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Lawyers and the Elgindy Factor
This situation needs to be talked over between the lawyers-- Advfn's and Matt's. Advfn needs to ask hard questions, such as: Is your client going to vigorously fight the allegations, cop a plea, or perhaps even point the finger at others?
What role will Advfn play in Matt's defense? Will Matt try to argue that he was only doing what "everyone else" does, which would be an indictment of Advfn-owned iHub's design and thus present liability to Advfn itself? Will Matt try to prove his point by documenting others on iHub that did the same thing as he did, thereby creating a terrible liability if the privacy of members is violated?
But... if Matt's lawyers say the charges are unfounded and they intend to fight them vigorously, and therefore Matt being his usual self is perfectly fine by them -- and Advfn's lawyers are fine by that as well -- then, by all means, Matt should be allowed to do his thing here. Given the nature of the charges, both civil and criminal, I would think both sets of lawyers would be thinking long and hard over this, but, given the presumption of innocence, unless it's a no-brainer to ask Matt to stop posting, you have to let Matt carry on as usual.
That being said, my experience from the whole Elgindy saga tells me that Matt is toast. As with Elgindy, it will be near impossible to get people from iHub to testify on his behalf. Who wants to risk being added as a conspirator or having their trading records pored over? How in a few hours can one possibly indoctrinate a jury about the financial message board culture?
Then you have the mob connection, which, while perhaps faint, is still much stronger than the (non-existent) Elgindy 9-11 connection. You also have Dynkowski on the lam, a similar red flag to Elgindy wearing a disguise, even if done completely out of fear.
To make matters worse, you have people who lost real money in the pumped stocks. For sure they are going to sue Brown et al, as well as Advfn/iHub. For that risk alone, one would think the Advfn attorneys would demand Brown be stripped of his admin powers. Again, even if he’s completely innocent, this would be a preemptive strike against likely future lawsuits.
I hope for Matt’s sake there is an innocent explanation for the charges brought against him. If not, if I were him, based on financial message board lawsuit history, I’d think very strongly about copping a plea here.
- Jeff
Dr. Tichener = Jim Bolt
May 22, 2009
Newark man accused of leading stock scam
Six charged in 'pump and dump' operation
By SEAN O'SULLIVAN
The News Journal
WILMINGTON -- Six men led by a 24-year-old Newark resident are accused of raking in about $6 million through a complex series of frauds that jacked up the price of penny stocks by deceiving investors across the country into buying them, according to federal court papers.
The group operated a "pump and dump" scam over two years in which they colluded to "pump" up the price of penny stocks, then "dump" them when they reached a certain, profitable level, says a civil suit filed by the government and related criminal indictments unsealed Thursday.
They did this, according to court papers, by first making a series of large volume trades of the targeted stock between accounts they controlled. That made it appear to anyone who researched the company that there was sudden and substantial interest in the stock, driving the price up.
To further escalate interest in the stock, they would add a promotional campaign that included sending out positive spam e-mails about the company and making favorable mentions of it in Internet chat rooms, according to the indictments.
All of this was timed with official news releases from the companies -- which were working with the group in return for a piece of the profits -- that contained overly optimistic and bogus information about performance and profits that was dictated by the fraud operators, they say.
Once outside investors were drawn to buy the stock, and its price was at a new high, they would sell, reaping a substantial profit, the papers allege.
The nominal head of the operation -- that stretched across the country and across borders via the Internet -- was Pawel P. Dynkowski of Newark, who is still at large, according to court papers.
The prosecution is believed to be the first of its kind for Delaware, according to the U.S. Attorney's Office.
This high-tech, complicated, Internet-based fraud operation -- which used a variety of shell companies, prepaid disposable cell phones, instant messaging and encrypted electronic communications -- was brought down by a courier who was caught speeding through Texas with $155,000 in cash, money he was transporting from California to Dynkowski in Delaware, the papers say.
That arrest in January or February 2007 led authorities to seize five vehicles, including a Porsche and a Lamborghini, and more than $100,000 from Dynkowski's Newark home, where he lived with his parents, authorities say.
Dynkowski's attorney, John Malik, would not comment on the charges, on Dynkowski's wherabouts or whether he will turn himself in. Court papers indicate he also has a California address.
The others facing criminal charges turned themselves in and made court appearances, said Assistant U.S. Attorney Shannon T. Hanson.
Also named in the indictments are Joseph Mangiapane Jr., 43, of Laguna Niguel, Calif; Marc Riviello, 50, of Atherton, Calif.; Matthew W. Brown, 26, of Aliso Viejo, Calif.; Jacob Canceli, 50 of Mission Viejo, Calif.; and Gerard D'Amaro, 38, of Lighthouse Point, Fla.
Canceli and D'Amaro are stock promoters, according to court papers, and Brown operated the penny stock Web site, InvestorsHub.com.
Mangiapane is listed in court papers as CEO of Rubicon Financial Inc., the owner of AIS Financial, where Riviello worked.
All are charged with one or more counts of securities fraud, wire fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and/or money laundering. Each of the counts carries penalties of up to 20 years in prison and fines of up to $5 million.
A seventh man, Angelo "Bill" Panetta, 48, of Montebello Calif., is charged with perjury and obstruction of justice for allegedly lying to a federal grand jury. He faces up to 10 years in prison if convicted and up to $250,000 in fines for each count.
Two other men are named in the civil complaint filed by the federal Securities and Exchange Commission, but have not been charged criminally -- Adam Rosengard, a University of Delaware student from Voorhees, N.J., and Nathan M. Michaud, a Web site designer from Boston.
Michaud is alleged to have been an active part of the fraud operation while Rosengard is alleged to have essentially been a middleman, allowing some in the group to use an account in his name.
Attorneys for all charged declined comment or could not be reached.
How it worked
The "pump and dump" scheme was operated on the penny stock market, where stocks for small to tiny companies that often sell for fractions of a cent are traded -- in this case, through pinksheets.com and otcbb.com.
In one case, the stock price of a company called GH3, a Nevada company "that purports to market anti-aging products," was driven from .0004 per share at the start of the scheme, to 1.8 cents a share at the peak, a 4,000 percent increase.
As part of the scam, according to court papers, company officials would provide the defendants with massive amounts of stock, essentially for free or low cost, in exchange for kickbacks from the profits at the end of the campaign.
Dynkowski would orchestrate the fraudulent trading, chat on the Internet and issue bogus releases from the company, court papers say. He also set up false accounts to cover his tracks, they say.
In one exchange with a trader recounted in court papers, Dynkowski brags that an account would be traced to "some ... farmers in the middle of nowhere. ... They don't even know what they're doing. It's like who. What. Like what, the SEC's gonna go ask them questions? ... They don't even speak ... English. They have no idea what is going on."
According to the civil suit, during the pump and dump for a company called Asia Global, Dynkowski told Brown to have the company issue a news release as they were making trades to generate false activity, "and make it sound good ... like [Asia Global] announced record revenue net profits [sic]" and suggested it state the company had a 300 percent profit increase -- "Make it sound ENORMOUS."
Two days later, on Sept. 1, 2006, according to court papers, Asia Global issued a news release claiming its net income for the second quarter of 2006 had increased by 370 percent compared with the same period in 2005, and that its profits for July 2006 were 745 percent greater than July 2005.
In some frauds, according to court papers, they wouldn't just force the stock up once and sell on the way down, but would create several artificial peaks, selling each time as, or before, the price started to fall.
In addition to the U.S. Attorney, Immigration and Customs Enforcement, the Internal Revenue Service, the SEC and the Delaware State Police were all involved in the investigation.
COMPANIES INVOLVED
The companies involved in the "pump and dump" stock manipulation, according to court papers:
GH3 International Inc., a Nevada corporation that "purports to market anti-aging products sold under the name GeroVital H3, supposedly pursuant to a license from the government of Romania." It also allegedly offered anti-aging therapy treatments "in clinics across the United States."
Asia Global Holdings Inc., a Nevada company "purportedly operating in China with headquarters in Hong Kong." They advertised themselves as "a media company with rights to 'Who Wants to Be a Millionaire' in China."
Playstar Corp., an Antigua corporation with headquarters in Woodbridge, Ontario, that described itself as a communications company that was "purported to be in the business of SMS text services for cellular telephones."
Xtreme Motorsports of California Inc., a Nevada company with headquarters in Bakersfield Calif., it "claimed to produce 'dunebuggies' and 'sandcars.' "
INCA Designs Inc., a Nevada company, "purported to be in the business ... of designing and marketing swimsuits and resort wear to women and children."
