2nd largest fraud behind Enron uncovered: Bernard Madoff arrested over alleged $50 billion fraud

First

Lifer
Jun 3, 2002
10,518
271
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And I still hear people complaining that we need to get rid of SOX altogether because that type of auditing drains businesses. Yet the alternative is ponzi schemes like this occurring more often.

http://news.yahoo.com/s/nm/200...bs_nm/us_madoff_arrest

NEW YORK (Reuters) ? Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion Ponzi scheme in what may rank among the biggest fraud cases ever.

The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses.

Madoff told senior employees of his firm on Wednesday that "it's all just one big lie" and that it was "basically, a giant Ponzi scheme," with estimated investor losses of about $50 billion, according to the U.S. Attorney's criminal complaint against him.

A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors.

On Thursday, two agents for the U.S. Federal Bureau of Investigation entered Madoff's New York apartment.

"There is no innocent explanation," Madoff said, according to the criminal complaint. He told the agents that it was all his fault, and that he "paid investors with money that wasn't there," according to the complaint.

The $50 billion allegedly lost would make the hedge fund one of the biggest frauds in history. When former energy trading giant Enron filed for bankruptcy in 2001, one of the largest at the time, it had $63.4 billion in assets.

U.S. prosecutors charged Madoff, 70, with a single count of securities fraud. They said he faces up to 20 years in prison and a fine of up to $5 million.

The Securities and Exchange Commission filed separate civil charges against Madoff.

"Our complaint alleges a stunning fraud -- both in terms of scope and duration," said Scott Friestad, the SEC's deputy enforcer. "We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors."

Dan Horwitz, Madoff's lawyer, told reporters outside a downtown Manhattan courtroom where he was charged, "Bernard Madoff is a longstanding leader in the financial services industry. We will fight to get through this unfortunate set of events."

A shaken Madoff stared at the ground as reporters peppered him with questions. He was released after posting a $10 million bond secured by his Manhattan apartment.

Authorities, citing a document filed by Madoff with the U.S. Securities and Exchange Commission on January 7, 2008, said Madoff's investment advisory business served between 11 and 25 clients and had a total of about $17.1 billion in assets under management. Those clients may have included other funds that in turn had many investors.

The SEC said it appeared that virtually all of the assets of his hedge fund business were missing.

CONSISTENT RETURNS

An investor in the hedge fund said it generated consistent returns, which was part of the attraction. Since 2004, annual returns averaged around 8 percent and ranged from 7.3 percent to 9 percent, but last decade returns were typically in the low-double digits, the investor said.

The fund told investors it followed a "split strike conversion" strategy, which entailed owning stock and buying and selling options to limit downside risk, said the investor, who requested anonymity.

Jon Najarian, an acquaintance of Madoff who has traded options for decades, said "Many of us questioned how that strategy could generate those kinds of returns so consistently."

Najarian, co-founder of optionmonster.com, once tried to buy what was then the Cincinnati Stock Exchange when Madoff was a major seatholder on the exchange. Najarian met with Madoff, who rejected his bid.

"He always seemed to be a straight shooter. I was shocked by this news," Najarian said.

'UNFORTUNATE SET OF EVENTS'

Madoff had long kept the financial statements for his hedge fund business under "lock and key," according to prosecutors, and was "cryptic" about the firm. The hedge fund business was located on a separate floor from the market-making business.

Madoff has been conducting a Ponzi scheme since at least 2005, the U.S. said. Around the first week of December, Madoff told a senior employee that hedge fund clients had requested about $7 billion of their money back, and that he was struggling to pay them back.

Investors have been pulling money out of hedge funds, even those performing well, in an effort to reduce risk in their portfolios as the global economy weakens.
 

jpeyton

Moderator in SFF, Notebooks, Pre-Built/Barebones
Moderator
Aug 23, 2003
25,375
142
116
Proof once again that the biggest criminals in our country are the ones sitting in a country club, wearing a suit and tie.

Wanna be a baller, shot caller, twenty inch blades on the Impala.
 

tfcmasta97

Platinum Member
Feb 7, 2004
2,003
0
0
20 years for 50 billion? how the hell are these crooks not getting tried for 1000000000 life sentences ?
 

ProfJohn

Lifer
Jul 28, 2006
18,161
7
0
20 years is a death sentence for this guy. He is already 70.

They should make him listen to lousy ass music every day he is in prison.
 

