was sued in a separate case on Monday. The suit was filed by Arthur E. Lange of Connecticut and Arthur C. Lange of New York.

Also named in the suit against Massachusetts Mutual are Tremont Group Holdings and Oppenheimer Acquisition Corp.

Read the full article:

Did Madoff Have Co-Conspirators?

Madoff's Acomplice?

Given the apparent magnitude of Bernie Madoff's alleged fraud, some experts have suggested he couldn't possibly have acted alone. Madoff asserts that he acted alone, but could a $50 billion dollar hedge fund really operate with dozens of traders, accountants, banks, regulators and others all kept in the dark? Founder of SeaBreeze Capital, Dave Kass suggests, "This was a very large scheme, and he couldn't have done it without the cooperation and assistance of someone well informed who could process trades, report them and create monthly statements."



Because the Madoff hedge fund, know as BLM, was essentially a family business, some are suggesting an obvious place to look for co-conspirators is with Bernie's brother Peter, sons Andy and Mark, and neice, Shana. They were the firm's CFO, director of trading, director of proprietary trading, and compliance attorney, respectively. However, it should be noted that authorities have mostly ruled out involvement by Madoff's family memebers.



Some "outside help" is also being investigated and Boston investment firm Cohmad Securities has had its records subpoenaed by regulators.



Read the full article:

Fairfield Greenwich Group Profited from Madoff Scheme?

Fairfield Greenwich Group Makes More than $500 Million from Madoff Fund
Investors channeled to Bernard Madoff by hedge fund, Fairfield Greenwich Group, will likely lose the entirity of their $7.6 billion in investments and Fairfield Greenwich's directors probably lost $60 million of thier own funds in the scheme. However, Fairfield Greenwich may have made more than $600 million in management fees from those same unfortunate investors, the Financial Times reported today.

Estimates of the size of the losses from Madoff's ponzi scheme are between $30 billion and $50 billion. The SEC admits receiving a variety of warnings about Madoff including a 2005 report entitled "The World's Larges Hedge Fund is a Fraud."

Madoff's firm is formerly know as Bernard L. Madoff Investment Securities "BLM"