As an economist it has always puzzled me that Madoff got away with the fraud for so long. The "ability" to continually earn exactly the same (abnormally high) return each year should have immediately raised flags; if it sounds too good to be true it usually isn't. Another flag should have been the use of a storefront accounting firm as the auditor of a multibillion dollar operation. Of course the fact that so many so called experts in the feeder funds never conducted even rudimentary due diligence is also astonishing.
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I remember when the Madoff story first broke. The news media reported for weeks afterwards that he was the only one who knew about his fraud. I never believed that, and couldn't believe it continued to get reported. Then, gradually, more and more people were added to the roster of those who helped him pull off what has to be the largest Ponzi scheme in human history, by dollar amount.
And this S.O.B., to this day, seems to have not a shred of remorse about what he did, or about the people who he harmed, including one of his sons, who committed suicide a few years later. Madoff even said he didn't mind prison that much and was making the best of it. I don't think society can ever put in safeguards against people like him. Doing so would snare too many innocent people in an attempt to catch a dedicated sociopath like him.
1
Two problems with this article:
1) The lead-in to the article indicates DiPascali helped prosecutors take down the fraud. The fraud collapsed on its own, and prosecutors helped clean up afterward.
2) The software used as the architecture of the fraud? Sounds like a spreadsheet.
1) The lead-in to the article indicates DiPascali helped prosecutors take down the fraud. The fraud collapsed on its own, and prosecutors helped clean up afterward.
2) The software used as the architecture of the fraud? Sounds like a spreadsheet.
1
Few people realize how little auditors actually know. They have to be fed everything by the client they are supposedly auditing, and simply have no way to detect deception.
When I worked at a major bank, my systems were 'audited' for security access by a team from a major auditing firm. They were located in India, and had no access to the actual systems. They had to believe whatever information I provided them.
Naturally, no one is eager to reveal how things really work. You couldn't get anything done if you followed all the regulations, but most people see little purpose in revealing this to auditors. Most of these practices are used to facilitate fixing problems without opening a ticket to draw a password that would appear on a management dashboard, but if you wanted to engage in actual dishonesty, as opposed to just doing the official work in an unofficial manner, it would not be difficult.
When I worked at a major bank, my systems were 'audited' for security access by a team from a major auditing firm. They were located in India, and had no access to the actual systems. They had to believe whatever information I provided them.
Naturally, no one is eager to reveal how things really work. You couldn't get anything done if you followed all the regulations, but most people see little purpose in revealing this to auditors. Most of these practices are used to facilitate fixing problems without opening a ticket to draw a password that would appear on a management dashboard, but if you wanted to engage in actual dishonesty, as opposed to just doing the official work in an unofficial manner, it would not be difficult.
7
I am old enough to remember when companies first started using computers. I can recall (on more than one occasion) complaining about a mistake in billing and being told that "computers don't make mistakes." I never asked if they lie.
5
Oh come on. Charlatans pray on people's willingness to believe just about any story if it's told properly and the story teller is dressed up.
We fill our wallets with DOLLARS that are backed by the FULL FAITH AND CREDIT OF THE FEDERAL GOVERNMENT OF THE UNITED STATES OF AMERICA.
An institution that is in spectacular debt - if any of us as individuals had the books the Fed Gov has we would have been bankrupt and thrown out on the street a decade or more ago.
But people will still say "cash is king." But it's just a bunch of pieces of paper with nice etchings of dead presidents.
We fill our wallets with DOLLARS that are backed by the FULL FAITH AND CREDIT OF THE FEDERAL GOVERNMENT OF THE UNITED STATES OF AMERICA.
An institution that is in spectacular debt - if any of us as individuals had the books the Fed Gov has we would have been bankrupt and thrown out on the street a decade or more ago.
But people will still say "cash is king." But it's just a bunch of pieces of paper with nice etchings of dead presidents.
1
Cash is just a form of government debt, in case you hadn't noticed. And even under the Gold Standard (domestically until 1933, internationally until 1971), dollar cash was just 40% backed by gold. The rest was pictures of dead presidents (and Benjamin Franklin on the $100 bill, in case you've never seen one!).
The US government is much less indebted today (90% of GDP) than it was in 1945 (over 140%), the absolute high point of American international power. At the high point of British power after the Napoleanic Wars, the British government was over 240% in the hock. And it never defaulted or suffered hyperinflation. So much for your understanding of national debt.
The US government is much less indebted today (90% of GDP) than it was in 1945 (over 140%), the absolute high point of American international power. At the high point of British power after the Napoleanic Wars, the British government was over 240% in the hock. And it never defaulted or suffered hyperinflation. So much for your understanding of national debt.
7
Let us not forget human greed. These rich folks who put their trust and bucks into Madoff's hands were both GREEDY and didn't want to go with "if it too good to be true, then it isn't" A con man once beat me out of $40.00 this was 40 years ago, however it was a cheap lesson in life. On the other hand these Cons are quite good at their game.
3
One doesn't have to be greedy to want a positive return on an investment. And if you or I trust a money manager it is because neither of us has that expertise. I may be terrifically knowledgeable about 19th century empire building but have little knowledge of economics and finance. You may be an outstanding cattle rancher but have little experience in bond trading. Who is supremely smart in every discipline? In every kind of knowledge? No one--that is why we hire experts to be our proxy. Just like hiring an electrician to hook up a 220volt connection we hire money managers to invest our hard earned money. I want the best return as do you -- that isn't greed.
After all, they wouldn´t be rich if they weren´t the best and brightest! Schadenfreude has its moments.