Linux23

Lifer
Apr 9, 2000
11,339
714
126
Originally posted by: jpeyton
Proof once again that the biggest criminals in our country are the ones sitting in a country club, wearing a suit and tie.

/Thread.
 

chucky2

Lifer
Dec 9, 1999
10,018
37
91
From a efficiency perspective, and more simply, a 'getting work done w/o rediculous overhead' perspective, SOX is a F'ing disaster.

Maybe something does need to be there, but, SOX, day in and day out, is not helpful.

I'm willing to bet if you added up all the overhead costs due to SOX, you'd be better off taking all that money, and using it to hedge against corruption such as this.

SOX = The bane of anyone trying to get real work done.

Chuck
 

AlienCraft

Lifer
Nov 23, 2002
10,539
0
0
We need to keep a running total of money down the rat hole from fraud....
Enron 65.B This jerk 55.B , That's 120B out of the hands of the market and worse the tax rolls.
If the purpose of a terrorist is to cause a society to grind to a halt, why aren't these miscreants being charged under the P.A.T.R.I.O.T.act for Financial Terrorism?
Certainly the net effect is the same as if they had been card- carrying Al Queda toolheads.

Maybe it's just me.
 

chucky2

Lifer
Dec 9, 1999
10,018
37
91
That's actually a really good idea...and it'd definitely make some of these jerk off's think twice. We could test out new torture tactics on them...oh the possibilities.....

Chuck
 

vhx

Golden Member
Jul 19, 2006
1,151
0
0
WTF $50 billion for themselves? Seriously that is the worst case of greed I have ever seen in my life. How much is too much? What a massive tool, 20 years is too good for that douche.

I doubt he will even end up in a federal 'pound me in the ass prison' but more a long the lines of the 'minimum security white collar resort'.
 

First

Lifer
Jun 3, 2002
10,518
271
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Originally posted by: chucky2
From a efficiency perspective, and more simply, a 'getting work done w/o rediculous overhead' perspective, SOX is a F'ing disaster.

Maybe something does need to be there, but, SOX, day in and day out, is not helpful.

I'm willing to bet if you added up all the overhead costs due to SOX, you'd be better off taking all that money, and using it to hedge against corruption such as this.

SOX = The bane of anyone trying to get real work done.

Chuck

How do you "hedge against corruption" without more cost overhead by auditing and enforcing separation of duties so there's no conflict of interest? You're really not making any sense.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
And I still hear people complaining that we need to get rid of SOX altogether because that type of auditing drains businesses. Yet the alternative is ponzi schemes like this occurring more often.

That's because in Evan world, it isn't a cost/benefit comparison between systems that all have flaws, it's a comparison between a flawed systems and the perfect idealistic system you've imagined in your head.

In reality, SOX prevents very little, is disproportionately costly to smaller companies, and drives businesses overseas. It's sort of like if the government passed a law saying that every citizen had to be locked in their basement to prevent murder rates from increasing. It would work... by making life suck for everyone who complied and causing everyone else to leave the country.

I'd also point out that the government runs its own ponzi scheme called Social Security.
 

First

Lifer
Jun 3, 2002
10,518
271
136
Originally posted by: BansheeX
And I still hear people complaining that we need to get rid of SOX altogether because that type of auditing drains businesses. Yet the alternative is ponzi schemes like this occurring more often.

That's because in Evan world, it isn't a cost/benefit comparison between systems that all have flaws, it's a comparison between a flawed systems and the perfect idealistic system you've imagined in your head.

In reality, SOX prevents very little, is disproportionately costly to smaller companies, and drives businesses overseas.

Except, in the real world where people aren't libertopians, the benefit of SOX outweighs the cons of driving some business overseas, which is virtually nothing overall since countries like the UK and Germany are becoming just as highly regulated (no one wants to do business in China anywhere near as much as they want to do it in the U.S. due to their highly corrupt business practices).

It's sort of like if the government passed a law saying that every citizen had to be locked in their basement to prevent murder rates from increasing. It would work... by making life suck for everyone who complied and causing everyone else to leave the country.

Gotta love oversimplified tripe that doesn't reflect real world conditions. I wonder if you've even ever witnessed a SOX audit. :laugh:

I'd also point out that the government runs its own ponzi scheme called Social Security.

Says the guy that consistently doesn't know the difference between fiscal and monetary policy.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
Except, in the real world where people aren't libertopians, the benefit of SOX outweighs the cons of driving some business overseas, which is virtually nothing overall since countries like the UK and Germany are becoming just as highly regulated (no one wants to do business in China anywhere near as much as they want to do it in the U.S. due to their highly corrupt business practices).