--------------------------------------------------------------------------------
http://www.delawareonline.com/article/20090522/NEWS01/905220401/Newark+man+accused+of+leading+stock+scam
What sort of sentence should someone who scammed innocent people out of billions of dollars get? A life sentence, two, three, more? If so, I have no problem letting a 70 year old guy plea it down to 50 years, and get off with 35 for good behavior.
Now the excuse is: if we don't give Madoff a break (which translates to a reasonable sentence where he won't die in prison), he might never tell us where the money is. How about this: put the guy in solitary with nothing but the bare minimum to be humane, and let him ponder for as many years as it takes whether perhaps getting a walk in the prison yard or access to a newspaper once a week is worth cooperating w/r/t where the money is.
IMHO.
- Jeff
From the East Hampton Star:
Montauk Oceanfront Owner Cited in Ponzi Scheme
Bernie Madoff accused in $50 billion fraud; was 'generous to his employees'
By Kate Maier
(Dec. 12, 2008) The top Wall Street executive who was arrested on Thursday after the Securities and Exchange Commission filed a complaint against him has owned an oceanfront house on Old Montauk Highway in Montauk for nearly 30 years and was known for lavish annual parties for his staff at a nearby resort.
Bernard Madoff's Montauk oceanfront house this week
According to court documents, Bernard L. Madoff revealed to two senior employees that a separate investment advisory business conducted under the umbrella of Bernard L. Madoff Investment Securities was "basically a giant Ponzi scheme." Losses were estimated at $50 billion.
The two unnamed senior employees were Mr. Madoff's sons, Andrew and Mark Madoff, according to a report in The Wall Street Journal.
In Montauk, where Mr. Madoff has owned property at 216 Old Montauk Highway with his wife, Ruth, since 1981, Mr. Madoff was well known for throwing an extravagant annual party for his employees near the Beachcomber Resort Hotel on the weekend following the Fourth of July.
According to a longtime employee of the hotel, who asked to remain anonymous, Mr. Madoff would rent the entire hotel for "anybody from the mail room up to the top executive," and was diligent about checking in to make sure "his people" were well cared for. The weekend typically included a dinner at the Montauk Yacht Club followed by a catered bash on the beach across from the Beachcomber the following day.
"He was a wonderful man," said the hotel employee, who was surprised to hear of the allegations. "He took care of everything. He was very generous to his employees and everybody spoke very highly of him."
It may have been that very sense of generosity that did Mr. Madoff in. According to the complaint, Mr. Madoff's senior employees became suspicious when he suggested that bonuses that were typically paid out in February be distributed in December.
"Madoff told these employees that he intends to distribute any remaining funds at BMIS to employees and certain investors in the investment advisor business, such as family and friends," the complaint says.
Also according to the court document, the employees who turned Mr. Madoff in had noticed that he had "been under great stress in the prior weeks." In a private meeting in his Manhattan apartment on Wednesday, Mr. Madoff revealed that he was "finished," that he had "absolutely nothing," and that "it's all just one big lie." Mr. Madoff revealed that for years he had been paying returns to certain investors out of the principal received by other investors, rather than from revenues generated by legitimate business transactions.
Mr. Madoff is a former chairman of the board of directors of the Nasdaq stock market. He pays approximately $17,000 in annual property taxes to the Town of East Hampton for his Montauk property.
http://www.easthamptonstar.com/dnn/Home/News/MadoffinMontauk/tabid/7369/Default.aspx
Lotto, what you wrote about Madoff making all his money from naked shorting is just the tip of the iceberg. The problem is you are confining yourself to the US market. Don't even think globally. Think intergallacticly. Now you know the real reason Patrick Byrne named the real kingpin here the Sith Lord. Do you think it was any coincidence that Spielberg not only lost money to Madoff but also was never allowed to direct an episode of Star Wars?
Madoff has been hiding his money on other planets. At least that's what I've been told by some of the prominent posters here on iHub who say they naked shorted CMKX through market makers operating from these very same planets. IMHO of course. Prove me wrong.
:)
- Jeff
the principal invested so far that has been accounted for [according to Bloomberg] is $37 billion.
Not that $37B is insignificant, but we are finding out now that Bloomberg's data is based on word of mouth and thus not reliable. For example, Bloomberg's table as of today ( see: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asjgOZK87JDI ) shows Yeshiva University's losses at $110M. The university itself has corrected the actual principal lost to "just" $14.5M-- an 86.8% difference!
“Although the university has an estimated loss of approximately $110 million, it now appears that any ‘profits’ above the $14.5 million were fictitious,” Gower said in the statement. The $50 billion alleged in the fraud may reflect the amounts of money that clients were told they had in accounts, not the amounts they originally invested.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1UhdEu6mMBQ
You correct that the biggest true losses will be by the most recent investors. That's usually true in most scams.
- Jeff
Where Is Madoff's $50 Billion?
by: Bill Zielinski December 29, 2008
Based on Bernard Madoff's own estimation, he lost approximately $50 billion of investor funds. Every since this disclosure, the biggest questions are where did the money go and how much of the $50 billion remains.
Bloomberg is reporting that "Madoff To Reveal Assets" by year end.
-----
Investors looking to recoup some of the $50 billion they lost in Bernard Madoff's alleged Ponzi scheme may get a better idea what the New York financial adviser has left when he is forced to reveal his assets to regulators.
Madoff, 70, must provide a detailed list of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings to the Securities and Exchange Commission by New Year's Eve, a federal judge ruled. Madoff's foreign business units were given until Jan. 26 to provide a similar accounting.
A catalog of Madoff's assets may reveal targets for angry investors including hedge funds and charities seeking the return of their funds.
-----
This is a curious report. Why would a federal judge ask Madoff to provide an accounting? The SEC states that his records are in disarray and in any event, totally unreliable. Is it to be expected that a man who lived by deception and lies for two decades is going to present an accurate report? Where is the SEC, are they still not interested in this man's operations? It would obviously make more sense for an outside regulatory agency to produce a report on Madoff's assets.
Nonetheless, regardless of who produces the report, I would not expect the Madoff funds to show very much in the way of assets due to the magic of compounded interest. Consider the following scenario. If Madoff had $2 billion in assets under management 20 years ago, the amount of this initial investment, compounded at 12% for 20 years would now be approximately $9.6 billion. If Madoff took in another half billion per year over the next 20 years, to date that amount compounded at 12% would now be worth around $40.4 billion. With other factors disregarded and a total principal investment of $11 billion, the investors' account statements would now show $50 billion of assets.
We know that Madoff was not generating magical returns of 12% per year over 20 years, so the phantom gains of $39 billion in this example probably never existed. In addition, withdrawals, huge fee payments to feeder hedge funds and losses on investments probably consumed much of the original principal invested. A classic Ponzi scheme collapses when the amounts needed to be paid out cannot be covered by new investment monies, which seems to be the case here.
Madoff probably did not start his fund with the objective of becoming a Ponzi scheme. He was probably drawn into it slowly as his warped ego would not let him admit to the world that he was not an investment genius. Failure to cover previous losses or outperform the market going forward never allowed him to stop the deception once it started. Indifference by regulators allowed him to continue the deception.
Madoff's $50 billion never really existed except on customer account statements. Defrauded investors will now find this out come December 31st.
http://seekingalpha.com/article/112443-where-is-madoff-s-50-billion
John, some of us have been somewhat successful getting scam penny stock companies shut down. I keep wondering if any of us had set our minds on nailing the Enrons or Madoffs of the world whether we might have been successful with that as well. It's the same theme: if something appears too good to be true, it usually is.
The fact some are saying there are more like Madoff out there intrigues me so I was trying to see if anyone here had any leads. If not, no big deal. Thanks.
- Jeff
Note that Madoff didn't even warrant a footnote of the list... unless that was the wrong list for him. And, if so, who is on that other list with Madoff?
- Jeff
The Rankings
The hedge-fund elite.
Published Apr 9, 2007
George Soros. Julian Robertson. Michael Steinhardt. Stanley Druckenmiller. Louis Bacon. Paul Tudor Jones II. Bruce Kovner. Arthur Samberg. These are the luminaries of the hedge-fund industry. None of them show up in what follows, however, as they’ve got nothing left to prove. Instead, we rank today’s best hedge-fund managers in six categories, based on a poll of ten industry insiders. Five are hedge-fund managers themselves. Two work with hedge funds in their positions at major investment banks. One invests in them. And two—the only ones who didn’t request anonymity—are journalists (Rich Blake of Trader Monthly and Michelle Celarier of Absolute Return). Three of our eight anonymous panelists agreed to provide additional thoughts on the managers in the following pages. Behold the new Establishment.
