$ 50 Billion Fraud In Largest Ponzi Scheme

[flying]

Wealth is never destroyed just redistributed.

And there I wuz measuring my wealth by the number of chicks I got. I thought wealth grows old

Meun gun

Same Same see it just got redistributed to numerous chicks

[misterman21]

Once this mess is over, I wonder just how much "real wealth" is in the world and what it will be measured in?

Wealth is never destroyed just redistributed.

This was originally posted on another thread, thanks to OP, seems relevent to post here.

Sunday Times 14 Dec. 2008

I was in Dublin last weekend, and had a very real sense I'd been invited to the last days of the Roman empire. As far as I could work out, everyone had a Rolls-Royce Phantom and a coat made from something that's now extinct. And then there were the women. Wow. Not that long ago every girl on the Emerald Isle had a face the colour of straw and orange hair. Now it's the other way around.

Everyone appeared to be drunk on naked hedonism. I've never seen so much jus being drizzled onto so many improbable things, none of which was potted herring. It was like Barcelona but with beer. And as I careered from bar to bar all I could think was: "Jesus. Can't they see what's coming?"

Ireland is tiny. Its population is smaller than New Zealand's, so how could the Irish ever have generated the cash for so many trips to the hairdressers, so many lobsters and so many Rollers? And how, now, as they become the first country in Europe to go officially into recession, can they not see the financial meteorite coming? Why are they not all at home, singing mournful songs?

It's the same story on this side of the Irish Sea, of course. We're all still plunging hither and thither, guzzling wine and wondering what preposterously expensive electronic toys the children will want to smash on Christmas morning this year. We can't see the meteorite coming either.

I think mainly this is because the government is not telling us the truth. It's painting Gordon Brown as a global economic messiah and fiddling about with Vat, pretending that the coming recession will be bad. But that it can deal with it.

I don't think it can. I have spoken to a couple of pretty senior bankers in the past couple of weeks and their story is rather different. They don't refer to the looming problems as being like 1992 or even 1929. They talk about a total financial meltdown. They talk about the End of Days.

Already we are seeing household names disappearing from the high street and with them will go the suppliers whose names have only ever been visible behind the grime on motorway vans. The job losses will mount. And mount. And mount. And as they climb, the bad debt will put even more pressure on the banks until every single one of them stutters and fails.

The European banks took one hel_l of a battering when things went wrong in America. Imagine, then, how life will be when the crisis arrives on this side of the Atlantic. Small wonder one City figure of my acquaintance ordered three safes for his London house just last week.

Of course, you may imagine the government will simply step in and nationalise everything, but to do that, it will have to borrow. And when every government is doing the same thing, there simply won't be enough cash in the global pot. You can forget Iceland. From what I gather, Spain has had it. Along with Italy, Ireland and very possibly the UK.

It is impossible for someone who scored a U in his economics A-level to grapple with the consequences of all this but I'm told that in simple terms money will cease to function as a meaningful commodity. The binary dots and dashes that fuel the entire system will flicker and die. And without money there will be no business. No means of selling goods. No means of transporting them. No means of making them in the first place even. That's why another friend of mine has recently sold his London house and bought somewhere in the country . . . with a kitchen garden.

These, as I see them, are the facts. Planet Earth thought it had £10. But it turns out we had only £2. Which means everyone must lose 80% of their wealth. And that's going to be a problem if you were living on the breadline beforehand.

Eventually, of course, the system will reboot itself, but for a while there will be absolute chaos: riots, lynchings, starvation. It'll be a world without power or fuel, and with no fuel there's no way the modern agricultural system can be maintained. Which means there will be no food either. You might like to stop and think about that for a while.

A right cheery soul if ever there was one, fuc_k me, I might as well end it all now.

Convinced myself, I seek not to convince

Humankind cannot stand very much reality!

Edited December 17, 2008 by misterman21

[OlRedEyes]

Wealth is never destroyed just redistributed.

And there I wuz measuring my wealth by the number of chicks I got. I thought wealth grows old

Meun gun

Same Same see it just got redistributed to numerous chicks

Ne'er a truer word spoken. The way the world works.

Edited December 17, 2008 by OlRedEyes

[LaoPo]

Madoff tries to stay out of jail as probe widens

Wed Dec 17, 2008 4:36am EST

By Svea Herbst-Bayliss and Martha Graybow

Bernard L. Madoff

BOSTON/NEW YORK (Reuters) - Bernard Madoff, the longtime Wall Street executive accused of cheating investors around the world out of $50 billion, scrambled to find friends or relatives to guarantee his bond on Tuesday and keep him out of jail.

In Massachusetts, where the disgraced investor long cultivated a loyal group of wealthy individuals, the state's chief securities regulator subpoenaed Bernard L. Madoff Investment Securities and Cohmad Securities Corp, a firm that marketed Madoff investment products.

The two firms must hand over the names and addresses of all local residents who let Madoff invest their money by December 29. They must also deliver notes, emails, meeting agendas related to investments made since 2000, William Galvin, the state's Secretary of the Commonwealth, said on Tuesday.

In New York, Madoff, who was arrested last week, has not yet fully met the conditions of his $10 million bond, according to court papers. He must find three co-signers to guarantee the bond.

If he fails to meet all the conditions, prosecutors could seek to have the 70-year-old Madoff jailed, pending trial. A court hearing was set for Wednesday on bail matters after a Tuesday hearing was postponed.

Madoff, a former chairman of the Nasdaq Stock Market, faces up to 20 years in prison and a maximum fine of $5 million if convicted.

The U.S. Securities and Exchange Commission, which has been accused of missing red flags about Madoff's investment business, is asking its internal watchdog to probe the agency's conduct in the case.

