Monday, December 15, 2008

Bernie Madoff: "People make mistakes"?

Of all the things I've read about Bernard Madoff's $50B Ponzi scheme, the quote in the Wall Street Journal from one Frank Christensen, a retired NYSE broker, is my favorite:

"I really think very highly of him," said Mr. Christensen. "People make mistakes."

That people make mistakes is certainly a truism.

I myself have made mistakes - personally, professionally, sartorially, financially, aesthetically, grammatically.

But a $50B Ponzi scheme does seem to fall into a category of its own, now, doesn't it? The category that in a kinder, gentler time we might have called "lulus", and which we would now be more apt to characterize as a major, over the top, out of control, f-up.

Actually, I take that last word back.

An f-up implies a kind of bumbling well-intentioned goofiness, or cocky, cock-eyed arrogance.

I don't see how this one is going to end up being anything other than one of two things: a colossal act of insanity, or a do-time crime.

There's a lot of news on Bernie Madoff's victims in these parts, because Boston was part of his "territory."

One small local non-profit has - poof - been wiped out, taking with it a half dozen jobs and a history of good works. Several local capital-P Philanthropists are among the bamboozled, as well.

And, of course, those who 'always knew there was something fishy going on' are now emerging to point out how sage they were to have known that there was more bull than bull market in Madoff's ability to provide unspectacular but unruffled - solid and steady-state  - returns over so many years.

In these circumstances, it's always worth a traipse to the company's web site to see what they have to say.

Sure, there's a little statement from the judge stating that he's got someone in there scrutinizing affairs, but most of the content's still intact.

So we learn that Bernard L. Madoff Investment Securities is a "leading international market maker," who's been around for years.

During this time, Madoff has compiled an uninterrupted record of growth, which has enabled us to continually build our financial resources.

Yes, I realize that this is talking about the Madoff trade execution business, and not the side action as a wealth advisor/manager, but it's certainly easy to see how simple it is to compile "an uninterrupted record of growth" when it's a Ponzi scheme.

Too bad that Ponzi schemes always have to come to an end, isn't it?

Our sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry.

I'm sure that those whose portfolios have been gutted will agree that the client service is unmatched, unparalleled, and decidedly proprietary. (At least let's hope it is.)

Madoff's market maker business has relied on sophisticated technology,

...underpinned by the personal commitment of founder Bernard L. Madoff...

I guess that's the same personal commitment that pinned under the advisory clients.

Madoff's website also touts their "sophisticated disaster recovery facilities," but I can't think of any disaster recovery facility that's going to let anyone recover from this particular disaster.

Last week's SEC press release outlines the complaint against Madoff, using terms like "stunning" and "epic proportions." It also gives us a bit of a look into the company meeting during which Madoff 'fessed up about what was going on on the advisory side of the house:

The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.

Now, this will have to go down as one of the all time great company meetings. (C.f., lulu, f-up.). Just another day at the office, honey!

According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

Maybe it's off hiding somewhere with the $700 billion Wall Street bailout money. Maybe it's on its way to Detroit to help out the incredible shrinking Big Three.

Back on Madoff's web site, we're told - in suddenly cringe-inducing copy -

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. 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.

Well now....

Allowing this copy to appear on your web-site may come under the "people make mistake" category. Maybe.

But bilking people out of $50B, over the course of many years, surely demands a category of its own.

And where's the SEC been during all of this? Their own press release talks about the long duration of Madoff fraud.

Could we possibly be in need of just a teensy weensy bit more regulation?

1 comment:

Rick said...

The SEC is famously incompetent at its job. Even when one hands them a fraud case on the proverbial silver platter, with all the info needed to convict some execs of fraud, most of the time the SEC does absolutely nothing. I know, because I have done exactly that--very frustrating.

There are many things one can say about the Madoff matter, but one I haven't seen much yet is pretty obvious: this scam was way too complex to have been handled just by one guy who spends a bunch of the year in Palm Beach. He had to have had many accomplices, and the two most likely IMO are the sons, who supposedly were shocked by his revelation, and turned him in.