Steve Cohen
SAC Capital Advisors
Size: $12 billion
Style: Trader
Location: Stamford, Conn.
Most talked-about hedge-fund manager. Lives in a 32,000-square-foot house on a fourteen-acre estate in Greenwich. Is building what could be the great contemporary-art collection of our time. Recently purchased Willem de Kooning’s Police Gazette from David Geffen for $63.5 million. Net worth estimated at $3 billion.
Old Hand: “Came out of nowhere. He’s a terrific trader, and very intense.”
Hedge-Fund Investor: “The next wave of stars in the hedge-fund world will be those portfolio managers who come out from under Cohen’s wing.”
Young Buck: “Likely the largest trader by volume in the world. And most of the assets of the firm are his own!”
Stephen Feinberg
Cerberus Capital
Size: $19.15 billion
Style: Distressed investor
Location: Manhattan
Worked at Drexel Burnham Lambert in the Milken era. King of the vulture investors—currently sniffing around car-company wrecks in Detroit. Likes Republicans: Dan Quayle is on Cerberus team; former Treasury secretary John Snow is chairman.
Old Hand: “One of the great activists.”
Hedge-Fund Investor: “A quiet, almost antisocial guy who is a machine at investing. He’s morphing [Cerberus] from being a distressed hedge fund into almost a buyout firm.”
Young Buck: “The top name in distressed, middle-market, and private deals.”
David Tepper
Appaloosa Management
Size: $5.3 billion
Style: Distressed investor
Location: Chatham, N.J.
Ran the junk-bond desk at Goldman. Joined ever-growing roster of ex-Goldmanites after founding Appaloosa in 1993. Like Cerberus, lurking around automotive industry. Worked with Cerberus on the Delphi automotive deal. Estimated net worth of $1.5 billion.
Old Hand: “As much an activist investor as a distressed one.”
Hedge-Fund Investor: “Great numbers, but very volatile. He gave so much money to the business school at Carnegie Mellon that they named it after him.”
Young Buck: “The preeminent distressed investor of the past ten years.”
Eddie Lampert
ESL Investments
Size: $18 billion
Style: Stock picker
Location: Greenwich, Conn.
Once kidnapped. Called greatest investor of his generation. A leader among activists, he focuses on retail, and owns Sears (which owns Kmart) and AutoNation. With estimated net worth of $3.8 billion, the richest man in Connecticut, which is saying something.
Old Hand: “Lampert gets his fingernails dirty by managing the companies he invests in. He’s got no known hobbies, but he’s a terrific guy.”
Hedge-Fund Investor: “He’s turning Sears into the next Berkshire Hathaway. And he’s becoming the next Warren Buffett in the process.”
Young Buck: “Takes highly concentrated control positions in the companies he invests in.”
Kenneth Griffin
Citadel Investment Group
Size: $13.5 billion
Style: Trader
Location: Chicago
Used to be one of the most secretive guys. But since he decided to raise money for his firm by selling bonds last year, he’s warmed to the press, which happened to notice that Griffin took big profits in last year’s Amaranth meltdown. Purchased Jasper Johns’s False Start from David Geffen for $80 million. Net worth estimated at $1.7 billion.
Old Hand: “Griffin started trading in his Harvard dorm room at Cabot House.”
Hedge-Fund Investor: “He got married at Versailles.”
Young Buck: “A tough boss with high expectations.”
Michael Novogratz
Fortress Investment Group
Size: $4.6 billion
Style: Trader
Location: Manhattan
A president of Fortress, Novogratz cashed in with colleagues Peter Briger and Wesley Edens when the firm went public earlier this year. Like many on these lists, he got his start at Goldman Sachs. Was a helicopter pilot in the U.S. Army. Net worth estimated at $2.3 billion.
Young Buck: “Gotta love that Fortress stock price.”
Next: Brainiacs
James Simons
Renaissance Technologies
Size: $24 billion
Style: Quantitative investor
Location: East Setauket, N.Y.
Former math professor is king of the “black box” investors—funds that use top-secret algorithms and invest largely by computer. Shocked peers when he set a target of $100 billion for his latest fund. Charges 5 & 44, a fee structure without peer in the hedge-fund world—but nobody’s complaining. Net worth estimated at $4 billion.
Old Hand: “Simons doesn’t hire anyone who actually knows where Wall Street is. It’s all Ph.D.’s over there. They use algorithms that nobody understands but seem to work very well.”
Hedge-Fund Investor: “Along with Dalio, co-king of the quants.”
Young Buck: “Among other things, Simons is surely one of the top-paid managers over the past few years.”
David Shaw
D.E. Shaw & Co.
Size: $26.3 billion
Style: Quantitative investor
Location: Manhattan
Helped develop Morgan Stanley’s automated trading system. Former computer-science professor left to start own fund—in the prosaic realm of statistical arbitrage—in 1988. Stepped back from active management to focus on biomolecular research, but still takes home the biggest paycheck, an estimated $500 million in 2005. Estimated net worth of $1 billion.
Old Hand: “A quiet firm that has accumulated enormous assets. He just hired Larry Summers off the beach after Harvard.”
Young Buck: “One of the largest hedge funds in the world at the moment, isn’t it?”
Clifford Asness
AQR Capital Management
Size: $9.5 billion
Style: Quantitative investor
Location: Greenwich, Conn.
Yet another in an ever-lengthening list of former Goldman Sachs prodigies to head out on his own, founded AQR in 1998 with partners David Kabiller, Robert Krail, and John Liew. At the time, the rationale was said to be Goldman’s reluctance to pay his team based on performance, a practice the firm has since partly adopted. Known as much for his writing as his investing.
Old Hand: “Built a great business. But a lot of people are puzzled by a somewhat soft performance last year.”
Hedge-Fund Investor: “They’ve brought in AMG as an investor. I think they bought 25 percent or so.”
Ray Dalio
Bridgewater Associates
Size: $30.2 billion
Style: Quantitative investor
Location: Westport, Conn.
If there were a high philosopher of hedge funds, Ray Dalio would want to be that man. Prone to aphorisms such as “Bridgewater is a community in which our fates are intertwined” and “Money doesn’t bring happiness; the pursuit of excellence does.”
Old Hand: “A truly brilliant quant, but his results have been mixed.”
Hedge-Fund Investor: “Along with Simons, co-king of the quants.”
Young Buck: “Steady but unspectacular; quietly built a money-management powerhouse.”
Mark Carhart
Goldman Sachs Asset Management
Size: $32.5 billion
Style: Quantitative investor
Location: Manhattan
Former University of Chicago academic co-helmed Goldman’s flagship Global Alpha fund in 1997, after colleague Cliff Asness bolted for greener pastures. Although he got off to a good start, it’s been bumpy of late: suffered a 6 percent loss in 2006, setting tongues wagging all over Wall Street. The former high-school math-team champ has all eyes upon him in 2007.
Hedge-Fund Investor: “Whoa, did he ever have a crappy 2006.”
Next: Bad Boys
Daniel Loeb
Third Point
Size: $4.2 billion
Style: Stock picker
Location: Manhattan
Poison pen of the industry. Paid $45 million for penthouse in Robert A.M. Stern building going up at 15 Central Park West at 62nd Street. Said to enjoy yoga and surfing.
Old Hand: “A visible and outspoken activist. People think he’s self-serving, but it seems to be working for him.”
Hedge-Fund Investor: “He writes hilarious letters. Plus, you have to see that e-mail exchange he had with a potential European recruit. Just Google it.”
Young Buck: “A solid value investor who’s not afraid to shake up bad management.”
Thomas Hudson
Pirate Capital
Size: $1.1 billion
Style: Stock picker
Location: Norwalk, Conn.
Fired from Goldman over extramarital affair. Started Pirate with $1.5 million of his own money and $500,000 from parents. A vocal activist whose recent targets include Pep Boys and OSI Restaurant Partners, owner of Outback Steakhouse. Bailed too early on OSI.
Hedge-Fund Investor: “This ship might be sinking.”
Israel Englander
Millennium Management
Size: $8.6 billion
Style: Trader
Location: New York
A donor to Jewish causes. Also a donor to the Securities and Exchange Commission, to which his firm paid $180 million to settle market timing charges, $30 million of which came out of his own pocket.
Young Buck: “He got snared in the mutual-fund scandal pretty badly.”