SEC Chairman Christopher Cox said he was "gravely concerned" by the agency's "apparent multiple failures over at least a decade" to thoroughly investigate allegations or seek formal authority to pursue them.

As more banks, hedge funds and wealthy investors around the world realize they fell victim to a man long respected on Wall Street for the steady returns that his funds produced year after year, their outrage has grown.

LAW SCHOOL LAWSUIT

"The names and sizes of those exposed to Bernard Madoff keep growing and most remarkable of all is the concentration of investments made by funds of hedge funds which promise their clients a diversified portfolio," said Philippe Bonnefoy, chairman of the asset allocation committee at Cedar Partners, an investment adviser.

A fund of hedge funds is a basket of funds selected by the manager to spread around risk.

New York Law School sued Ascot Partners LP, an investment firm, general partner J. Ezra Merkin and auditor BDO Seidman LLP on Tuesday over investments with Madoff.

Massachusetts Mutual Life Insurance Co acknowledged its exposure to Madoff after a hedge fund unit invested heavily with him. Tremont Holdings Inc's Rye Investment Management unit lost roughly $3 billion, nearly all of the money the unit managed, people familiar with the matter said.

Madoff is also closely tied to Carl Shapiro, a 95-year-old Boston philanthropist who gave much of his fortune to the city's Beth Israel Deaconess Medical Center and the city's Museum of Fine Arts.

Austria's Bank Medici, a closely held bank serving wealthy clients, also said it was affected by Madoff's scheme, but declined to give a total for its losses.

At the same time, prosecutors and regulators asked people who suspect they lost money to Madoff to come forward.

The U.S. Attorney's Office in New York, which is prosecuting the Madoff case, set up a website for investors who may have been victimized. It also posted an FBI hotline number, 212-384-2359, for investors to call.

SIFTING THROUGH THE PAPERS

Investors were asked to gather any documents related to their Madoff investments and to check the website and others set up by the SEC, the trustee of Madoff's brokerage business and the court-appointed receiver in the case.

Lawyers worried that many of the financial statements that Madoff's firm mailed to clients were not accurate, and that it will take months to sift through the papers.

"This is a mess and it will take much longer than normal," said Douglas Hirsch, a partner at law firm Sadis & Goldberg, describing the work facing the trustee appointed to oversee the liquidation of Madoff's firm.

The Securities Investor Protection Corp, a nonprofit organization that provides limited insurance on investors' accounts, was named as trustee on Monday.

Madoff, who was well-known on the charity ball circuit and supported cancer and diabetes research, also gave about $238,200 to political candidates, parties and committees, mostly Democratic, since 1991, according to the Center for Responsive Politics, which tracks political giving.

U.S. Senator Charles Schumer, a New York Democrat, received $12,000, while U.S. Rep. Edward Markey, a Massachusetts Democrat, received $10,000 over the years, the Center found.

The impact of Madoff's alleged fraud may be felt most severely among hedge funds. For example, the Credit Suisse/Tremont Hedge Fund Index fell 4.15 percent in November, far more than the preliminary 0.7 percent decline reported last week.

Standard & Poor's said it will review public sector entities, such as universities, that invested with Madoff, to see whether their ratings should be cut as a result of their likely investment losses.

-Reuters

LaoPo

[LaoPo]

Madoff fraud could burn those who pulled out early

Wed Dec 17, 2008 6:01am EST

By Jason Szep - Analysis

BOSTON (Reuters) - Disgraced money manager Bernard Madoff's suspected $50 billion fraud scheme looks set to burn even those who pulled their investments out long before the scandal rippled into the global financial system.

Such investors may have counted themselves fortunate, withdrawing their money years ago to buy a house or to pay for a daughter's education, and may have even sighed with relief because they ended ties with Madoff long before the scandal erupted late last week.

But they, too, could face trouble, lawyers say. Because of a legal concept known as "fraudulent conveyance," they could be forced to return their profits and even some of their initial investments to help offset losses incurred by others entangled in the long-running Ponzi scheme.

A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and relies on a constant stream of new investment. Such schemes eventually collapse under their own weight.

"There were no profits. It was just other people's money," said Brad Alford, who runs investment adviser Alpha Capital Management LLC in Atlanta.

Alford is well versed in fraudulent conveyance after one of his clients withdrew money from a $450 million scheme by Connecticut hedge-fund company Bayou Group LLC a year before it collapsed in scandal. "We ended up settling with the estate, giving back all the profits and half of our principal."

Bankruptcy-receivership practices make all investors vulnerable, he added. "Once they can go into bankruptcy they can go back six years. Anything past your principal, I'm guessing, is fair game to be brought back in."

Philip Bentley, a lawyer at Kramer, Levin, Naftalis & Frankel LLP, who defended investors sued in 2006 by lawyers representing the Bayou estate, said he expected the court-appointed trustee now in control of Madoff's U.S. operations to look hard at who withdrew money from Madoff.

"The trustee is going to look very closely at redemptions and seriously consider bringing suits just because the trustee's job is to bring in assets any way he can," Bentley said. "Potentially the numbers are enormous."

'STAGGERING' LAWSUITS

But the judge could decide to limit how many years back the estate can demand investors return their money, said Jay Gould, a former investment-management attorney at the Securities and Exchange Commission who heads the hedge-fund practice at Pillsbury Winthrop Shaw and Pittman LLP.

"In this case, because of the magnitude of the losses and the scope of the great number of people who were defrauded, this could be a situation where people say 'you know we are just going to draw the line here at six months or at one year or at this,'" he said.

"But that's not certain. You really are working with people who have obligations," he said. "The receiver has an obligation under the law to pursue all the assets wherever they happen to be within the bounds of the law."

