50 billion ponzi scheme

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Lathander
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50 billion ponzi scheme

Postby Lathander » Fri Dec 12, 2008 6:07 am

Another gut wrenching story:

http://www.bloomberg.com/apps/news?pid= ... refer=home



Madoff Charged in $50 Billion Fraud at Advisory Firm (Update3)
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By David Glovin and David Scheer

Dec. 11 (Bloomberg) -- Bernard Madoff, founder and president of a New York firm that invested funds for wealthy individuals, hedge funds and other institutions, was charged with operating what he told employees was a long-running $50 billion Ponzi scheme in what may be one of the largest frauds in history.

Madoff, 70, head of Bernard L. Madoff Investment Securities LLC, was arrested today at 8:30 a.m. by the FBI and appeared before U.S. Magistrate Judge Douglas Eaton in Manhattan federal court. Charged in a criminal complaint with a single count of securities fraud, he was released on $10 million bond guaranteed by his wife and secured by his apartment. Madoff, wearing a white-striped shirt, dark-colored pants and no tie, looked down as he left the courtroom with his wife, declining to comment.

“It’s all just one big lie,” Madoff told his employees on Dec. 10, according to the government. The firm, Madoff allegedly said to them, is “basically, a giant Ponzi scheme.”

Madoff faces as much as 20 years in prison and a $5 million fine if convicted. His New York-based firm was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50 million shares a day, exchange data show. It specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

‘One of The Pioneers’

“He’s one of the pioneers of modern Wall Street,” said James Angel, an associate business professor at Georgetown University in Washington. Madoff’s firm was among the first to automate market-making, in which a dealer continually buys and sells stock. The company was among the largest to offer “payment for order flow,” or paying to handle customer orders.

“The exchanges didn’t like the practice and questioned whether customers got the best price,” Angel said.

Madoff was also sued today by the U.S. Securities and Exchange Commission.

“Bernard Madoff is a longstanding leader in the financial services industry,” said defense lawyer Dan Horwitz. “We will fight to get through this unfortunate set of events. He’s a person of integrity.”

Fix Asset Management in New York, which had at least $400 million with Madoff, said it was checking with its lawyers regarding its holdings.

“We are very shocked,” John Fix, the son of founder Charles Fix, said by telephone from Greece. “We put in redemptions in the past few months and got our money back no problem. We are just so surprised about all this.”

‘Accelerating Their Redemptions’

Thomas Ajamie, a securities lawyer in Houston who won a $429 million arbitration award against Paine Webber Group in 2001, speculated that Madoff “couldn’t keep the Ponzi scheme going because investors were accelerating their redemptions.”

New York-based Fairfield Greenwich Group runs the $7.3 billion Fairfield Sentry Ltd., a fund that invested in Madoff. Andrew Ludwig, a spokesman for Fairfield, declined to immediately comment.

The SEC in its complaint, also filed in Manhattan federal court, accused Madoff of a “multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm.”

The agency said it’s seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm. Ira Sorkin, another defense lawyer for Madoff, couldn’t be immediately reached for comment.

Advisory Business

Madoff ran his investment advisory business from a separate floor of his firm’s office, keeping financial statements “under lock and key,” prosecutors said. Early in December, he told one employee that clients wanted to redeem about $7 billion and that he was struggling to free up the funds, the government said. After he told another staff member Dec. 9 that he wanted to pay annual bonuses before the year’s end, two months early, a pair of senior employees asked to speak with him, prosecutors said.

They had noticed he had been suffering from a “great deal of stress” and wanted to know what was happening, the U.S. said. When one of them challenged his explanations, Madoff invited them to his Manhattan apartment, saying he “wasn’t sure he would be able to hold it together” if they continued talking at the office, the government said.

While meeting the pair at his home yesterday, Madoff conceded that he was “finished,” that his advisory business is “all just one big lie” and “basically, a giant Ponzi scheme,” the government said. The business had been insolvent for years with losses of about $50 billion, he told the employees, according to the criminal and SEC complaints.