Warren Lichtenstein
Steel Partners
Size: $3.9 billion
Style: Stock picker
Location: Manhattan
Activist investor focused on U.S. and Japan. Attempted largest hostile takeover attempt in Korean history when he went after tobacco maker KT&G with idol Carl Icahn. Currently needling Japan’s Sapporo Holdings, known to sushi lovers the world over.
Old Hand: “Another activist, but his deal with BKF I don’t think worked too well. Still, he has number of good operations.”
Hedge-Fund Investor: “An early practitioner of activism who has exported his approach to Japan and now the rest of Asia.”
Young Buck: “Not afraid to sue or be sued.”
Barry Rosenstein
JANA Partners
Size: $5.8 billion
Style: Stock picker
Location: San Francisco
Onetime Merrill Lynch investment banker. (What? Not from Goldman?) Partially paralyzed in windsurfing accident, credits recovery to yoga. An activist investor of the vocal sort, thought to be as obnoxious as Daniel Loeb when going after wayward executives such as those at Kerr-McGee.
Old Hand: “A real activist. And a smart guy to boot.”
Young Buck: “Impressive returns.”
Next: Single Hitters
Richard Chilton
Chilton Investment Company
Size: $4.3 billion
Style: Stock picker
Location: Stamford, Conn.
A founder of the Greenwich hedge-fund scene. Sits on the board of the Metropolitan Museum of Art. Big fan of American furniture and the Republican Party.
Old Hand: “A great example of a guy who has been able to build a terrific organization as well as a good fund. Plus he’s got terrific kids.”
Larry Robbins
Glenview Capital Management
Size: $6.1 billion
Style: Stock picker
Location: Manhattan
Used to work for Leon Cooperman’s Omega Advisors. Nicknamed “L-train.” Onetime horse bettor.
Old Hand: “Not such a great year last year, but he’s like buyout legend Leon Cooperman. He’s totally monomaniacal about his business.”
Hedge-Fund Investor: “A big contributor to a number of causes.”
Young Buck: “Hotshot who utilizes a variety of strategies.”
Richard Perry
Perry Capital
Size: $12.34 billion
Style: Trader
Location: Manhattan
Perry’s wife is very active in Democratic fund-raising circles; she donated more than $1 million over the last three election cycles. One of many top hedge-fund managers to come out of Goldman Sachs, Perry is pals with Eddie Lampert. Caught up in SEC investigation owing to questionable moves with stake in King Pharmaceuticals. Once owned FTD Group, the flower people.
Lief Rosenblatt
Satellite Asset Management
Size: $5.4 billion
Style: Trader
Location: Manhattan
Former George Soros underling. Rhodes scholar. Stays far out of the limelight.
Old Hand: “A great arbitrageur who learned under Soros. He doesn’t seem that interested in growing quickly, and seems more focused on turning a good living.”
Young Buck: “On every charitable or cultural board.”
Next: Home Run Hitters
T. Boone Pickens
BP Capital Management
Size: $2.5 billion
Style: Trader
Location: Dallas
Straight-up bullish oil bets have made him a fortune. Huge philanthropist to boot, donating more than $200 million in 2005. Estimated net worth of $2.5 billion.
Old Hand: “Grew up in the energy business. Used to make his money in energy through companies; now he’s in hedge funds.”
Young Buck: “Pickens makes huge bets. Has nearly lost all of his money several times.”
Timothy Barakett
Atticus Capital
Size: $14 billion
Style: Stock picker
Location: Manhattan
Once turned down a chance to play for the New Jersey Devils. Longtime focus on consolidation of global stock exchanges, including NYSE, Euronext, and Deutsche Boerse.
Old Hand: “Clearly a great global stock picker.”
Young Buck: “Something obviously runs in the family. His brother Brett also runs a hedge fund, Tremblant Capital.”
Stephen Mandel
Lone Pine Capital
Size: $7.94 billion
Style: Stock picker
Location: Greenwich, Conn.
Most successful of Julian Robertson’s “Tiger Cubs.” One of his best picks of late has been Google. One of many successful hedge-fund managers to have come out of Goldman Sachs.
Old Hand: “The team to beat. A quiet and closed guy, he runs probably the best organization in the industry. If you’re looking for a firm that’s likely to succeed its founder and keep on thriving, this is the best example.”
Young Buck: “His personal earnings are $250 million a year.”
James Chanos
Kynikos Associates
Size: $3 billion
Style: Stock picker
Location: Manhattan
One of few short sellers to escape the nineties bull market alive. Called Enron early, and made Fortune’s Bethany McLean a star by telling her. Made his own fortune in the process.
Old Hand: “Clearly the dean of short sellers. He’s a deep thinker, not a trader.”
Young Buck: “Top, pure short investor of the past decade. He predicted Enron, for God’s sake.”
Next: Whippersnappers
Chase Coleman
Tiger Global Management
Size: $3 billion
Style: Stock picker
Location: Manhattan
Tiger Cub. Also a descendant of Peter Stuyvesant, the man who among other things built the actual “wall” in Wall Street. Likes small-cap stocks.
Old Hand: “A good global investor who is developing his business slowly and methodically.”
Hedge-Fund Investor: “He’s doing more than just technology now, some sort of venture-capital effort.”
William von Mueffling
Cantillon Capital Management
Size: $8.1 billion
Style: Stock picker
Location: Manhattan
Made name at Lazard investing in tech and telecom, and credited with putting the bank’s hedge-fund business on the map. Quit in 2003. Collects black-and-white photographs and is on the board of the International Center of Photography.
Hedge-Fund Investor: “He left Lazard high and dry. They should have tried harder to keep him.”
Young Buck: “A rising star, growing fast.”
John Arnold
Centaurus Energy
Size: $3 billion
Style: Trader
Location: Houston
Former Enron trader whose firm was accused of manipulating energy markets by U.S. senator Dianne Feinstein. Hired many employees out of Enron ashes. Expertise in natural gas futures. Said to have been a big beneficiary of Amaranth blow-up.
Hedge-Fund Investor: “The dude just got married on Richard Branson’s private island. He also happens to be an awesome energy trader.”
Eric Mindich
Eton Park Capital
Size: $6.2 billion
Style: Trader
Location: Manhattan
Youngest partner in the history of Goldman. One of many to leave the fold and start a hedge fund. Sterling reputation earned in Goldman’s risk-arbitrage department. At risk if he doesn’t put up big numbers soon.
Old Hand: “It’s too soon to tell with Mindich. He started big, but his recent results haven’t been great. Everybody is wondering what’s up.”
Young Buck: “Largest new launch of a hedge fund in history at the time.”
Peter Thiel
Clarium Capital Management
Size: $1.9 billion
Style: Trader
Location: San Francisco
Rare hedge fund that doesn’t charge fixed management fee, taking only 25 percent of profits. Co-founded PayPal. Libertarian who founded the Stanford Review. Side job as venture capitalist with investments in Friendster, Facebook, and LinkedIn. Executive-produced the movie of Christopher Buckley’s Thank You for Smoking.
David Ganek
Level Global Investors
Size: N/A
Style: Stock picker
Location: Greenwich, Conn.
One of the first SAC employees to head out on his own. Known as much for art collection as he is for investing. Big fan of Jeff Koons. Owns an apartment in 740 Park.
Old Hand: “Good money manager with solid results.”
Young Buck: “Shares a fondness for art with former boss Stevie Cohen.”
Next: Hedge Fund Glossary
STYLE GUIDE
Trader: Seeks to exploit short-term volatility in the price of a security. The trader need not have an opinion on the merits of a company whose stock he trades, or the appropriateness of a particular exchange rate—just an opinion on the short-term direction of the securities.
Stock Picker: Differs from the trader in that stock pickers tend to analyze a company’s (or an industry’s or a country’s) fundamental business and make informed bets on their future direction. Tends to hold positions longer than a trader. Activist stock pickers try to personally intervene in company affairs. CEOs hate them.
Distressed Investor: Buys and sells the securities of companies in trouble, where there tends to be larger-than-usual differences of opinion over the relative merits of a stock or bond. Can also become an activist and attempt to take control of a company by buying a majority of its equity or, in bankruptcy, its debt.
Quantitative Investor: Generally relies on software-driven models that analyze historical trading patterns to inform current investment decisions, seek out price inefficiencies, or crunch financial-statement data in order to determine a theoretical price. It’s all numbers, no guts.
Next: Who Gets to Marry a Billionaire?
Hedge-fun-size estimates courtesy of Absolute Return magazine. Income estimates from Trader Monthly.