The law could shock investors who innocently entrusted their money with Madoff, a 70-year-old Wall Street legend, long before he was accused of defrauding banks, charities and rich individuals whose assets he managed at Bernard L. Madoff Investment Securities LLC, which he launched in 1960.

"I'm sure it will be a surprise to those who had no idea about his position but wanted to buy a house, and took the money out," said Tamar Frankel, who teaches securities law, corporate governance and legal ethics at Boston University.

Alford said he expects several types of lawsuits, including one focused on fraudulent conveyance and another against so-called feeder funds, or hedge funds set up by outside investment advisory firms that marketed Madoff's investments to high net-worth individuals and pension funds.

And he expects a third group of lawsuits to focus on litigation against advisers for entrusting 50 to 100 percent of their money with one manager. He said this could defy the "prudent man rule" that enjoins money managers to handle investors' money as they would their own.

"I think the lawsuits are going to be staggering. This is going to go on for years and years," he said.

-Reuters

LaoPo

[12DrinkMore]

"I think the lawsuits are going to be staggering. This is going to go on for years and years," he said.

Any surprise? The legal vultures are circling around looking to pick the bones dry.

[LaoPo]

Madoff house arrest ordered as European banks reel

Wed Dec 17, 2008 3:11pm EST

Bernard Madoff, walks back to his apartment in New York December 17, 2008 after hearing Federal Court, New York

Bernard Madoff arrives at his house after a hearing at Federal Court in New York December 17, 2008.

By Grant McCool and John Poirier

NEW YORK/WASHINGTON (Reuters) - Disgraced financier Bernard Madoff, accused of orchestrating a $50 billion fraud, was placed under house arrest on Wednesday as BNP Paribas became the latest European bank to be sideswiped by the scandal.

A federal judge ordered the 70-year-old former pillar of Wall Street confined to his $7 million Manhattan apartment and told Madoff's wife to surrender her U.S. passport by noon on Thursday.

Madoff will be fitted with an electronic ankle bracelet and will only be allowed to leave his home for appointments prearranged with authorities.

On Wednesday afternoon, Madoff and his wife Ruth visited the federal court to sign an agreement to forfeit their Manhattan apartment and property in Montauk, New York and Palm Beach, Florida if they failed to adhere to the bail conditions.

Bernard Madoff was filmed by TV crews leaving the courthouse, but he did not talk to reporters. With a calm expression on his face, he sat in the front passenger seat of a black SUV that sped away.

He later was seen by news photographers getting out of a car near his apartment building. Madoff had a small smile and walked briskly on the sidewalk as photographers trailed him and jostled to take his picture, before he disappeared inside the front door of his building without talking to them.

The changes in bail conditions for the one-time Nasdaq Stock Exchange chairman were ordered a day after U.S. Securities and Exchange Commission Chairman Christopher Cox offered an embarrassing mea culpa for the agency's lack of oversight of Madoff's investment advisory firm.

A rewrite of U.S. regulations to prevent a relapse of the Madoff fiasco will be high on the agenda of the new U.S. Congress, U.S. Rep. Paul Kanjorski said. He said he will convene a congressional inquiry in early January to focus on the case.

Kanjorski, who chairs the House Capital Markets Subcommittee, called the matter "deeply disturbing," and said the scandal only weakens "already-battered investor confidence in our securities markets."

BNP's stock was the main loser among Europe's top banks after it announced an unexpected 11-month loss at its CIB investment bank unit, blamed partly on exposure to Madoff.

"Generally there is a sense of nervousness going on with Madoff's alleged fraud and BNP's losses," said Fox-Pitt Kelton analyst David Williams.

In Asia, Great Eastern Holdings Ltd, the insurance arm of Singapore's Oversea-Chinese Banking Corp, said it had an indirect exposure of about S$64 million (US$43.93 million) to Madoff.

In Europe, the Dutch pension fund of Royal Dutch Shell Plc said it had $45 million exposure.

YEARS TO SORT OUT LOSSES

An investor protection group in the United States said it could take several years to sort through investor losses.

The Securities Investor Protection Corp is overseeing the liquidation of Bernard L. Madoff Investment Securities LLC.

Madoff, who counted celebrities and many friends among his investors, was unable to obtain four co-signers to guarantee his $10 million bond.

Only two people, his wife, Ruth, and brother, Peter, had signed it as of Wednesday morning. Peter Madoff also worked at Madoff's firm.

In lieu of two additional signatures, Madoff and the government agreed that his wife surrender her passport and put up properties in her name in Montauk, New York, and Palm Beach, Florida.

Madoff will not be required to appear in court for a bail hearing unless he fails to file the documents on the additional conditions by Monday, the deadline set by the judge.

A preliminary hearing and appearance by Madoff was scheduled for January 12.

Cox's admission that the SEC had missed obvious red flags in the Madoff case was seen as the latest in a series of black eyes to the U.S. securities watchdog, already under fire for weak oversight after U.S. banks loaded up on risky assets that now have ripped huge holes in their balance sheets.

Cox said the agency's failure to catch Madoff's alleged massive Ponzi scheme was "deeply troubling." Under a Ponzi scheme, later investors' funds were used to pay returns to initial investors.

Cox asked the agency's inspector general to probe the SEC's conduct in the Madoff case. Madoff's niece, Shana Madoff, a compliance lawyer at his firm, is married to a former SEC lawyer, Eric Swanson, who was the agency's assistant director in the office of compliance inspections and examinations.

A spokesman for Swanson said his romantic relationship with his wife began years after the compliance team he helped supervise inquired into Bernard Madoff's securities operations. [nN17322923]

In another sign of Madoff's close ties to the powerful, U.S. Attorney General Michael Mukasey has removed himself from involvement in the investigation, a department spokesman said. [nWBT010275]

He declined to discuss the reason. Mukasey is leaving office in January.

