Madoff Fund was Bust NOT a Fraud

  • swimbikerun

    Posts: 2835

    Jan 02, 2009 3:54 PM GMT
    I found this article to be interesting.
    In summation, the Madoff Scandal is simply a hedge fund that has gone bust. But calling it a "fraud" puts taxpayers on the hook for "fraud protection".

    "Rafeeq suggests that Madoff fund simply went bust in which case the investors would not be entitled to get any money back. But by claiming it is a fraud and Madoff has pleaded guilty, and the state accepts it, it means all the so called defrauded investors are entitled to be fully compensated under the US government's financial fraud protection scheme.

    http://www.globalresearch.ca/index.php?context=va&aid=11488
    http://www.indymedia.ie/article/90328

  • Posted by a hidden member.
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    Jan 02, 2009 4:14 PM GMT
    I am not sure how he reached that conculsion. It looks like Madoff had a "Ponzi" scheme going (investors are paid by using the money from new investors). The fact that so few people had access to what was going on within the company should have been a warning sign. Usually hedge funds are not that reluctant to let people get their money back, but Madoff supposedly was very difficult if you tried. He also showed returns that were suspicously very consistent year after year. No investment that involves stocks is capable of that. People were simply too complacent. The SEC had heard complaints from investors in the past but had not looked closely enough.
  • jeg75sea

    Posts: 122

    Jan 02, 2009 4:16 PM GMT
    Pretty interesting article. I wonder when people are going to start looking at the lower level advisors who pitched the Madoff fund. Should they be be charged with some type of violation for breaching fiduciary responsibility?

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    Jan 02, 2009 4:59 PM GMT
    The SEC has begun an investigation of how it missed signs of the fraud. One of the issues is why reports to the SEC as early as 1999 were ignored.

    It's possible that Rafeeq is half right. Madoff may have created a legitimate fund that performed adequately for a time, not intending to defraud anyone. But it went bust, and Madoff turned to Ponzi tactics to hide that fact.

    Perhaps he hoped the fund would return to profitability, and initially saw the Ponzi as a temporary measure to merely conceal the problem until it was fixed. But when the fund failed to recover, Madoff was stuck and couldn't turn back.

    In any case, if the SEC investigation reveals that it wasn't a Ponzi scheme at all, as Raafeeq claims, they'd have to make the truth known or else become part of this vast financial conspiracy. I find that unlikely. Congress is also investigating.
  • metta

    Posts: 39134

    Jan 02, 2009 5:07 PM GMT
    Thanks for the information. I have sent the information to my senators to make sure that they are aware of this as well.
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    Jan 02, 2009 6:21 PM GMT
    SurrealLife said He also showed returns that were suspicously very consistent year after year. No investment that involves stocks is capable of that.


    From what I understand, he positioned himself as using an arbitraging program to trade, supposedly skimming off 1% per month as equities moved from "out of position" back into position.

    Even if true, this is the same scheme that led the (legitimate, if stupid) Long Term Capital to implode in 1997. Presumably one of the reasons for Madoff's secretiveness was that even if investors thought him honest, they couldn't help but notice the parallels with LTC and get spooked.

    However, I personally doubt he had anything legitimate going at any point.
  • Posted by a hidden member.
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    Jan 02, 2009 6:38 PM GMT
    NPR had the story that the fraud protection only covered for $500,000. Yet the majority of investors were funds that put in large sums of money from 1-7 billion. There was a court case asking the judge to let the individual investors in the funds be able to file claims for fraud protection. That would bankrupt the fund.

    I think the fraud protection should just cover the $500,000 per direct investor in the Madoff fund. Investors in those funds that didn't do due diligence or misrepresented their diversification need to deal directly with those fund managers for recourse.

    The government does not owe it to people to bail them out on investments.
    The risk on all investments is 100% of what you put into it.


  • Posted by a hidden member.
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    Jan 02, 2009 6:44 PM GMT
    I think the FBI and SEC would beg to differ. It was a classic Ponzi scheme, nothing else.
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    Jan 02, 2009 7:07 PM GMT
    onejock saidI think the FBI and SEC would beg to differ. It was a classic Ponzi scheme, nothing else.


    The SEC has egg all over its' face on this one. It does not help that one of the SEC investigators ended up marrying one of Madoff's relatives. He has been cleared of wrongdoing, but still it does not look good. I am surprised that Cox still has his job.
  • swimbikerun

    Posts: 2835

    Jan 02, 2009 7:33 PM GMT
    SurrealLife said
    onejock saidI think the FBI and SEC would beg to differ. It was a classic Ponzi scheme, nothing else.


    The SEC has egg all over its' face on this one. It does not help that one of the SEC investigators ended up marrying one of Madoff's relatives. He has been cleared of wrongdoing, but still it does not look good. I am surprised that Cox still has his job.

    My first thought when all of this went down was to think, "awww c'mon, he totally acted alone?" What a crock. They always say it's just one bad apple. Then it was reported Madoff's niece married someone employed by the SEC.
  • Posted by a hidden member.
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    Jan 02, 2009 8:42 PM GMT
    The SEC is now investigating other Ponzi schemes, including one that could be up to $1 billion dollars. So wonder some people want to put their money under their mattress. Supposedly Madoff would try and get clients at his golf club. One of the morals of these stories is if an investment person approaches you then be doubly careful. Like snake oil salesmen.
  • Posted by a hidden member.
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    Jan 04, 2009 3:49 AM GMT
    I think it should be a lesson to everyone that you can't put your trust into something you don't know much about.

    People have committed sucide because of this!

    He surely made-off with everyone's money.icon_twisted.gif
  • Koaa2

    Posts: 1556

    Jan 04, 2009 2:43 PM GMT
    You watch and see, all us little people will be bailing all these people out again!

    What is the saying, "Privatize the profit, socialize the risk", or something like that.
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    Jan 04, 2009 2:51 PM GMT
    I'm still floored and flabbergasted by this man's ability to get away with...BILLIONS! How did he do this by himself?! I wonder, what's the likelihood of that?

    I'm guessing he had help.