Find this article at:
http://www.nymag.com/news/features/2007/hedgefunds/30342
John, yes, I know why "most people" are reluctant to express grave concerns when they spot a possible scammer. But many of us here are not like "most people". I'm suggesting that if we assume there are more Madoffs out there, why not find him/them ASAP?
First off, I'd look at the same red flags that should have been apparent with Madoff, the three most prominent of which were: 1) the ability to have amazingly high and consistent returns, 2) a strategy that was both hard to explain and hard to emulate by those who thought they understood it, and 3) someone who has shunned public disclosure and avoided using a reputable auditor, if any.
Surely we can find another person who fits the bill?
- Jeff
Johnbits, I've enjoyed your spot-on commentary about Madoff. I always find it curious how once someone is exposed, people come out of the woodwork claiming to have figured the guy out long ago. Then we have the "this is only the tip of the iceberg" folks as well as the "this is but a small piece of something much larger" conspiracy theorists.
Do we really think there are more out there like Madoff? If so, as in the Madoff case, there are likely people who know things who either have heretofore kept silent or perhaps have spoken but to no avail. Shouldn't we be able to ferret at least one of these people out? Should we try? Does anyone out there have their doubts about someone who may be the next Madoff?
- Jeff
WSJ: Investors May Have to Surrender [earlier Madoff] Gains
The Wall Street Journal
December 15, 2008
Investors May Have to Surrender Gains
By JANE J. KIM, JENNY STRASBURG and AARON LUCCHETTI
Investors are unlikely to get back much of the money they invested with Bernard Madoff, and those who took out money in recent years may have to give it back.
It is a complicated situation. And certain investors may be able to offset some of their losses through tax moves and through the organization that steps in when brokerage firms fail.
As investigators figure out how the money disappeared, the ramifications for investors are large. If the money were stolen from a brokerage, as much as $500,000 per client should be covered by the Securities Investor Protection Corp., a nonprofit funded by the securities industry. However, SIPC doesn't cover investment losses, and many of Bernard L. Madoff Investment Securities LLC's clients had millions of dollars invested with the firm, far above the SIPC limit.
The alleged deception by Mr. Madoff far exceeds the scale of past hedge-fund frauds, including the high-profile, $400 million scheme by Connecticut hedge-fund company Bayou Group LLC. Bayou's co-founder Samuel Israel III went on the lam on the day he was to report to prison for a 20-year sentence earlier this year.
Though dramatically smaller in scale, Bayou is being discussed in connection to the Madoff scandal. That is because the federal bankruptcy court overseeing the Bayou case decided this year that investors who had pulled their money out of Bayou in some cases years before Bayou's fraud was detected had to reach into their pockets to give back profits, and even some of their initial investments, to help offset losses by other investors who got snared in the scheme.
That decision was based on a legal notion called fraudulent conveyance, which concerns the illegal transfer of property with the intent to commit fraud. The concept could be mixed news for Madoff's investors, depending on their situation.
"I'm sure there are some people who are thinking their lives are over, but the good news is that because Madoff is thought to have run a Ponzi scheme, investors could get money back from other Madoff investors who already took money out," said Brad Alford, who runs Atlanta-based investment adviser Alpha Capital Management LLC.
The Bayou precedent, and the fact that hedge funds are involved, is just part of the reason that investors who thought they made money with Mr. Madoff in the past could find themselves on the hook to return money. Bankruptcy-receivership practices make all investors vulnerable.
"The concepts blur in a Ponzi scheme where one person's principal is another person's profits," said Jay Gould, a former SEC investment- management attorney who now runs the hedge-fund practice at Pillsbury Winthrop Shaw and Pittman LLP in San Francisco. "It's the receiver's job to go back and collect as many assets as possible, from whatever sources, including investors who withdrew assets from the scheme -- whether those assets were characterized as principal or profit."
Still, it is doubtful, given the alleged scope and structure of Mr. Madoff's scheme, that investors who feel they have lost everything will find much relief. "They probably won't see much of that money ever again," Mr. Gould said.
One Bayou investor Mr. Alford knows got out of Bayou almost two years before that firm filed for bankruptcy. Given how much time had passed, the investor was stunned to learn that he had to return part of his original Bayou investment as well as all of the profits he thought he had made -- profits that ended up being fabricated -- Mr. Alford said.
If the same holds true with Mr. Madoff's case, people who pulled money to pay for home mortgages, retirements or children's college bills could end up trapped.
Some investors will be able to partly recoup losses through tax moves. One option is to write off investment losses this year as a way to recoup back taxes. Because any losses due to Mr. Madoff are likely to be characterized as a "theft loss," those losses will be treated more favorably from a tax standpoint, said Bob Willens, a New York tax adviser.
For one, theft losses are treated as ordinary losses that can generally be deducted without limitation. With personal casualty or theft losses, your deduction generally is limited to the extent those losses exceed 10% of your adjusted gross income -- and that's after reducing each loss by $100. Secondly, eligible losses resulting from theft can be carried back as net operating losses for three years instead of two as is more typical, he said.
But investors can typically only deduct theft losses in the taxable year in which that loss is sustained and "discovered" -- which is likely to be 2008. That means they will be covered in the returns investors file next year.
One complication: Under U.S. tax law, investors might not be able to deduct the loss if there is a chance they could ultimately get back some of their money. "If you're going to join in a lawsuit or class- action suit, that might delay your tax deduction," Mr. Willens said. "If you can think about it rationally, you're almost certainly better off not pursuing reimbursement and deducting the tax loss in 2008."
Richard Oppenheim, an accountant in Holmdel, N.J., has one client that invested with Mr. Madoff years ago and now fears her entire $10 million account is gone. In past years, the Madoff portfolio showed a gain of about 10% to 12% each year. Mr. Madoff would send monthly statements as well detailing all trades made, usually in blue-chip stocks and stock-index options. At the end of the year, the statements reflected that Mr. Madoff had sold all the securities and put the proceeds in Treasury bills, before starting the strategy again in January, Mr. Oppenheim said.
The gains kept clients happy, but the rapid trading led to high tax bills, sometimes as much as $500,000 per year for Mr. Oppenheim's client. But now that those gains have likely evaporated and may have never been there in the first place, Mr. Oppenheim is planning to amend the tax returns for his clients for the last three years, in an effort to get some of the tax money back.
He said tax money could be recovered for more years if the securities are deemed worthless, and added that investors might also end up looking into tax treatment of casualty and theft losses.
How much relief investors will get from SIPC is unclear. Unlike the Federal Deposit Insurance Corp., which steps in to refund deposits when a bank fails, SIPC's coverage is more limited. If a firm doesn't have the funds and securities to repay any customer obligations in a bankruptcy, then SIPC will cover losses related to theft and proven unauthorized trading up to $500,000 per account, including $100,000 for claims for cash.
But SIPC might not have enough in reserves to cover potential losses, experts say. As of Dec. 31, 2007, the SIPC Fund had about $1.5 billion to cover potential claims. While the Securities and Exchange Commission can make another $1 billion in loans to them, it would probably have to go back to Congress for more money, says Steven Caruso, a securities attorney in New York. "We'd be looking at another bailout only this time it would be SIPC," he says.
Eventually, investors will be able to file a claim with the SEC. Whenthe SEC collects whatever assets are left, it will make some pro-rata distribution of those assets to investors. At some point, the SEC will start notifying investors and requesting that they file claim forms. Typically after several years, investors may get some fraction of what they've invested.
http://online.wsj.com/article/SB122930184908605505.html
When $50B isn't really $50B...
...my wife's entire family had been in the fund for decades and lived well on the returns, which ranged from 15% to 22%... My wife's family's combined losses are close to $30 million.*
An initial investment of "only" $1M with an 18% return compounded over 20 years would yield "nearly $30M" ($27.4M). Not that losing $1M isn't a tragedy, especially when it represents one's life savings, but it's not as bad as losing $30M.
Of course, one still has to adjust $1M into today's dollars. Using a CPI calculator, assuming a start year of 1988, as of 2004 (the highest it goes), the value would be about $1.6M. Going back a full 20 years (to 1984), the number moves to $1.8M, which is equal to an annualized return of 3% ( see: http://cost.jsc.nasa.gov/inflateCPI.html ). Perhaps another fund might have done better than 3%, perhaps not.
I write this not to belittle anyone's losses, but merely to indicate that $50B is a fake number. So when people ask "Where did all that money go?", we are not really talking about $50B. Given the above, we are talking substantially less. And then one has to factor in dividends, redemptions, etc. that were based on fake returns. This lowers the actual amount lost even more. Again, a big number, even a substantial number, but not a staggering number.