Marc Mukasey, a son of the attorney general, told Reuters on Wednesday that he represents Frank DiPascali, a senior official at Madoff's firm. The younger Mukasey leads white-collar defense and special investigations at New York law firm Bracewell & Giuliani.

Madoff, accused of defrauding hundreds of wealthy investors including Ezra Merkin, the former chairman of auto finance company GMAC, and real estate and newspaper mogul Mortimer Zuckerman, faces up to 20 years in prison and a maximum fine of $5 million if convicted.

At least two putative class-action lawsuits have been filed in U.S. district court in Manhattan over investments handled by Madoff.

On Wednesday, an investor sued Gabriel Capital LP, its manager Merkin and auditor BDO Seidman for "gross negligence" in handing over at least 27 percent of Gabriel investment capital to Madoff. A similar lawsuit was filed by New York Law School on Tuesday against Ascot Partners LP, Merkin and BDO Seidman.

-Reuters

LaoPo

[LaoPo]

Madoff Case Creates Worst Loss for Jewish Charities

By Philip Boroff and Patrick Cole

Dec. 17 (Bloomberg) -- New York’s Museum of Jewish Heritage recently cut its staff by 12 percent as it projects smaller donations following the worst year for U.S. stocks since 1931.

In the wake of the arrest of Bernard Madoff in what’s being called the biggest scandal in philanthropic history, museum Deputy Director Ivy Barsky expects more pain.

“It’s devastating, even for those of us who aren’t directly affected,” she said.

Madoff’s wealthy Jewish clients in New York, Boston and Palm Beach, Florida, are coping with pain and anger after disclosure of the alleged multibillion-dollar Ponzi scheme. The nonprofits they’ve funded will likely contend with budget cuts.

“I can’t think of anything since the Great Depression that had an impact of this size,” said Melissa Berman, president of Rockefeller Philanthropy Advisors in New York.

Jews in the U.S. give more than $5 billion to Jewish causes. Although they comprise just 2 percent of the population, Jews contribute 25 percent of the largest gifts to higher education, according to a recent study cited by Gary Tobin, president of the San Francisco-based Institute for Jewish and Community Research.

“To see foundations losing big parts or all of their assets through fraud has never happened before,” he said. “This is a tremendous violation of the public trust.”

The losses to Jewish philanthropists -- who include film director Steven Spielberg and real-estate developer Mortimer Zuckerman -- are in the hundreds of millions, if not billions.

Brandeis, Boston Museum

The $345 million Carl and Ruth Shapiro Family Foundation had about 45 percent of its assets invested with Madoff, a spokeswoman said. The foundation, a major donor to Brandeis University and Boston’s Museum of Fine Arts, was funded by Carl Shapiro, who sold his Kay Windsor Inc. women’s clothing business to VF Corp. in 1971.

“The Shapiro Family Foundation was shocked and horrified to learn about allegations against Mr. Madoff, who has long been considered a trusted and effective leader in the investment field,” a foundation statement said.

U.S. Senator Frank Lautenberg’s foundation was among the charitable groups that invested with Madoff, who told his sons he committed a $50 billion fraud.

The foundation run by Lautenberg, a New Jersey Democrat, invested $12.8 million of its $13.8 million in assets with Bernard L. Madoff Investment Securities at the end of 2006, according to a tax return for the organization.

The Lautenberg foundation’s largest donation in 2006 was $352,500 to the United Jewish Appeal of MetroWest NJ in Whippany, New Jersey.

Los Angeles Federation

The board of the Jewish Federation of Greater Los Angeles, the city’s largest Jewish nonprofit, may have suffered a Madoff- related loss of $6.4 million, or 11 percent of its endowment, President John Fishel said. It will meet next week to review investments and see “if any changes should be made,” he said.

The federation, with a budget of about $50 million this year, has “sufficient resources” to continue its mission of providing social services to the poor in the Jewish community, he said.

Yeshiva University lost about $110 million tied to the scandal, a spokesman for the New York school said.

Hedge-Fund Investment

Most of the losses were invested through hedge funds controlled by J. Ezra Merkin, who was a Yeshiva trustee and chairman of the school’s investment committee, spokesman Bill Anderson said in a telephone interview. Yeshiva, a 122-year-old private school that combines academic and religious education, has an endowment of about $1.2 billion remaining.

Ramaz, a Jewish school on New York’s Upper East Side, had about $6 million with Madoff. Congregation Kehilath Jeshurun, an Orthodox synagogue also on the Upper East Side, has about $3.5 million at risk.

“We are still in the process of gathering the facts and assessing the current status” of the investment, Eric Feldstein, the synagogue’s president, wrote in a letter yesterday to his congregation.

Maimonides School, an Orthodox day school in Brookline, Massachusetts, may have lost $5 million investing with Madoff, Chairman Jeffrey Swartz wrote to the parents of students.

Last night, about 1,100 attended the UJA-Federation of New York’s annual Wall Street dinner. On Page 2 of the program, Madoff is listed as an executive council member. The dinner raised about $18.8 million, down from $21.6 million last year.

“There’s no question a number of our large and medium donors were hurt by this,” Jerry Levin, the organization’s chairman and head of JW Levin Partners LLC, said in an interview. “I think the list is going to be considerably bigger.”

UJA-Federation of New York aids more than 100 health, education and community organizations. It said in a statement that it didn’t invest with Madoff.

-Bloomberg

LaoPo

[CPH]

Hedge funds should be illegal. Its as simple as that. They have for years been manipulating the market and been outside any scrutiny. And maybe there are more like Madoffs fund.

