Bernard Madoff - $50 Billion Scam

[PZ99]

^ Nice find... Australia is well overdue for some kick-freckle fraud laws IMO.

Spoiler

Even if it means we churn through 10 prime ministers a year

 

[Dona Ferentes]

The Oklahoma busted. Would he have busted you?

Minutes 23 to 26 ... always worth a refresh

 

[Dona Ferentes]

and .... how close?

Revealed: Madoff so close to embezzling Australian investors​

https://www.firstlinks.com.au/revealed-madoff-close-embezzling-australian-investors

• 12 May 2021

Editor's note:
Firstlinks has never published an article anonymously before, but while we cannot reveal the source of this piece, it is known to us and we consider it impeccable.
In debating whether to publish, we felt encouraged by the decision by Peter Singer and colleagues as reported in The Conversation:
"Philosophers Peter Singer, Jeff McMahan, and Francesca Minerva have announced a new academic outlet, the Journal of Controversial Ideas, as an “open access, peer-reviewed, interdisciplinary journal specifically created to promote free inquiry on controversial topics,” it will give authors the option to publish their work under a pseudonym “in order to protect themselves from threats to their careers or physical safety.”"
In the same spirit, confident in the source, we are publishing this informative piece without implicating anyone.

***
In 2007 Bernie Madoff’s fraudulent hedge fund came perilously close to being distributed by a major Australian wealth manager. Sensible minds (just) prevailed and the distribution deal was aborted. A year later the largest hedge fund fraud of all time, a US$65 billion Ponzi scheme, was exposed.
This article, which for obvious reasons must remain anonymous, is a reminder that financial institutions, just like retail investors, are vulnerable to fraud. Financial institutions have their own set of agency issues and behavioural biases which need to be managed.

Distribution of the funds of external managers​

In the finance industry, distribution is king. The logic is that it doesn’t matter how good your product is, if it doesn’t sell, it's not worth having. Even if you argue that money will eventually find its way to quality investment products, there is a shorter-term imperative that demands businesses maximise their short-term return on equity.
Look at the CEOs of most wealth managers. Many come from a distribution rather than a specialist background such as investments. This is not a bad outcome by any measure: an all-round suite of skills is required for a CEO to succeed and a successful grounding in distribution provides many of those skills.
It is common for wealth managers to distribute externally managed funds. This practice has existed for decades and can take many forms. A simple contractual arrangement is known as a third-party distribution arrangement while a more integrated relationship could be described as a partnership model. Another model is the white label approach, commonly used for global sectors, whereby a wealth manager outsources the asset management of their own branded product to an external manager.
Third-party distribution decisions bring different payoff profiles to wealth managers compared with the outcomes realised by retail or institutional investors. Performance will impact the asset-raising prospects for the wealth manager while directly impacting performance outcomes for end investors. Non-success of a third-party distribution arrangement represents an opportunity cost more than any significant financial cost.

Fiduciary responsibility and fraud ... enter Madoff​

It is only in the case of a fraud that both wealth managers and investors experience extreme pain. For wealth managers, their brand may be irreparably damaged and there is an issue of compensation. For investors, there is a performance write-off and reputational damage if the investor is an institution, such as a super fund.
There are many agency issues and behavioural biases which exist in wealth management. The agency issue centres on the degree to which staff view themselves as fiduciaries or renters of the company’s brand and scale. Some of the behavioural biases include confirmation bias (tendency to ignore contrary information to their view), herd mentality (blindly follow and copy others), and a framing bias (where the narrative may distract from the facts).
So how does Bernie Madoff come into this story?
One of many tactics used by Madoff was to allow other firms to distribute his hedge fund through select third-party relationships. This added further credibility to his name: investors take comfort from the assumed due diligence undertaken by the distributor.
A major Australian wealth manager came perilously close to entering a distribution arrangement with a respected US-based third-party distributor. The major attraction: access to Madoff’s hedge fund which had enviable performance, a legendary reputation and limited capacity, some of which this distributor had exclusively reserved.
What a coup to be able to partner with this group! It could really make someone’s career.
The business case was straightforward: exclusive access to a legendary hedge fund and an attractive distribution fee.

How to garner business case support?​

Here's where big institution politics came into play. At the time there was an unofficial ideological power struggle between distribution and investments. The business case was selectively shared with ‘friendlies’ before being distributed to the broad executive group. There was significant momentum behind the business case by the time key questions were asked regarding the investment integrity of the underlying investment managers.
One investment executive engaged an independent consultant to provide an initial investment opinion on the suite of funds offered by the US third party distributor, including Madoff’s.
Madoff never cooperated with the due diligence processes of any investor but he had many established strategies to attract clients, including:

• access to exclusive IP (intellectual property) which couldn’t be shared
• his previous career successes, where Madoff had been heavily involved in broking and software
• connections and implicit endorsement from the sheer weight of investors and capital invested in the fund, and
• exclusive distribution rights, as others were ready to take your spot.