- Jeff
* See story below
=====
How I Got Screwed by Bernie Madoff
By Robert Chew Monday, Dec. 15, 2008
Bernard Madoff, founder of Bernard L. Madoff Investment Securities, on his trading floor in New York in 1999
Ruby Washington / New York Times
The call came at 6 p.m. on Thursday, Dec. 11. I had been waiting for it for five years. When the call finally arrived, it was my wife Sarah who answered. What the person said on the other end of the phone was both simple and devastating: we were financially wiped out.
Of course, I knew this instantly from the look on my wife's face. Her words to the caller, the person handling our financial matters, grew insistent: "You're joking? This is a joke, right?"
We didn't know it yet, but we had been playing in the Bernard Madoff Investment Securities LLC Fantasy Financial League. It began when we sold our home at the peak of the market, collected what was left from an old divorce, found other monies and then, with a combination of pleasure and trepidation, handed our bag of cash over to someone named Stanley Chais, the Los Angeles network organizer for a man named Bernard Madoff.
Of course, we never heard the name Madoff — which has a peculiarly Dickensian ring now — and had no idea how he achieved such fantastic returns over the past 40 years. All we knew was that my wife's entire family had been in the fund for decades and lived well on the returns, which ranged from 15% to 22%. It was all very secretive and tough to get into, which, looking back, was a brilliant strategy to lure suckers. Unlike the usual Ponzi mechanics, the fund even stopped investments into accounts a few years back, at least in our network. There were the usual warnings prior to investing — we all knew it was a risk, we were told to make sure we were diversified, blah-blah — but, my God, it had been going strong for so long and with such fantastic returns, we had to get in. The Securities and Exchange Commission even gave Madoff a clean bill of health several years ago, we now find out. Well, maybe not a clean bill, but it didn't shut him down either. In the topsy-turvy world of investment, we were quietly, richly safe. Until the call. (See the top 10 worst business deals of 2008.)
I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.
But of course the call did come, as it always does with such things. It was not an ordinary Ponzi scheme we were all part of; it was the biggest in the history of the world, valued at some $50 billion. Lucky us. Small investors, institutions, hedge funds, global banks, pension funds — all fell victim to usual suspects: a smooth huckster and greed.
You never want to hear the words that come with such a phone call. "We are all wiped out." But they came, and we went numb. We lost, on paper, $1.2 million. My wife's family's combined losses are close to $30 million. We're talking old ladies and men, lawyers, children with Madoff trusts, students in college and an array of others who thought they had the world beat — and they did, at least for a time.
At a minimum it's life-changing news — the kind of thing that's been known to cause shortness of breath, sudden cardiac arrest, revolvers pulled from bedside drawers. It harks back to December of 1929 and the image of bodies falling from buildings. But what can you do? (See the top 10 scared stock traders.)
There's a line from The Shawshank Redemption that is apropos. It's spoken by Tim Robbins' character: "Get busy living or get busy dying." We've lost it all, but we're choosing to get on with living.
Robert Chew, a former Madoff investor, lives in Colorado
http://www.time.com/time/business/article/0,8599,1866398,00.html?xid=feed-yahoo-biztech
Madoff ‘Tragedy’ Said to Have Escaped Scrutiny by SEC (Update1)
By David Scheer and Jesse Westbrook
Dec. 15 (Bloomberg) -- U.S. regulators never inspected Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion, after he subjected it to oversight two years ago, people familiar with the case said.
The Securities and Exchange Commission hadn’t examined Madoff’s books since he registered the unit with the agency in September 2006, two people said, declining to be identified because the reviews aren’t public. The SEC tries to inspect advisers at least every five years and to scrutinize newly registered firms in their first year, former agency officials and securities lawyers said.
Madoff, 70, who had advised the SEC how to regulate markets and donated regularly to politicians, was arrested Dec. 11 and charged with operating what he told his sons was a long-running Ponzi scheme in the New York-based firm’s business advising rich people, hedge funds and institutions. His ability to avoid detection may fuel debate about the SEC’s effectiveness and the adequacy of its resources for policing money managers.
“Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered,” said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. “It’s hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems.”
Unregistered Business
Federal officials investigating Madoff have found evidence he ran an unregistered money-management business beside his firm’s brokerage and investment-advisory units, said two people familiar with the matter who declined to be identified because the probe isn’t public.
Authorities are examining why Madoff’s wife, Ruth Madoff, is listed on transactions under scrutiny, the people said, emphasizing they haven’t determined that she or other people did anything wrong.
Madoff is scheduled to appear in federal court in Manhattan on Dec. 19 at noon for a hearing in the SEC case, according to his lawyer, Ira “Ike” Sorkin, of Dickstein Shapiro LLP in New York.
“This is a tragedy,” said Sorkin, a former U.S. prosecutor and SEC enforcement lawyer. “We are going to fight through these events and try to minimize the losses as much as possible.”
The Inspectors
The SEC’s Office of Compliance Inspections and Examinations deploys teams from Washington and 11 regional offices to scout for fraud and gauge brokerages and investment managers’ adherence to securities laws. Its roster of full-time employees peaked at 880 in fiscal 2006, according to agency budget requests. The regulator expects to have 796 full-time workers in its inspections office for the fiscal year ending next September.
SEC inspectors examined Madoff’s brokerage in 2005, finding three violations of so-called best-execution rules, which require that customer trades be made at the most advantageous prices, agency spokesman John Nester said in a statement. The regulator’s enforcement division completed an investigation involving the company last year without bringing a claim, Nester said.
The SEC opened that inquiry after tipsters and press reports said Madoff’s purported investment returns may have resulted from front running, in which traders buy shares for their own account before filling customers’ orders, a person familiar with the inquiry said. The agency found no evidence that the brokerage did anything improper, the person said.
Florida Accountants
More than a decade earlier, in 1992, Madoff faced regulatory scrutiny as part of a lawsuit the SEC brought against two Florida accountants, whom it accused of raising $441 million while selling unregistered securities over three decades, according to SEC statements and a press report at the time.
Madoff told the Wall Street Journal at the time that he had managed the funds unaware they had been raised illegally. The SEC determined that the investors’ money was all accounted for, and didn’t accuse him of wrongdoing, according to the report.
Sixteen years later, on Dec. 11, the SEC and U.S. prosecutors announced in federal court in Manhattan that Madoff had confessed. His advisory business was “all just one big lie,” Madoff had allegedly said. The business had been insolvent for years, with losses of more than $50 billion, according to the SEC’s account of his statement. Madoff delivered the confession to his sons, Mark and Andrew, who turned him in, according to Martin Flumenbaum, a lawyer representing the brothers.
Untangling the Mess
On the morning of Madoff’s arrest, more than a dozen SEC inspectors assembled at his office in Manhattan and have since worked overtime to untangle the mess. Though some investigators initially thought the $50 billion total was too high, they now see it as plausible, people familiar with the matter said. The increasing tally is still below that, one person said.
The Securities Investor Protection Corp., which insures customers’ brokerage accounts, plans to take over the brokerage side of Madoff’s business as early as today, three people said. The Washington-based SIPC oversees the transfer of client holdings, including cash and securities, when a brokerage fails.
“We are aware of the situation,” SIPC President Stephen Harbeck said in an interview. “Our long-standing policy is not to comment until we do something.”
‘Just So Many’
Such a large Ponzi scheme -- in which early investors are paid with money raised from subsequent victims -- should prompt lawmakers to review how the U.S. polices brokerages, wealth managers and unregistered advisers, such as hedge funds, said James Cox, a securities law professor at Duke University in Durham, North Carolina.
“There are just so many people out there who are and aren’t registered that it really just overwhelms the system,” Cox said. “There is no easy way to expand the regulatory net unless we’re willing to put the might of the federal budget behind it to carry out more inspections.”
Barry Barbash, a former head of the SEC’s investment management division, said the agency has tried to focus its inspections on money managers who pose the biggest risks. The regulator uses criteria such as which securities a firm is buying and who its clients are, said Barbash, a partner at Willkie Farr & Gallagher LLP in Washington.
“Given the state of SEC resources and given the way that they go about determining whether an inspection is necessary, it wouldn’t surprise me that a newly registered firm wasn’t inspected,” Barbash said.
Committee Man
Any suspicions about Madoff may have been damped because of his association with industry groups, watchdogs and politicians.