[flying]

there are more like Madoffs fund.

Oh I can pretty much agree 100% with that.

The question is what about penalty?

I have a feeling he is going to do very soft time if any at all.

Punishment should fit the crime.

[CPH]

He should have maximum jail time. And I do not think he could have done this alone.

[LaoPo]

Bernard Madoff’s Misconduct Said to Date to 1970s (Update2)

By David Scheer

Dec. 19 (Bloomberg) -- U.S. regulators, trying to unravel the breadth of Bernard Madoff’s alleged $50 billion fraud, have found evidence of misconduct stretching back to at least the 1970s, two people familiar with the inquiry said.

Madoff’s investment advisory business, where he allegedly operated the biggest Ponzi scheme in history, is now estimated to have had more than 4,000 customers, the people said, declining to be identified because the inquiry isn’t public. An advisory unit Madoff registered with the Securities and Exchange Commission claimed in a January filing to have no more than 25 clients. People familiar with the investigation said Dec. 14 he also ran a secret unregistered business.

The Madoff case is fueling efforts by President-elect Barack Obama and Congress to overhaul oversight of brokerages and investment advisers. The SEC will likely also examine whether hedge funds investing with Madoff performed the due diligence promised to clients, two people familiar with the agency’s concerns said.

“The key question to us is to find out why the SEC didn’t get into it more” before the scheme collapsed this month, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said in an interview. “It’s clear we need to improve regulation, and that will be one of the major questions we will focus on early next year.”

SEC spokesman John Nester declined to comment.

Madoff’s attorney, Ira “Ike” Sorkin of Dickstein Shapiro in New York, wasn’t available to comment. In an interview yesterday, Sorkin said Madoff’s company is “cooperating fully with the government.”

Earlier Misconduct

The SEC, combing through records from Bernard L. Madoff Investment Securities LLC in New York, hasn’t developed a complete assessment of the earlier misconduct or determined how the alleged Ponzi scheme evolved, one of the people familiar with the case said. They also haven’t concluded how the scheme intertwined, if at all, with sales of unregistered securities targeted in a 1992 SEC lawsuit. Proceeds from those sales were invested with Madoff, who gave documents to an auditor in that case and wasn’t accused of wrongdoing, court records show.

Madoff was arrested Dec. 11 and charged with a single count of securities fraud. In court documents, prosecutors and the SEC said he admitted his investment advisory business was “all just one big lie.” He hasn’t entered a plea in the case.

SEC Chairman Christopher Cox said Dec. 16 the agency failed to act on “credible, specific” allegations about Madoff dating back at least to 1999. Madoff had kept several sets of books, and provided misinformation about his advisory business to investors and regulators, Cox noted.

Avellino & Bienes

In its 1992 lawsuit, the SEC claimed accountants Frank Avellino and Michael Bienes began raising money in 1962 and placing it with Madoff while promising investors returns of 13.5 percent to 20 percent, according to court documents obtained by Bloomberg. As of October 1992, their firm, Avellino & Bienes, had issued $441 million in unregistered notes to 3,200 people and entities, court papers say. They invested solely with Madoff, who opened his business in 1960.

Avellino and Bienes, who were represented by Sorkin, agreed in November 1992 to shut down their business and reimburse clients. Lee Richards, the court-appointed trustee over Avellino & Bienes, hired auditors Price Waterhouse to scrutinize the books of the firm, which operated as an unregistered investment company, according to the SEC.

Few Records

Price Waterhouse said Avellino & Bienes kept few records and asked Madoff to provide copies of account statements issued to the firm, which he did, court records show. Richards, who was named receiver for Madoff’s foreign units on Dec. 12, didn’t investigate Madoff while overseeing Avellino & Bienes, the records show.

Avellino didn’t return calls to his homes in New York, Florida, and Nantucket, Massachusetts. Bienes didn’t return a message left with his housekeeper.

Madoff’s case will be at the center of planned congressional hearings on reforming the SEC, a senior Senate official said this week, declining to be identified. Obama said yesterday the scandal “has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets.”

Any new rules may stir privacy concerns among clients of broker-dealers and money managers, said David Becker, a former SEC general counsel.

“It’s very easy to detect Ponzi schemes once we suspect that a Ponzi scheme exists. It requires confirming account balances with customers,” said Becker, who’s now in private practice at Cleary Gottlieb Steen & Hamilton in Washington. “However, customers don’t really like it when the federal government calls them up and asks them what’s in their account.”

-Bloomberg

LaoPo

[Naam]

Who has exposure to Madoff?

Some of the world's largest money managers are facing hundreds of millions of dollars of potential losses after investing in alleged New York fraudster Bernard Madoff. Financial News has compiled a list of financial institutions, individuals and charities that have announced or been reported to have exposure to Madoff Securities.

Asset managers and hedge funds

Man Group - $360m (€266.7m) in two funds Pioneer – indirectly exposed via feeder-funds Fairfield Greenwich Group - $7.5bn Access International Advisers - $1.8bn Tremont Capital - reportedly $1bn (Financial Times) Standard Life – no exposure Aberdeen Asset Management – no exposure Axa - €100m Bramdean Asset Management – 9.5% of AUM as of 31 October FRM Credit Alpha – no exposure RSA Group – no exposure Kingate - $2.5bn EIM Group, Arpad Busson – $230m Friends Provident – no exposure Alliance Trust – no exposure Blue Bay Asset Management – no exposure F&C Asset Mangement – no exposure RAB Capital - $10m Spanish pension schemes - €36m Allianz Global Investors – “not significantly involved” Groupama - €10m ING – no exposure The Town of Fairfield Employees Pension Fund in Connecticut - $40m Massachusetts state pension fund - $12m Spanish investment funds - exposure of €106.9m which is equivalent to 0.05% of the total assets held Maxam Capital Management, Sandra Manzke - $280m Fix Asset Management - $400m account with Madoff (Bloomberg) Shell pension fund - $45m indirect exposure