I doubt that very much, China has had no problem getting investment and growth. Fraud of this nature is simply not a huge problem relative to the costs imposed on the countless other businesses in order to make it harder. And let's not forget that any type of scam like this requires thousands of gullible subjects who are greedy themselves, so much so that they throw out all rational skepticism when confronted with the "too-good-to-be-true" yields. Crimes like fraud that require victim compliance are better prevented by educating the would-be victim. Otherwise, it's a matter for recourse after the act. You can't just burden every business on the planet to devote more resources proving themselves in the hopes of finding it, that eclipses the original problem.

Oh, and when all is said and done with SS, the wealth it siphoned through understated inflation adjustments or didn't pay from retirement increases, will make Enron look like cupcakes.
 

First

Lifer
Jun 3, 2002
10,518
271
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Originally posted by: BansheeX

I doubt that very much, China has had no problem getting investment and growth.

:roll: China isn't growing at 8% per year because business is being driven away from the U.S. by SOX. There's no evidence to support that nonsense. China has a massive population that is progressively bringing their wages in line with a somewhat sustainable (though still quite poor) middle class, which the U.S. greatly helped to create with booming trade. Their progressively more wealthy and massive population allows them to grow by leaps and bounds (currently), and SOX has bupkis to do with it.

Fraud of this nature is simply not a huge problem relative to the costs imposed on the countless other businesses in order to make it harder.

Please cite the evidence for this if you're going to make the claim. You'll find evidence for it doesn't exist.

And let's not forget that any type of scam like this requires thousands of gullible subjects who are greedy themselves, so much so that they throw out all rational skepticism when confronted with the "too-good-to-be-true" yields. Crimes like fraud that require victim compliance are better prevented by educating the would-be victim. Otherwise, it's a matter for recourse after the act. You can't just burden every business on the planet to devote more resources proving themselves in the hopes of finding it, that eclipses the original problem.

Boy is this is utter nonsense. Thousands of gullible people huh? I wonder if you even believe what you type.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
Originally posted by: Evan
Originally posted by: BansheeX

I doubt that very much, China has had no problem getting investment and growth.

:roll: China isn't growing at 8% per year because business is being driven away from the U.S. by SOX. There's no evidence to support that nonsense. China has a massive population that is progressively bringing their wages in line with a somewhat sustainable (though still quite poor) middle class, which the U.S. greatly helped to create with booming trade. Their progressively more wealthy and massive population allows them to grow by leaps and bounds (currently), and SOX has bupkis to do with it.

Where did I say that SOX was THE reason that China was doing well? You can't read, all I said is that they benefit from it, your contention was that nobody wanted to do business in China. Which is the dumbest thing I've ever heard, there's been a typhoon of Western investment in Asian manufacturing, and yes they benefit from exports, but not from perpetually giving away their products in exchange for paper money that would only be valuable provided they peg and do nothing with them. It's self-fulfilling nonsense that prevents their people from affording more of their own products.

Please cite the evidence for this if you're going to make the claim. You'll find evidence for it doesn't exist.

Why don't you cite evidence to the contrary? There have been studies done, I don't know if they're on the internet, but you can look. I tend to prefer logic and the state of the economy as evidence, because academic studies can have manufactured results depending on the who's funding them.

And let's not forget that any type of scam like this requires thousands of gullible subjects who are greedy themselves, so much so that they throw out all rational skepticism when confronted with the "too-good-to-be-true" yields. Crimes like fraud that require victim compliance are better prevented by educating the would-be victim. Otherwise, it's a matter for recourse after the act. You can't just burden every business on the planet to devote more resources proving themselves in the hopes of finding it, that eclipses the original problem.

Boy is this is utter nonsense. Thousands of gullible people huh? I wonder if you even believe what you type.

So somebody comes up to you and tells you they've got this really awesome strategy that guarantees 8% yields every year without fail, and you're not gullible for taking? Come on. Ponzi is a well known scam, even if you get the return, it's only because you were one of the earlier investors.

And yes, most Americans are idiots who have no idea how SS works. The politicians know the game is coming to an end, but it's political suicide to do anything but delay the day of reckoning with superficial fixes. Change the inflation calculations again, raise the retirement age, raise the taxrate again, deny certain incomes.
 