He sat on a committee of academics, regulators and executives formed in 2000 by former SEC Chairman Arthur Levitt to advise the agency on new stock-market rules in response to the growth of electronic trading. Madoff has led the trading committee at the Securities Industry Association, Wall Street’s biggest trade group, and served as chairman of the Nasdaq Stock Market.
Since 2000, he has given at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party’s candidates, including Senator Charles Schumer of New York and Senator Frank Lautenberg of New Jersey, who leads a charitable foundation that invested with Madoff.
“You can see where people would pull the shades down over their eyes in terms of recognizing what could be one of the great frauds of our time,” Levitt said in a Bloomberg Television interview. “I’ve known him for nearly 35 years, and I’m absolutely astonished.”
Levitt is a senior adviser to the Carlyle Group and a board member of Bloomberg LP, the parent of Bloomberg News.
To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net; Jesse Westbrook in Washingtont .
Last Updated: December 14, 2008 22:33 EST
http://www.bloomberg.com/apps/news?pid=20601103&sid=atBIu3Se5SQk&refer=us#
December 15, 2008
The 17th Floor, Where Wealth Went to Vanish
By DIANA B. HENRIQUES and ALEX BERENSON
The epicenter of what may be the largest Ponzi scheme in history was the 17th floor of the Lipstick Building, an oval red-granite building rising 34 floors above Third Avenue in Midtown Manhattan.
A busy stock-trading operation occupied the 19th floor, and the computers and paperwork of Bernard L. Madoff Investment Securities filled the 18th floor.
But the 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen staff members and rarely visited by other employees. It was called the “hedge fund” floor, but federal prosecutors now say the work Mr. Madoff did there was actually a fraud scheme whose losses Mr. Madoff himself estimates at $50 billion.
The tally of reported losses climbed through the weekend to nearly $20 billion, with a giant Spanish bank, Banco Santander, reporting on Sunday that clients of one of its Swiss subsidiaries have lost $3 billion. Some of the biggest losers were members of the Palm Beach Country Club, where many of Mr. Madoff’s wealthy clients were recruited.
The list of prominent fraud victims grew as well. According to a person familiar with the business of the real estate and publishing magnate Mort Zuckerman, he is also on a list of victims that already included the owners of the New York Mets, a former owner of the Philadelphia Eagles and the chairman of GMAC.
And the 17th floor is now an occupied zone, as investigators and forensic auditors try to piece together what Mr. Madoff did with the billions entrusted to him by individuals, banks and hedge funds around the world.
So far, only Mr. Madoff, the firm’s 70-year-old founder, has been arrested in the scandal. He is free on a $10 million bond and cannot travel far outside the New York area.
But a question still dominates the investigation: how one person could have pulled off such a far-reaching, long-running fraud, carrying out all the simple practical chores the scheme required, like producing monthly statements, annual tax statements, trade confirmations and bank transfers.
Firms managing money on Mr. Madoff’s scale would typically have hundreds of people involved in these administrative tasks. Prosecutors say he claims to have acted entirely alone.
“Our task is to find the records and follow the money,” said Alexander Vasilescu, a lawyer in the New York office of the Securities and Exchange Commission. As of Sunday night, he said, investigators could not shed much light on the fraud or its scale. “We do not dispute his number — we just have not calculated how he made it,” he said.
Scrutiny is also falling on the many banks and money managers who helped steer clients to Mr. Madoff and now say they are among his victims.
While many investors were friends or met Mr. Madoff at country clubs or on charitable boards, even more had entrusted their money to professional advisory firms that, in turn, handed it to Mr. Madoff — for a fee.
Investors are now questioning whether these paid advisers were diligent enough in investigating Mr. Madoff to ensure that their money was safe. Where those advisers work for big institutions like Banco Santander, investors will most likely look to them, rather than to the remnants of Mr. Madoff’s firm, for restitution.
Santander may face $3.1 billion in losses through its Optimal Investment Services, a Geneva-based fund of hedge funds that is owned by the bank. At the end of 2007, Optimal had 6 billion euros, or $8 billion, under management, according to the bank’s annual report — which would mean that its Madoff investments were a substantial part of Optimal’s portfolio.
A spokesman for Santander declined to comment on the case.
Other Swiss institutions, including Banque Bénédict Hentsch and Neue Privat Bank, acknowledged being at risk, with Hentsch confirming about $48 million in exposure.
BNP Paribas said it had not invested directly in the Madoff funds but had 350 million euros, or about $500 million, at risk through trades and loans to hedge funds. And the private Swiss bank Reichmuth said it had 385 million Swiss francs, or $327 million, in potential losses. HSBC, one of the world’s largest banks, also said it had made loans to institutions that invested in Madoff but did not disclose the size of its potential losses.
Calls to Mr. Zuckerman and his representatives were not returned on Sunday night.
Losses of this scale simply do not seem to fit into the intimate business that Mr. Madoff operated in New York.
With just over 200 employees, the firm was tight-knit and friendly, current and former employees say. Mr. Madoff was gregarious and empathetic, known for visiting sick employees in their hospitals and hosting warmly generous staff parties.
By the elevated standards of Wall Street, the Madoff firm did not pay exceptionally well, but it was loyal to employees even in bad times. Mr. Madoff’s family filled the senior positions, but his was not the only family at the firm — generations of employees had worked for Madoff and invested their savings there.
Even before Madoff collapsed, some employees were mystified by the 17th floor. In recent regulatory filings, Mr. Madoff claimed to manage $17 billion for clients — a number that would normally occupy far more than the 20 or so people who worked on 17.
One Madoff employee said he and other workers assumed that Mr. Madoff must have a separate office elsewhere to oversee his client accounts.
Nevertheless, Mr. Madoff attracted and held the trust of companies that prided themselves on their diligent investigation of investment managers.
One of them was Walter M. Noel Jr., who struck up a business relationship with Mr. Madoff 20 years ago that helped earn his investment firm, the Fairfield Greenwich Group, millions of dollars in fees. Indeed, over time, one of Fairfield’s strongest selling points for its largest fund was its access to Mr. Madoff.
But now, Mr. Noel and Fairfield are the biggest known losers in the scandal, facing potential losses of $7.5 billion, more than half the firm’s assets.
Jeffrey Tucker, a Fairfield co-founder and former federal regulator, said in a statement posted on the firm’s Web site: “We have worked with Madoff for nearly 20 years, investing alongside our clients. We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme.”
The huge loss comes at a time when the hedge fund industry has already been wounded by the volatile markets. Several weeks ago, Fairfield had halted investor redemptions at two of its other funds, citing the tough market conditions as dozens of hedge funds have done. The firm reported a drop of $2 billion in assets between September and November.
Fairfield was founded in 1983 by Mr. Noel, the former head of international private banking at Chemical Bank, and Mr. Tucker, a former Securities and Exchange Commission official. It grew sharply over the years, attracting investors in Europe, Latin America and Asia.
Mr. Noel first met Mr. Madoff in the 1980s, and Fairfield’s fortunes grew along with the returns Mr. Madoff reported. The two men were very different: Mr. Madoff hailed from eastern Queens and was tied closely to the Jewish community, while Mr. Noel, a native of Tennessee, moved in the Greenwich social scene with his wife, Monica.
“He was a person of superb ethics, and this has to cut him to the quick,” said George L. Ball, a former executive at E. F. Hutton and Prudential-Bache Securities who knows Mr. Noel.
Fairfield boasted about its investigative skills. On its Web site, the firm claimed to investigate hedge fund managers for 6 to 12 months before investing. As part of the process, a team of examiners conducted personal background checks, audited brokerage records and trading reports and interviewed hedge fund executives and compliance officials.
In 2001, Mr. Madoff called Fairfield and invited the firm to inspect his books after two news reports questioned the validity of his returns, according to a person close to Fairfield. Outside auditors hired to inspect Mr. Madoff’s operations concluded that “everything checked out,” this person said.
The Fairfield Greenwich Group “performed comprehensive and conscientious due diligence and risk monitoring,” Marc Kasowitz, a lawyer for Fairfield, said in a statement. “FGG, like so many other Madoff clients, was a victim of a highly sophisticated massive fraud that escaped the detection of top institutional and private investors, industry organizations, auditors, examiners and regulatory authorities.”
Now, Fairfield is seeking to recover what it can from Mr. Madoff.
“It is our intention to aggressively pursue the recovery of all assets related to Bernard L. Madoff Investment Securities,” Mr. Tucker said in a statement. “We are also committed to the operation of our continuing funds. We hope to have a better idea of the entire situation as the facts develop.”