Investment banks

Crédit Agricole – less than €10m ($13.5m) Nomura - ¥27.5bn (€224m) Credit Suisse – none UniCredit - €75m RBS - £400m (€444.9m) HSBC – $1bn Santander - €2.33bn BNP Paribas - €350m Natixis - €450m Société Générale - €10m BBVA - €300m Nordea - €48m UBS – “limited and insignificant” BarCap –“minimal” exposure Lloyds TSB – no exposure Banco Popolaire - €86m Danske Bank - €10m Deutsche Bank – no significant exposure Aozora Bank – ¥12.4bn Fortis - €1bn Dexia - total exposure of €78m Mediobanca - $671,000 via its Compagnie Monegasque de Banque Banco Espirito Santo - €15m

Private banks

Benedict Hensch - $48m Reichmuth & Co. – Sfr385m (€243.7m) UBP - $850m Neue Privat Bank - $5m St. Galler Kantonalbank's private Hyposwiss bank - $50m Benbassat - $935m of client exposure Mirabaud – less that $13m Other Swiss private banks - $1.6bn (Thomson Reuters quoting Le Temps) UBI Banca - €60.4m Medici Bank of Austria - $2.1bn exposed (AFP)

People

J. Erza Merkin, GMAC chairman - $1.8bn of funds invested (Dow Jones) Mortimer Zuckerman - $30m (New York Daily News) Senator Frank Lautenberg Fred Wilpon, owner of the NY Mets Norman Braman, former owner of the Philadelphia Eagles Carl Shapiro - $545m, includes $145m invested through the Carl & Ruth Shapiro Family Foundation. Leonard Feinstein Alicia Koplowitz, Spanish businesswoman - €10m (El Mundo and Expansion) Ram Bhavnani, Indian-born investor - €2.44m (El Mundo and Expansion) Eliot Spitzer, former governor of New York The Loeb Family (New York Post) The Thyssen Family Avram & Carol Goldberg, founders of Stop & Shop - $30m Robert Jaffe Jerome Fisher, founder of Nine West - $150m Leonard Feinstein, co-founder of retailer Bed Bath & Beyond (WSJ)

Charities

Elie Wiesel Foundation Stephen Spielberg's Wunderkinder Foundation The Robert I. Lappin Charitable Foundation - all $8m of assets invested, has to close (AP) Jewish Community Foundation of Los Angeles - invested a total of $18m, less than 5% of the Foundation's assets North Shore-Long Island Jewish Health System - $5.7m, represents less than 1% of its investment portfolio. Stony Brook University Foundation (through hedge fund Renaissance Technologies) lost $5.4m, 4.5% of an endowment totaling about $120m Gift of Life Bone Marrow Foundation - $1.8m in pledges affected Jewish Federation of Greater Washington - $10m invested, about 8% of its endowment (NYT)

Insurance

Sumitomo Life Insurance - ¥2bn Mitsui Sumitomo Insurance - ¥800m Meiji Yasuda Life Insurance - ¥100m Aioi Insurance - ¥100m Swiss Life – SFr90m in direct exposure Baloise Holding – $13m Helvetia Holding - Indirect exposure "limited" Massachusetts Mutual Life Insurance - Less than $10 m Great Eastern Holdings - S$64m Clal Insurance Enterprises – 55m shekels ($3.1m) CNP Assurances - indirect exposure of €3m Harel Insurance Investments & Financial Services - 55m shekels

Education

Ramaz School - $6m invested with Madoff (NYT) SAR Academy - $3.7m invested (NYT) Yeshiva University - $110m

[LaoPo]

No wonder banks and financials don't trust each other anymore; if there was a bit of trust the Madoff case blew it away.

The $ Billions of aid for the big three in Detroit is peanuts with the money Mr. Madoff was playing around....

LaoPo

[Misty]

Harry Markopolos CFA has been in the news this week for his role in reporting the allegations that Bernard Madoff was running a Ponzi scheme. Over the past eight years, Harry has steadfastly informed the U.S. SEC that Madoff's strategies could not possibly yield the high returns he reported. Despite many ups and downs in his investigation, he did not give up.

More here: http://news.yahoo.com/s/ap/20081219/ap_on_...tleblower/print

Makes you wonder why they didn't listen to him...

[Shotime]

"Eventually, of course, the system will reboot itself, but for a while there will be absolute chaos: riots, lynchings, starvation. It'll be a world without power or fuel, and with no fuel there's no way the modern agricultural system can be maintained. Which means there will be no food either. You might like to stop and think about that for a while."

I'm going to start preparing today. Buy bottled water, canned goods, build some gun turrets, and, most importantly, buy bullets. Do you think that for the average joe, it's ok to blow out as many credit cards as they can? At least until their credit rating prevents them from obtaining any more credit.

[LaoPo]

Harry Markopolos CFA has been in the news this week for his role in reporting the allegations that Bernard Madoff was running a Ponzi scheme. Over the past eight years, Harry has steadfastly informed the U.S. SEC that Madoff's strategies could not possibly yield the high returns he reported. Despite many ups and downs in his investigation, he did not give up.

More here: http://news.yahoo.com/s/ap/20081219/ap_on_...tleblower/print

Makes you wonder why they didn't listen to him...

The odd and strange thing with these kind of MEGA frauds is that the people involved were/are so mighty and powerful that nobody believes them (the exposer), at first, that the fraud criminal is a bad guy and not the widely respected chap he's supposed to be.

