Madoff story smells funny...

http://www.ritholtz.com/blog/2008/12/madoff-story-smells-funny/

I have no special insight into the Madoff story.

However, my spidey sense is tingling.

Consider this: Running a billion dollar Ponzi scheme has to be very time consuming. Running a $50 billion Ponzi scheme by yourself, at age 70?

I don’t think it can be done.

Just generating the phony transaction receipts is a full time job. How did this son-of-a-bitch do it all by himself? Madoff HAD TO HAVE HELP.

I simply cannot believe he did it himself, all alone. His entire scheme was predicated upon finding another 1% of assets every month to payout to the prior investors. Between raising moeny and running operations, it was more than a 1 man job.

And when the market hit the skids and topped out so fast — it fell much quicker in 2008 than in 2000 — he ran out of manuevering room. Madoff had to know he was going down, and everyone who was working with him — everyone who knew of the scheme — they were going down, too.

So he confessed — TO HIS SONS. AND THEY TURNED HIM IN.

And Bloomberg reports they are already represented by Martin Flumenbaum, a lawyer.

~~~

Maybe I’ve read one too many detective novels, but consider this strictly hypothetical, based on-no-facts whatsoever, wildly imaginative hypothesis: If I were running a $50 billion Ponzi scheme, I would have to bring in someone close to help me with it.

Who is closer than my family?

When it became clear there was no where else to turn, instead of bringing down the entire dynasty, I would have them turn me in, to protect the family and what left of the legacy.

I would take the fall so they wouldn’t have to.

~~~

As I noted, I have no special facts, no insight into this what-so-ever. Other than the story we have been fed so far doesn’t make any sense.

Who was Madoff’s accomplices? I have no idea, but there has to be some! If I were the SEC, I would be looking over close friends and family closely. Very, very closely.

 

Intelligent ET members would have already postulated that if he paid redemptions from new investment, then at any one time there may have been left only marginal amounts actually invested. He may also have done no more than take out salary and other running costs so that it is possible there was no major theft of funds. The $50 billion then may be nothing more than a theoretical accumulation at a theoretical growth rate fed to investors as deliberate misinformation. In brief the $50 billion over many years could be made up of mainly theroretical gains that did not occur in actuality.

 

He put most of the money in various and sundry bank accounts. The amounts that he "passed on" to his investors came from other shills in his ponzi scheme.

The fact that his son turned in him is pretty fucking phenomenal ... and something I am sure he did not factor into his calculations.

 

Will be interesting to see if people start questioning Rentech.

 

Was it really the sons, or was it the sons' lawyer?

 

HSBC has $1.5 billion exposure to Madoff :report
Noel’s Fairfield Sent Madoff $7.3 Billion as Funds Earned Fees
MAXAM Capital Management LLC, which marketed a $280 million fund
Benbassat & Cie, another Swiss bank, had $935 million invested in Madoff
London-based FIM Ltd., whose Kingate Europe and Kingate Global funds had about $3.5 billion in assets
Nomura Holdings Inc., Japan's largest brokerage, said it has 27.5 billion yen ($302 million) at risk
Banco Santander, Europe's second-biggest bank by market value, said yesterday its hedge-fund unit invested 2.33 billion euros ($3.1 billion)
LUXALPHA SICAV - American Selection
Objective: Geo Focused-Asset Allocation 1,47 billion
Bramdean Alternatives had about 9 percent of its assets invested in Madoff products
Pioneer Alternative Investments put “substantially all” of its about $280 million Primeo Select Fund with Madof
Banque Benedict Hentsch, formed in Geneva in 2004, also said today it has 56 million Swiss francs ($47.5 million)

That is just the beginning...

 

The disclosed amounts alone are about 20 bn now, the undisclosed amounts are... well.. undisclosed.

As someone mentioned, the gains may have been fictional so the losses aren't "real" per se, but for a bank or hedgefund that takes the loss it's a very real loss for their balance sheet and their investors.

 

Medallion doesn't have any outside investor. They're only hurting themselves, if it was a scheme.

 

i'm half guessing the sons were involved but being a good father and given his age he's gonna try to take all the heat.

stuff like this is only going to make hedge funds a dirty word. wonder what the new name for hedge funds will be in the next few years. managed futures are doing good this year, maybe other types of hedge funds should follow the similar regulations.

 

sure, deposits should be separated from the manager like in managed accounts. but people will still don't care... all they see boils down to:

"oh this guy is ultra wealthy, and my friend invested in his stock fund = i want to be rich too!! and stocks can't fall to zero"

"hmm here's some CTA.. but none of my friends know these people. and its futures? oh no, futures are RISKY! i can lose all my money = i won't invest there"

that's why hedge funds and equity investment funds will always have much more assets than managed futures despite the rising gap between their performance and much safer regulations in MF favor.