Madoff said he had about $200 million to $300 million left and planned to distribute money to select employees, family and friends before surrendering to authorities in about a week, the government said.

Confessed to FBI

Madoff allegedly confessed to FBI agent Theodore Cacioppi on Dec. 11, saying there was “no innocent explanation,” the SEC said in its complaint. Madoff said it was his fault and he had “paid investors with money that wasn’t there.” He also said he was “insolvent” and he expected to go to jail, it said.

The Madoff firm had about $17.1 billion in assets under management as of Nov. 17, according to NASD records. At least 50 percent of its clients were hedge funds, and others included banks and wealthy individuals, according to the records.

Madoff started his firm in 1960 with $5,000 of savings and took advantage of securities-law changes in the 1970s designed to spur competition in U.S. stock markets, according to a profile posted on the Web site Finance Tech.

75 Percent Owner

Madoff, who owned more than 75 percent of his firm, and his brother Peter are the only two individuals listed on regulatory records as “direct owners and executive officers.”

Peter Madoff was a board member of the St. Louis brokerage firm A.G. Edwards Inc. from 2001 through last year, when it was sold to Wachovia Corp.

Bernard Madoff served as vice chairman of the National Association of Securities Dealers, a member of its board of governors, and chairman of its New York region, according to the SEC Web site. He was also a member of Nasdaq Stock Market’s board of governors and its executive committee and served as chairman of its trading committee.

He was chief of the Securities Industry Association’s trading committee in the 1990s and earlier this decade, where he represented brokerage firms in discussions with regulators about new stock-market rules as electronic-trading systems and networks gained prominence.

He was an early advocate for electronic trading, participating in roundtable discussions at the SEC as regulators weighed trading stocks in penny increments. His firm was among the first to make markets in New York Stock Exchange listed stocks outside of the Big Board, relying instead on Nasdaq.

‘Third Market Makers’

“These guys were one of the original, if not the original, third market makers,” said Joseph Saluzzi, the co-head of equity trading at Themis Trading LLC in Chatham, New Jersey. “They had a great business and they were good with their clients. They were around for a long time. He’s a well-respected guy in the industry.”

At 6:30 p.m., security guards at the front desk of the lipstick-shaped building on Third Avenue in midtown Manhattan housing Madoff’s office were turning people away. Ganesh Sewpershad, a messenger with Speeddox, said he had been trying to deliver mail for 20 minutes and was told to return tomorrow.

Madoff’s Web site advertises the “high ethical standards” of his firm.

“In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door,” according to the Web site. “Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.”

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan)

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net and; David Scheer in New York at dscheer@bloomberg.net.
Corth
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Re: 50 billion ponzi scheme

Postby Corth » Fri Dec 12, 2008 6:17 am

Just posted about this in the auto bailout thread. This could set off a whole round of hedge fund failures. Scary stuff.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth

Goddamned slippery mage.
kwirl
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Re: 50 billion ponzi scheme

Postby kwirl » Fri Dec 12, 2008 6:24 am

wow, talk about a fall from grace. this guy's story is just begging to be made into a movie. torilites, to your keyboards! a screenplay awaits!
shalath
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Re: 50 billion ponzi scheme

Postby shalath » Fri Dec 12, 2008 12:17 pm

Wow. This is *not* what the US economy needs at the moment (and will have repercussions around the world).
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kiryan
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Re: 50 billion ponzi scheme

Postby kiryan » Fri Dec 12, 2008 9:45 pm

if you ask me... the whole economy has been a sham for the past 30 years.