Mrs. Bethany McLean was the one journalist who (co)-exposed the then largest fraud in American history, the ENRON scandal. At first she wasn't believed either and the ENRON guys at the top did everything possible to bribe almost everybody in Washington.

We know the end...

The problem with the Madoff case is that, like in most fraud cases, important and wealthy clients showed off to their friends and colleagues, telling them that they were ''stupid'' NOT to invest with Madoff (or Enron) or with other major fraud schemes like the one we just had in Iceland. Another one was a fraud scheme in The Netherlands where a couple of guys sold "baked air" in Dubai real estate and recently a Danish guy was arrested in LA who scammed investors for some € 175 million in his own IT company.

But, they're babies in comparison the Mr. Madoff. What all these people have in common is that they are charming, very intelligent and charismatic people...with a criminal gene, hidden somewhere in their brain.

Therefore MOST people believe those criminals and only one or two (like Harry Markopolos & Bethany McLean) have the guts and balls to dig deeper than the average (bank) Joe...and expose them.

Only AFTER that most people say "I don't understand why those people invested in these guys in the first place"

It's because most people are nice people and therefore naive and easy to steal money from.

LaoPo

[Misty]

The odd and strange thing with these kind of MEGA frauds is that the people involved were/are so mighty and powerful that nobody believes them (the exposer), at first, that the fraud criminal is a bad guy and not the widely respected chap he's supposed to be.

Mrs. Bethany McLean was the one journalist who (co)-exposed the then largest fraud in American history, the ENRON scandal. At first she wasn't believed either and the ENRON guys at the top did everything possible to bribe almost everybody in Washington.

We know the end...

The problem with the Madoff case is that, like in most fraud cases, important and wealthy clients showed off to their friends and colleagues, telling them that they were ''stupid'' NOT to invest with Madoff (or Enron) or with other major fraud schemes like the one we just had in Iceland. Another one was a fraud scheme in The Netherlands where a couple of guys sold "baked air" in Dubai real estate and recently a Danish guy was arrested in LA who scammed investors for some € 175 million in his own IT company.

But, they're babies in comparison the Mr. Madoff. What all these people have in common is that they are charming, very intelligent and charismatic people...with a criminal gene, hidden somewhere in their brain.

Therefore MOST people believe those criminals and only one or two (like Harry Markopolos & Bethany McLean) have the guts and balls to dig deeper than the average (bank) Joe...and expose them.

Only AFTER that most people say "I don't understand why those people invested in these guys in the first place"

It's because most people are nice people and therefore naive and easy to steal money from.

LaoPo

Hi Ladpo,

You make a lot of good points. The world is full of truly nice and naive people (thankfully), but also con-men who merely appear to be nice. And this is one reason we need good regulators--to protect the truly nice from the crooks.

My interest is in the regulator, which in this case failed miserably. And while there are many examples of regulator failure around the world, the scale of this failure blows anything I've seen out of the water (even here locally). I for one expected a bit more of the US SEC.

Why did they fail? Perhaps the cult of personality is a reason. Madoff was an very significant insider, and the SEC personnel investigating any allegations of wrong doing may have been simply too junior to have seriously investigated his activities.

But Mr. Harry Markopolos, CFA was not the only credible whistle blower here--there were other complaints--surely someone senior at the SEC was aware of the credibility of the allegations? Why did these folks do nothing?

One reason could be that they too did not want to get involved, preferring to let it be the inherited problem of someone later--if indeed the skulduggery ever saw the light of day (if it were insider trading/front running it may not have).

Another simple reason could be (as with the Enron case), bribery--stomach-churning as that may be, I guess it's possible.

Another hypothesis is that the complaints were simply not considered to be credible. This might have been the case if senior folks at the SEC were not keenly aware that there are mathematical limitations to possible long term returns. Or at the very least, the senior folks had no one in the SEC with the appropriate background to refer the case to. Perhaps the SEC felt Madoff's reported returns were entirely possible, and they put the complaints down to being merely being cases of professional jealousy.

The implications of this last hypothesis are astounding, but would explain a lot about investors' behavior in general. As in, if the collective SEC has gaping holes in its knowledge about the industries it regulates, what hope does the general public have? If this is the case, clearly there needs to be more internal education in this area at the SEC. Hiring a few Harry Markopolos CFAs to teach the others the basics of mathematical long term possible returns might help. And once the SEC gets it, educating the general public on what's possible and what's not, would be a further step in the right direction. This may in turn put a lot of con men out of business.

As so many appear willing to ignore the simple old saying--if it appears to be too good to be true, it probably is.

Cheers, Misty

[Pakboong]

At the risk of being labeled, I will chime in with what should be obvious in this case. This guy flew under the radar largely because the tribe to which he is a member, have an unwritten law that they don't generally steal from each other.

[flying]

At the risk of being labeled, I will chime in with what should be obvious in this case. This guy flew under the radar largely because the tribe to which he is a member, have an unwritten law that they don't generally steal from each other.

hahahahaah

So funny as I typed that earlier & didn't post it.

My reason was I saw the same thing years ago but a Japanese firm with mainly Japanese investors. This was a US/Japanese company with US/Japanese investors.

Same thing though in the end they were all shocked because they never thought someone from their faith would screw them over.

So the other night on CNBC they did a long special on this & I wondered as all the investors they interviewed were Jewish. So maybe it is a racial naivety?

Edited December 21, 2008 by flying

[Misty]

At the risk of being labeled, I will chime in with what should be obvious in this case. This guy flew under the radar largely because the tribe to which he is a member, have an unwritten law that they don't generally steal from each other.

hahahahaah

So funny as I typed that earlier & didn't post it.