The consultant report raised concerns that something didn’t feel right, but without full due diligence access it would have been near impossible to claim that such a large and famous hedge fund manager was a fraud.

A fine balance tilted the right way​

The decision was finely balanced, but it was decided to not proceed. I’ll never know to what degree the decision was political or objective. All I can say is that I am forever glad the right decision was made and that Madoff’s Ponzi scheme never managed to defraud Australian investors.
What’s fascinating is that no one did anything wrong. It is healthy for employees to propose new business ideas. The processes worked, and the agency issues and behavioural biases were managed.
Just.

This article is published anonymously but from an exemplary source as a warning that even when dealing with the biggest names in the industry for what looks like a sure profit, great care and due diligence are required.

 

[basilio]

and .... how close?

Revealed: Madoff so close to embezzling Australian investors​

https://www.firstlinks.com.au/revealed-madoff-close-embezzling-australian-investors

• 12 May 2021

Editor's note:
Firstlinks has never published an article anonymously before, but while we cannot reveal the source of this piece, it is known to us and we consider it impeccable.
In debating whether to publish, we felt encouraged by the decision by Peter Singer and colleagues as reported in The Conversation:
"Philosophers Peter Singer, Jeff McMahan, and Francesca Minerva have announced a new academic outlet, the Journal of Controversial Ideas, as an “open access, peer-reviewed, interdisciplinary journal specifically created to promote free inquiry on controversial topics,” it will give authors the option to publish their work under a pseudonym “in order to protect themselves from threats to their careers or physical safety.”"
In the same spirit, confident in the source, we are publishing this informative piece without implicating anyone.

***
In 2007 Bernie Madoff’s fraudulent hedge fund came perilously close to being distributed by a major Australian wealth manager. Sensible minds (just) prevailed and the distribution deal was aborted. A year later the largest hedge fund fraud of all time, a US$65 billion Ponzi scheme, was exposed.
This article, which for obvious reasons must remain anonymous, is a reminder that financial institutions, just like retail investors, are vulnerable to fraud. Financial institutions have their own set of agency issues and behavioural biases which need to be managed.

Distribution of the funds of external managers​

In the finance industry, distribution is king. The logic is that it doesn’t matter how good your product is, if it doesn’t sell, it's not worth having. Even if you argue that money will eventually find its way to quality investment products, there is a shorter-term imperative that demands businesses maximise their short-term return on equity.
Look at the CEOs of most wealth managers. Many come from a distribution rather than a specialist background such as investments. This is not a bad outcome by any measure: an all-round suite of skills is required for a CEO to succeed and a successful grounding in distribution provides many of those skills.
It is common for wealth managers to distribute externally managed funds. This practice has existed for decades and can take many forms. A simple contractual arrangement is known as a third-party distribution arrangement while a more integrated relationship could be described as a partnership model. Another model is the white label approach, commonly used for global sectors, whereby a wealth manager outsources the asset management of their own branded product to an external manager.
Third-party distribution decisions bring different payoff profiles to wealth managers compared with the outcomes realised by retail or institutional investors. Performance will impact the asset-raising prospects for the wealth manager while directly impacting performance outcomes for end investors. Non-success of a third-party distribution arrangement represents an opportunity cost more than any significant financial cost.

Fiduciary responsibility and fraud ... enter Madoff​

It is only in the case of a fraud that both wealth managers and investors experience extreme pain. For wealth managers, their brand may be irreparably damaged and there is an issue of compensation. For investors, there is a performance write-off and reputational damage if the investor is an institution, such as a super fund.
There are many agency issues and behavioural biases which exist in wealth management. The agency issue centres on the degree to which staff view themselves as fiduciaries or renters of the company’s brand and scale. Some of the behavioural biases include confirmation bias (tendency to ignore contrary information to their view), herd mentality (blindly follow and copy others), and a framing bias (where the narrative may distract from the facts).
So how does Bernie Madoff come into this story?
One of many tactics used by Madoff was to allow other firms to distribute his hedge fund through select third-party relationships. This added further credibility to his name: investors take comfort from the assumed due diligence undertaken by the distributor.
A major Australian wealth manager came perilously close to entering a distribution arrangement with a respected US-based third-party distributor. The major attraction: access to Madoff’s hedge fund which had enviable performance, a legendary reputation and limited capacity, some of which this distributor had exclusively reserved.
What a coup to be able to partner with this group! It could really make someone’s career.
The business case was straightforward: exclusive access to a legendary hedge fund and an attractive distribution fee.

