Really? So if I do an OTC deal with a dealer, my name (or my firm's) is publicly reported? What report is that?
Part of the ISDA agreement and FINRA would examine those. Not publically reported, but the SRO community would have seen them. Back with Madoff - it was preFinra days so your b/d got an annual exam from an SRO. SRO's were rotated every few years. So Madoff and the counterparty would both have entered into the ISDA agreement. Plus when he was still doing the OEX collars he was adjusting pretty much every day. Here's the reporting problem - the SROs saw no evidence of trading. Any requirement to report that or even dig deeper? No trading no SRO action for his BD. He exploited this lack of a requirement to report. The SEC had the pieces in 2001 - maybe earlier. They just never had a group that put all the pieces together. They're archivists, not sheriffs Front page Barron's article in 2001 and still nothing. It wasn't until his son rolled over that an investigation was triggered.
As far as I know about Madoff's hedging strategy, there is no way that it would allow him to earn such high returns as it the covered call part where he buy the stocks + sell the call would limit the upside potential but leave him vulnerable for all the downside risk when the stocks go down. The protective puts that he bought at the same time would offer some downside protection but that would depend on the strike of the puts and the price of the puts themselves. If the puts is too expensive it will eat away at the returns but if the puts is too OTM it won't offer much of the downside protection so either way the return would be that high. If he was only earning returns from the spread then they would be just in-and-out transactions and there would be no hedges then he would be vulnerable to stock downturns.
Even if it's OTC, the transactions would've still be recorded in DTC, which is a where all transactions whether it's from exchanges or through clearing counterparties are recorded. https://en.wikipedia.org/wiki/Depository_Trust_&_Clearing_Corporation. It might not be THE one that would've discovered the fraud but it's one more thing that would've revealed more discrepancy. The more discrepancy that one finds the more that would force one to look further, no? Especially there had already been articles written by investment journals revealing the fund to be a possible Ponzi scheme plus Markopolos' reports. No matter how limited how poor the government resources are, checking a DTC number, checking some transaction records should not take much. Checking a DTC number would not take 10,000 agents. That agent ASKED for a DTC number, WHY didn't he follow up? WHY didn't he check? It was part of the routine check during the Enforcement Investigation but yet SEC did not follow through. Hindsight might be 20/20 but that does not mean due diligence is not needed just because current efforts would never be enough. No matter how you slice it or dice it, there is no excuse, not in this case.
None of this matters when the guy didn't actually place any trades, and cooked his books, yes? No need for worrying about counterparty risk and stock prices and whathaveyou... Yer not trading. Yer making believe you trade. So the Madoff lackeys on the books just make shit up. The fact that the regulators did not catch it while it was going down for FORTY FUCKING YEARS is on them. And why did it go down for so long? Because they are employees who had no work ethic, and simply did not do their jobs. The work ethic in this country has been going down the tubes for decades in the private sector. I suspect it is now at an all time low in the US. I DOUBT it EVER existed in the public sector. Why do people not do the work they are told to do? Because they are not held accountable. Instead of doing real, actual work, they just fuck around and waste time to get free paycheck money. I am damned sure the entire federal government does this, because there is no accountability. There is nobody to fire them, because the boss is doing the same damned thing. Buggers!
Since we are off-topic here, I have to post this guy's house in NY that he left to his wife before he committed suicide. It's just the most beautiful mansion that I've ever seen. If I ever make it in trading, I would DEFINITELY want to buy it and I don't care about all the "stigma" that might be associated with it. The guy bought it for $33.5 million before the financial crisis and can't believe the wife couldn't sell it for EIGHT years since 2009 after the guy's death and it was finally sold for $28.5 million only this year, at a loss of $5 million+ loss. The poor wife. Such a beautiful house. https://www.zillow.com/homedetails/7-E-67th-St-New-York-NY-10065/31533638_zpid/
NYSE Takes Over 131-Year-Old Exchange Once Tied to Bernie Madoff(headline from Bloomberg on the purchase of the NSX by the NYSE. NSX was the third reincarnation of the Cinncinati). Traded a couple of million shares a day until decimalization killed it. https://www.forbes.com/2008/12/19/m...arkets-cx_pm_0710eightynine.html#140457254ae3 I'll put this as delicately as I can - the guy was a real business until decimalization - he's still a crook and an asshole. When he was real he adjusted to collar most days on the CBOE near the COB. Needed listed or he wouldn't have gotten haircut relief. What do you think a typical specialist operation earned in the 90s? Again doesn't make him any less of a crook and asshole.