My reason was I saw the same thing years ago but a Japanese firm with mainly Japanese investors. This was a US/Japanese company with US/Japanese investors.

Same thing though in the end they were all shocked because they never thought someone from their faith would screw them over.

So the other night on CNBC they did a long special on this & I wondered as all the investors they interviewed were Jewish. So maybe it is a racial naivety?

Might explain some of the investors, but doesn't explain the US SEC, unless you think the regulator is all Jewish?

[flying]

Might explain some of the investors, but doesn't explain the US SEC, unless you think the regulator is all Jewish?

No I meant it mainly because of this quote earlier

Only AFTER that most people say "I don't understand why those people invested in these guys in the first place"

It's because most people are nice people and therefore naive and easy to steal money from.

LaoPo

But as for the sec who knows.... maybe all the charity organizations he handled accounts for?

[BEENTHEREDONETHAT]

They say the easiest person to con is a conman. So perhaps that explains some of them.

[lannarebirth]

They say the easiest person to con is a conman. So perhaps that explains some of them.

Exactly. These were all "accredited investors" after all, who aren't afforded the ame protections as everyone else. A lot of unearned inheritance money in there and maagers who knew he must be cheating to get such great returns, They just thought he was cheating someone else on their behalf, rather than operating a Ponzi.

[lannarebirth]

Great compilation of material on this Ponzi scam:

http://clusterstock.alleyinsider.com/2008/...10-year-crusade

[LaoPo]

Great compilation of material on this Ponzi scam:

http://clusterstock.alleyinsider.com/2008/...10-year-crusade

Thanks LB.

In fact the quote below, from the link, says it all:

"It doesn't make any dam_n sense," Mr. Markopolos, 43 years old at the time, then told a colleague, who confirmed the conversation. "This has to be a Ponzi scheme."

His bosses told him to go back and check his math. After all, Mr. Madoff by that time was renowned as a legendary investor."

It's the same all over the world:

Awe - Respect - Disbelieve that a man, a company, a Doctor, a Lawyer or other highly respected member of society or company (Enron) could be wrong....a criminal.

That's why it takes so long to finally expose the criminal within the respected human being (or company). Almost nobody wants to burn his/her fingers in the case they are wrong.

And about the Jewish link (without any racism!): they trust each other very much and it is ABSOLUTELY not done in higher Jewish circles (but also in the diamond industry as an example) to cheat on one another. Often, a handshake is a sealed deal.

Not in this case.

I think "trust" has gone down the drain for many years to come.

LaoPo

[lannarebirth]

Great compilation of material on this Ponzi scam:

http://clusterstock.alleyinsider.com/2008/...10-year-crusade

Thanks LB.

In fact the quote below, from the link, says it all:

"It doesn't make any dam_n sense," Mr. Markopolos, 43 years old at the time, then told a colleague, who confirmed the conversation. "This has to be a Ponzi scheme."

His bosses told him to go back and check his math. After all, Mr. Madoff by that time was renowned as a legendary investor."

It's the same all over the world:

Awe - Respect - Disbelieve that a man, a company, a Doctor, a Lawyer or other highly respected member of society or company (Enron) could be wrong....a criminal.

That's why it takes so long to finally expose the criminal within the respected human being (or company). Almost nobody wants to burn his/her fingers in the case they are wrong.

And about the Jewish link (without any racism!): they trust each other very much and it is ABSOLUTELY not done in higher Jewish circles (but also in the diamond industry as an example) to cheat on one another. Often, a handshake is a sealed deal.

Not in this case.

I think "trust" has gone down the drain for many years to come.

LaoPo

Did you read Markopolos' 19 page email to the SEC Lao Po? If not you should and so should everyone else. It is a fascinating look at how markets really work, which is much different than how most people think they work.

[Shotime]

It was based on greed. Everybody's greedy, regardless of race, religion, etc. These type schemes happen all over the world.

The Jewish charity part sounds a little off. It's hard to believe that Madoff would intentionally lose them money. Some had to have made money or it's more complicated financial manipulations. I don't really know the particulars, but it could just be the press liking the angle.

By the way, it is racist to make any general, all encompassing statement about an entire race of people. Even if it's complimentary. Where do people come up with this shit?

I just hope these aren't the same guys that are part of that secret group of select professionals that are running the world.

[12DrinkMore]

So the regulators ignored it. What's new?

The following Ponzi schemes are still be be unwound, or are currently in the process of being unwound. But the data has been in the public domain for many many years. Why was nothing done? I guess it was some sort of "pass the parcel" game, where nobody was keen to take off the even the first wrapper.

- housing

- state pensions

- private pensions

- stock markets

- commercial property

- the whole banking industry

- government spending

And now it looks like 2009 will be the year when the S H I T hits the fan big time.

If you are still thinking this might just "go away" and "it will be alright", then your head is buried in the sand and your body will follow.

[lannarebirth]

So the regulators ignored it. What's new?

The following Ponzi schemes are still be be unwound, or are currently in the process of being unwound. But the data has been in the public domain for many many years. Why was nothing done? I guess it was some sort of "pass the parcel" game, where nobody was keen to take off the even the first wrapper.

- housing

- state pensions

- private pensions

- stock markets

- commercial property

- the whole banking industry

- government spending

And now it looks like 2009 will be the year when the S H I T hits the fan big time.

If you are still thinking this might just "go away" and "it will be alright", then your head is buried in the sand and your body will follow.

Despite the Fed's and other CB's best?? efforts, I do not see how deflation cannot take hold. There is just too much f'ing debt. Everyone is waiting for inflation to bail us out of this mess, when the truth is just about everything on this earth has been inflated already.