I have no love for organized labor, but when the manufacturing jobs left the US... you lost the real substance of jobs and business. The resulting stuff, financials and intellectual property are nothing to sneeze at, but are more easily stolen.
Lathander
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Re: 50 billion ponzi scheme

Postby Lathander » Wed Dec 24, 2008 4:51 am

Well, we have the first suicide from this mess. Really a tragic situation that not enough people are talking about.

http://www.msnbc.msn.com/id/28368421/
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Re: 50 billion ponzi scheme

Postby Corth » Wed Dec 24, 2008 5:57 am

Link below is to a report submitted to the SEC in 2005 concluding that Madoff was running a Ponzi scheme.

Link

------------

The following passage from John Kenneth Galbraith's classic on the Great Depression, "The Great Crash", is relevant:

John Kenneth Galbraith wrote:"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely not in -- the country's businesses and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who ned more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.

The stock market boom and the ensuing crash caused a traumatic exaggeration of these normal relationships. To the normal needs for money, for home, family and dissipation, was added, during the boom, the new and overwhelming requirement for funds to play the market or to meet margin calls. Money was exceptionally plentiful. People were also exceptionally trusting. A bank president who was himself trusting Kreuger, Hopson, and Insull was obviously unlikely to suspect his lifelong friend the cashier. In the late twenties the bezzle grew apace.

Just as the boom accelerated the rate of growth, so the crash enormously advanced the rate of discovery. Within a few days, something close to universal trust turned into something akin to universal suspicion. Audits were ordered. Strained or preoccupied behavior was noticed. Most important, the collapse in stock values made irredeemable the position of the employee who had embezzled to play the market. He now confessed.

After the first week or so of the crash, reports of defaulting employees were a daily occurrence. They were far more common than the suicides. On some days comparatively brief accounts occupied a column or more in the Times. The amounts were large and small, and they were reported from far and wide. ...

Each week during the autumn more such unfortunates were reveled in their misery. Most of them were small men who had taken a flier in the market and then become more deeply involved. Later they had more impressive companions. It was the crash, and the subsequent ruthless contraction of values which, in the end, exposed the speculation by Kreuger, Hopson, and Insull with the moey of other people. Should the American economy ever achieve permanent full employment and prosperity, firms should look well to their auditors. One of the uses of depression is the exposure of what auditors fail to find. Bagehot once observed: "Every great crisis reveals the excessive speculations of many houses which no one before suspected." [pp. 132-35]
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



Goddamned slippery mage.
kiryan
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Re: 50 billion ponzi scheme

Postby kiryan » Wed Dec 24, 2008 6:33 am

wow that is unreal. alot of people in the SEC need to be fired for incompetence and Wall Street needs to wake up and self regulate. If they all suspected he was a fraud, everyone should've called him on it.
teflor the ranger
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Re: 50 billion ponzi scheme

Postby teflor the ranger » Wed Dec 24, 2008 4:30 pm

Just imagine the amount of capital that has just gotten up and walked out of the United States in the last 20 years.
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kiryan
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Re: 50 billion ponzi scheme

Postby kiryan » Thu Dec 25, 2008 12:56 am

sounds like madoff got some of it back lol. alot of clients were overseas.
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Re: 50 billion ponzi scheme

Postby teflor the ranger » Fri Dec 26, 2008 5:57 am

Some New York papers are making a big deal over the proportion of Jewish folks were involved in this questionable finance scheme. That's going to be interesting later.
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Corth
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Re: 50 billion ponzi scheme

Postby Corth » Fri Dec 26, 2008 12:01 pm

Not sure whats interesting about it. He was an icon amongst the wealthier jews on the north shore of Long Island and Palm Beach. Stands to reason there would be a disproportionate amount of Jewish victims.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



Goddamned slippery mage.
teflor the ranger
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Re: 50 billion ponzi scheme

Postby teflor the ranger » Wed Dec 31, 2008 5:46 pm

No, Corth, I mean what people are going to bitch about is going to be interesting.
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Lathander
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Re: 50 billion ponzi scheme

Postby Lathander » Thu Jan 01, 2009 8:08 pm

Got your money out before the Madoff news came out... Not so fast...


http://www.businessweek.com/magazine/co ... 606347.htm

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