The role of early computing is a fascinating subtext. DiPascali, sans college degree, picked up his facility with the technology and magnified the scam. I wonder if government regulators had enough capability to investigate that sort of computer crime then. It seems as if it were at the dawn of the vast computer scam.
It was indicative that at that point, with an affordable computer, any firm could effect large scale fraud. DiPacali is the early hacker. Without formal training, he figured it out. It led to that horror for those investors.
And Diana exposes the misuse of trust. Yes, there is computing, but there are also the necessities of the firm handshake and lying through one's teeth.
It was indicative that at that point, with an affordable computer, any firm could effect large scale fraud. DiPacali is the early hacker. Without formal training, he figured it out. It led to that horror for those investors.
And Diana exposes the misuse of trust. Yes, there is computing, but there are also the necessities of the firm handshake and lying through one's teeth.
3
By dying before being sentenced, his conviction is vacated. The same happened to Kenneth Lay, of Enron, who died before his sentencing in Federal Court.
6
What amazes me still to this day is the huge number of instrumental accomplices Bernie had for his largely successful business - and how al but perhaps 5 or 6 were named and penalized.
Bernie's largest feeder fund, Tremont Capital, was one of the largest and oldest "fund of funds” in the industry. Tremont has some $8Bil with Madoff. At the same time, Tremont very aggressively touted their in-depth analytical manager selection and due diligence process, investment attribution acumen, their deep understanding of the hedge fund space and their ability to spot, prevent and eliminate any firm risk. The biggest sealing point was their famed “Tacis Database” tracking virtually every hedge fund in existence dating back over a decade – even though 90% of Tremont client assets were invested with Bernie. Tremont did numerous global rad shows - in Japan , the EU throughout all of North America - led by their CFO and CIO.
In the end, Tremont investors took nearly a 100% loss. Investors had no direct claim on Bernie as their only claim was on Tremont. Oppenheimer, Tremont’s parent company, closed down the subsidiary, paid some token penalty fee, and wiped it all clean from their corporate memory. The Tremont management pocketed massive bonuses, took a little vacation time, wiped clean their own CVs, and are now all back on Wall St. handing client funds at new firms.
Bernie's largest feeder fund, Tremont Capital, was one of the largest and oldest "fund of funds” in the industry. Tremont has some $8Bil with Madoff. At the same time, Tremont very aggressively touted their in-depth analytical manager selection and due diligence process, investment attribution acumen, their deep understanding of the hedge fund space and their ability to spot, prevent and eliminate any firm risk. The biggest sealing point was their famed “Tacis Database” tracking virtually every hedge fund in existence dating back over a decade – even though 90% of Tremont client assets were invested with Bernie. Tremont did numerous global rad shows - in Japan , the EU throughout all of North America - led by their CFO and CIO.
In the end, Tremont investors took nearly a 100% loss. Investors had no direct claim on Bernie as their only claim was on Tremont. Oppenheimer, Tremont’s parent company, closed down the subsidiary, paid some token penalty fee, and wiped it all clean from their corporate memory. The Tremont management pocketed massive bonuses, took a little vacation time, wiped clean their own CVs, and are now all back on Wall St. handing client funds at new firms.
26
Fascinating, but would be more interesting with references to evidence for these allegations.
1
If Madoff & Co had been running this scam as part of, say, Goldman or Citi or JPM, they'd be free men today, the companies would have paid huge fines, but the companies would have continued, all too big to fail. A lesson to the little guys, don't get caught, you can't afford it, you're not considered essential.
14
Hate as you much do, this is a false analogy. The banks have in house auditors that report directly to the FDIC, and the Fed.
There is no way a bank could declare trades and pay out on them without them being seen immediately. CITI bank, then the City Bank of New York, who's president was "Smiling Charlie Mitchel" on of the most trusted bankers in the U.S. sold they held, that were almost worthless. A good broker would have told them the actual value of the equities.
A buyer can find the actual value immediately today. There is no way a bank could publish phoney trades.
There is no way a bank could declare trades and pay out on them without them being seen immediately. CITI bank, then the City Bank of New York, who's president was "Smiling Charlie Mitchel" on of the most trusted bankers in the U.S. sold they held, that were almost worthless. A good broker would have told them the actual value of the equities.
A buyer can find the actual value immediately today. There is no way a bank could publish phoney trades.
4
No, Citi couldn't run a literal Ponzi scheme, but they issued 10Qs and 10Ks based on valuations of derivatives that they knew were false.
The institutions pay fines, sort of a fraud tax, but the individual fakers get off Scott free. There is no reason for the next generation of Wall Street operators to turn down those big bonuses and play it straight. Heads I win - tails you lose.
The institutions pay fines, sort of a fraud tax, but the individual fakers get off Scott free. There is no reason for the next generation of Wall Street operators to turn down those big bonuses and play it straight. Heads I win - tails you lose.
8
Actually it is an on-point analogy. Lloyds TSB, Chase, Barclays, and Credit Suisse all fabricated hundreds of millions of dollars in money transfers in violation of the IEEPA sanctions to get around financial sanctions on Iran, Iraq, and Sudan. Each bank signed settlement agreements with the Justice Department. Each bank (several issued manuals on how to do it), deleted SWIFT (Society for Worldwide Interbank Financial Telecommunications) entries and falsified data by manually creating false SWIFT tickets. It was intentional fraud designed to generate millions in fees and it lasted almost as longa s Madoff's fraud. You can read each of the settlement agreements by going to the Justice Department website and searching for each bank and IEEPA violations. A NYT story about federal judge Emmet Sullivan's anger at the absence of any criminal charges was printed in August 7, 2009. In house auditors either willfully ignored or participated in the frauds.
8