How to garner business case support?​

Here's where big institution politics came into play. At the time there was an unofficial ideological power struggle between distribution and investments. The business case was selectively shared with ‘friendlies’ before being distributed to the broad executive group. There was significant momentum behind the business case by the time key questions were asked regarding the investment integrity of the underlying investment managers.
One investment executive engaged an independent consultant to provide an initial investment opinion on the suite of funds offered by the US third party distributor, including Madoff’s.
Madoff never cooperated with the due diligence processes of any investor but he had many established strategies to attract clients, including:

• access to exclusive IP (intellectual property) which couldn’t be shared
• his previous career successes, where Madoff had been heavily involved in broking and software
• connections and implicit endorsement from the sheer weight of investors and capital invested in the fund, and
• exclusive distribution rights, as others were ready to take your spot.

The consultant report raised concerns that something didn’t feel right, but without full due diligence access it would have been near impossible to claim that such a large and famous hedge fund manager was a fraud.

A fine balance tilted the right way​

The decision was finely balanced, but it was decided to not proceed. I’ll never know to what degree the decision was political or objective. All I can say is that I am forever glad the right decision was made and that Madoff’s Ponzi scheme never managed to defraud Australian investors.
What’s fascinating is that no one did anything wrong. It is healthy for employees to propose new business ideas. The processes worked, and the agency issues and behavioural biases were managed.
Just.

This article is published anonymously but from an exemplary source as a warning that even when dealing with the biggest names in the industry for what looks like a sure profit, great care and due diligence are required.

Great find. Certainly throws light on investment fund practices. In fact for years most people have been aware that just because their finacial advisor or fund manager advises/selects an investment option doesn't necessarily mean there has been due diligence done on the investment. In fact in many cases the most significant diligence is done on the fee paid to the fund manger/advisor.

Will also check out the Journal of Controversial ideas. Sounds like a version of wiki leaks.

 

[noirua]

Bernie Madoff -
Bernard Madoff had a heart attack in December 2013, and reportedly had end-stage renal disease (ESRD).[193] According to CBS New York[194] and other news sources, Madoff claimed in an email to CNBC in January 2014 that he had kidney cancer, but this was unconfirmed. In a court filing from his lawyer in February 2020, it was revealed Madoff had chronic kidney failure.[155]

Bernie Madoff - Wikipedia

en.wikipedia.org

Madoff investment scandal - Wikipedia

en.wikipedia.org

Peter B Madoff (and Andrew Madoff, before his death) remained the targets of a tax fraud investigation by federal prosecutors, according to The Wall Street Journal. David Friehling, Bernard Madoff's tax accountant, who pleaded guilty in a related case, was reportedly assisting in the investigation. According to a civil lawsuit filed in October 2009, trustee Irving Picard alleges that Peter Madoff deposited $32,146 into his Madoff accounts and withdrew over $16 million; Andrew deposited almost $1 million into his accounts and withdrew $17 million; Mark deposited $745,482 and withdrew $18.1 million.[179]

On February 17, 2022, Madoff's sister, Sondra Weiner, and her husband, Marvin, were both found dead with gun shot wounds in their Boynton Beach, Florida home. The deaths of Sondra, 87, and Marvin, 90, were labelled by police as a potential murder-suicide.[195]

Participants in the Madoff Ponzi scam:

Participants in the Madoff investment scandal - Wikipedia

en.wikipedia.org

Andrew Madoff - died from cancer 3 September 2014.

Andrew Madoff - Wikipedia

en.wikipedia.org

Mark Madoff - committed suicide 11 December 2010.

Mark Madoff - Wikipedia

en.wikipedia.org

Ruth Madoff wife of Bernie Madoff - While she had $70 million in assets in her name, after her husband was imprisoned, she was stripped of all of her money other than $1–2 million, by the government and by the trustee for her husband's firm, Irving Picard.

-----

List of investors in Bernard L. Madoff Investment Securities​

List of investors in Bernard L. Madoff Investment Securities - Wikipedia

en.wikipedia.org

Even after Madoff’s death, work to unwind epic fraud goes on​

June 2, 2021

Even after Madoff's death, work to unwind epic fraud goes on

Days after Bernard Madoff confessed to the biggest Ponzi scheme in Wall Street history, a judge hired a trustee to sift through the con man’s books and see how much money he could salvage for victims of the fraud.

apnews.com

Revealed: Madoff so close to embezzling Australian investors​

May 12 2021

Revealed: Madoff so close to embezzling Australian investors

We are publishing this anonymously knowing it comes from an impeccable source. Bernie Madoff’s fund was almost distributed to retail Australian investors a year before the largest-ever hedge fund fraud was exposed.

www.firstlinks.com.au

‘He’s a financial serial killer’: how Bernie Madoff became the monster of Wall Street​

January 4 2023

‘He’s a financial serial killer’: how Bernie Madoff became the monster of Wall Street

A new Netflix docuseries details the crimes of the man who crafted a $64bn Ponzi scheme – and those who protected him

www.theguardian.com