First

Lifer
Jun 3, 2002
10,518
271
136
Originally posted by: BansheeX
Where did I say that SOX was THE reason that China was doing well? You can't read, all I said is that they benefit from it, your contention was that nobody wanted to do business in China.

Good lord, read what I wrote; nowhere did I say no one wants to do business with China. In comparison to the U.S. was the words I used.

Which is the dumbest thing I've ever heard, there's been a typhoon of Western investment in Asian manufacturing, and yes they benefit from exports, but not from perpetually giving away their products in exchange for paper money that would only be valuable provided they peg and do nothing with them. It's self-fulfilling nonsense that prevents their people from affording more of their own products.

Based on economic evidence you can't cite or prove because you don't have anything to go on but gut instinct based on bunk Austrian currency contention and trade policies.

Why don't you cite evidence to the contrary? There have been studies done, I don't know if they're on the internet, but you can look. I tend to prefer logic and the state of the economy as evidence, because academic studies can have manufactured results depending on the who's funding them.

You don't understand academic studies on economics to begin with so your interpretation of them as "manufactured" is moot. Look up the criticism and praise of SOX on Wiki, they clearly show that although SOX is much more expensive it does NOT mean, as you contend, that those costs outweigh the benefits. And the benefits are clear and very important; added consumer confidence in financial statements and investment in public companies is huge, economics is all about investor psychological, you of all people should know that as a loony free-for-all market proponent.

So somebody comes up to you and tells you they've got this really awesome strategy that guarantees 8% yields every year without fail, and you're not gullible for taking? Come on. Ponzi is a well known scam, even if you get the return, it's only because you were one of the earlier investors.

They didn't say "guarantees 8%", it's not that simple. They looked at the hedge fund's excellent returns and went with the best hedge fund. It wasn't overtly obvious in the least and it's exactly why it lasted so long. If you were so smart it defies logic you haven't made bank off the current economic crisis by shorting financials. Perhaps because even you doubt the crap you spout.

And yes, most Americans are idiots who have no idea how SS works. The politicians know the game is coming to an end, but it's political suicide to do anything but delay the day of reckoning with superficial fixes. Change the inflation calculations again, raise the retirement age, raise the taxrate again, deny certain incomes.

Yawn. More layman youtube crap.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
Originally posted by: jpeyton
Proof once again that the biggest criminals in our country are the ones sitting in a country club, wearing a suit and tie.

Was there ever any doubt about that?
 

Genx87

Lifer
Apr 8, 2002
41,091
513
126
Did this not happen under SOX?

Anyways, never under estimate human greed in cases like this. And I am talking about the investor and the scam artist. The initial investors and all subsequent investors were all pulled in by the promise of a big payoff. If it wasnt for simple greed things like this would never happen.

It is terrible what happened. But you would think with all the headlines about similar scams people would start to wise up already. If it sounds too good to be true, it is!
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Just goes to show the best criminals are white collar.

BTW I do think social security fits very closely the constraints of a ponzi scheme.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
Originally posted by: Skoorb
Just goes to show the best criminals are white collar.

BTW I do think social security fits very closely the constraints of a ponzi scheme.

Change that to "Social Security IS a Ponzi scheme", and you'd be 100% correct.
 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
Originally posted by: jpeyton
Proof once again that the biggest criminals in our country are the ones sitting in a country club, wearing a suit and tie.

Wanna be a baller, shot caller, twenty inch blades on the Impala.

Don't forget the cowards type anonymously on here too.
 

chucky2

Lifer
Dec 9, 1999
10,018
37
91
Originally posted by: Evan
Originally posted by: chucky2
From a efficiency perspective, and more simply, a 'getting work done w/o rediculous overhead' perspective, SOX is a F'ing disaster.

Maybe something does need to be there, but, SOX, day in and day out, is not helpful.

I'm willing to bet if you added up all the overhead costs due to SOX, you'd be better off taking all that money, and using it to hedge against corruption such as this.

SOX = The bane of anyone trying to get real work done.

Chuck

How do you "hedge against corruption" without more cost overhead by auditing and enforcing separation of duties so there's no conflict of interest? You're really not making any sense.

My apologies, I should have worded that better:

The money the US in its entirety now spends because of all the overhard SOX type regulations require us to do, would be better spent - and I know this is an imposibility, I'm just pointing out how much a pain SOX is to the average worker - by just slashing the oversight BS, and when something like this happens, take the money out of "the fund".

It's an imposibility I know...the point I'm trying to make is SOX sux.

Chuck