Working alongside the federal investigators on Madoff’s 17th floor, staff workers for Lee S. Richards 3d, the court-appointed receiver for the firm, are trying to determine what parts of the firm can keep operating to preserve assets for investors.
A hotline number had been posted on the company Web site, madoff.com, but on Sunday night, Mr. Richards said there was little reason to call.
“We don’t have anything to report to investors at this time,” he said. “We are doing everything we can to protect the assets of the Madoff entities that are subject to the receivership, and to learn what we can about the operations of those entities.”
Eric Dash, Jennifer 8. Lee, Zachery Kouwe, Michael J. de la Merced and Nelson D. Schwartz contributed reporting.
http://www.nytimes.com/2008/12/15/business/15madoff.html?_r=1&ref=business&pagewanted=print
Investors remain amazed over Madoff's sudden downfall
By David Lieberman, Pallavi Gogoi, Theresa Howard and Kevin McCoy in New York; Matt Krantz reported from Los Angeles
NEW YORK — The financial world begins this week still in a daze over the spectacular collapse of an alleged Ponzi scheme by onetime Wall Street legend Bernard Madoff — possibly the biggest swindle ever committed by a single person.
It's "a stunning fraud that appears to be of epic proportions," Andrew Calamari of the Securities and Exchange Commission's New York Regional Office said in a statement after the FBI arrested Madoff last week.
It's unclear how many institutions and individuals will suffer from losses that federal authorities say Madoff privately pegged at $50 billion.
The repercussions could affect the entire investment industry if lawmakers decide they must try to prevent additional losses on such a massive scale. "It's a good thing, because cases like Madoff will lead to tighter and more oversight," says Roland Eberhard, who oversees $500 million in investments for Basel Asset Management.
Officials allege that Madoff falsified reports from a secretive money management service that he owned — run separately from his main stock transaction firm — to make it appear to be more successful than it was. Madoff allegedly kept it going by taking cash from unwitting new investors to pay customers who wanted to redeem their holdings.
In a January SEC filing, Madoff said he managed $17.1 billion in assets for 23 clients. But potential victims could number in the hundreds and possibly thousands and include major banks, hedge funds, charities and pension funds (story, right).
Responding to an SEC lawsuit, on Friday, U.S. District Judge Louis Stanton in New York froze the assets and accounts of Madoff's investment business and appointed Lee Richards, an attorney at Richards Kibbe & Orbe, as receiver.
Madoff's lawyers have denied the charges but did not return calls for comment. Madoff was released after posting $10 million in bail. He faces up to $5 million in fines and up to 20 years in jail if convicted. The SEC and U.S. Attorney's office say their investigation is continuing and declined to comment.
For now, many are amazed at the abrupt collapse of a financier considered so innovative and successful that wealthy individuals and blue-chip firms sought his investment services and advice.
A Hofstra Law School graduate who started his career with $5,000 saved working as a lifeguard, Madoff spent 48 years cultivating a reputation as a pioneer of electronic trading and the development of the Nasdaq Stock Market. He was its chairman in the early 1990s and served on the boards of the National Association of Securities Dealers and the Securities Industry Association. He's "considered a statesmen in our industry," says Marianne Brown, CEO of Omgeo, a firm that helps to affirm trades.
Madoff's tightly run firm — which treats employees and their families to a weekend outing each year at his oceanfront home in Montauk, N.Y., the easternmost point of Long Island — was the sixth-largest market maker for Standard & Poor's 500 stocks this year through October, executing trades on $1.86 billion of shares, SEC data show.
Madoff also is credited with creating a vibrant market for small investors by helping lower the cost of trading, which led to firms such as E-Trade, Ameritrade and Charles Schwab in the 1990s.
Homes in New York and Florida
He lived well. He has an expansive prewar co-op on Manhattan's Upper East Side, real estate records show. An apartment similar in size to his unit sold for more than $5.7 million in 2006. In addition to his Long Island home, he has a waterfront home in Palm Beach and a 55-foot yacht there named Bull, Florida records show.
He was politically active, donating $25,000 a year to the Democratic Senatorial Campaign Committee as well as recent races by New York Sens. Charles Schumer and Hillary Clinton and New Jersey Gov. Jon Corzine. Madoff has also been an active donor — through the Ruth and Bernard Madoff Foundation — to New York philanthropies including The Doe Fund and Girls Inc.
Many were stunned that someone so prominent could commit such a massive alleged fraud. "It's like you find out the Tooth Fairy died," says Robert Battalio, professor of trading at University of Notre Dame's Mendoza College of Business.
The end came after Wednesday when, according to the SEC complaint, Madoff told two unnamed senior employees that his fund was "all just one big lie" and "finished" with "absolutely nothing." Madoff allegedly said that he still had as much as $200 million that he wanted to distribute to family, friends and employees— for example, paying bonuses two months early — before he turned himself in. The employees alerted authorities.
His arrest was "a shocking development," Fairfield Greenwich Group, a firm that directs investors to hedge funds, said on its website. It added that it's "working with counsel to assess the situation and take all steps necessary and appropriate to protect our investors and the firm."
But others were skeptical. "Bernie's results were just too unbelievable," says David Henry, an executive of a private company that invests in hedge funds. "He rarely had any negative results. It didn't make sense. He had regular returns of about 10% for years. It was like finding the Holy Grail."
Madoff said much of his success was due to a strategy called "split strike conversion" that used a combination of stock options to enhance the upside and limit the downside of a basket of stocks.
But Jeremy Bach, a Philadelphia-based consultant who helps investors evaluate fund managers, says he helped conduct a 2005 analysis of Madoff's results. "We were not able to identify a single factor that was driving the returns," says Bach.
Michael Ocrant wrote a story in 2001 for MARHedge, which covers the hedge fund industry, about how some traders, money managers and financial consultants questioned Madoff's record of 72 winning months in a row. "When I spoke to them about something not being right … they were adamant — there's no way this could be real," says Ocrant, now at Institutional Investor. "There's no one in history with that kind of results." He says Madoff smoothly dismissed the questions when he interviewed him at the time. "You could see why people would trust him, particularly since he'd been running a successful business for years."
Routine regulator questions
Regulators' questions were fairly routine and centered only on the broker-dealer business. The SEC completed an examination in 2005 that resulted in three violations of "best execution" rules. The SEC also completed an investigation in 2007 that did not include any referral for enforcement action. The Financial Industry Regulatory Authority took five disciplinary actions against the firm since 1975, according to filings, the most recent on Aug. 27, when it accused the firm of not reporting accurate trading information. The firm was fined $25,000 and didn't admit or deny the findings of the action.
But it was the other part of Madoff's firm — the advisory investment management unit — that was at the heart of the alleged scandal. And there was little oversight of that business until Sept. 12, 2006, when it was registered with the SEC.
Investors didn't seem to care. Marketers of investment funds told potential clients that part of their money would be put under Madoff's care if they invested in four relatively unknown funds.
"Madoff was the carrot to get people in other funds," says Jon Najarian of option trading research firm OptionMonster. Meanwhile, current investors with Madoff were nervous to pull their money out, fearing they wouldn't be able to get back in later.
The stickiness of investor funds gave Madoff a pool of cash to play with until the redemptions hit amid the credit crunch. "He was a brilliant marketer in an evil way," Najarian says.
It all started to unravel, according to the SEC complaint, in the first week of December when investors asked for $7 billion in redemptions. That was the one variable Madoff couldn't mitigate.
The alleged Ponzi scheme lasted so long and became so huge because of Madoff's sterling reputation, says Barry Minkow, co-founder of the Fraud Discovery Institute, who served time in prison after defrauding investors as founder of ZZZZ Best. "It's always the last person you'd expect."
Contributing: Del Jones in McLean, Va.
Find this article at:
http://www.usatoday.com/money/markets/2008-12-14-ponzi-madoff-downfall_N.htm
A LIFE BUILT ON 'BULL'
STOX REVOLUTIONARY'S RISE & FALL
By JEREMY OLSHAN
WALL ST. & EASY ST.: Bernie Madoff's high-flying business allowed him to shuttle between a mansion in Palm Beach (pictured)...
Last updated: 6:12 am
December 13, 2008
Posted: 1:12 am
December 13, 2008
Five decades and $50 billion later, Bernie Madoff is right back where he started - broke.
Before getting busted in what appears to be the largest Ponzi scheme ever devised, Madoff's fortune grew to include a $9 million waterfront mansion in Palm Beach mansion and a 55-foot yacht appropriately named "Bull."
The Queens kid who paid his way through Hofstra Law School by working as a lifeguard on Rockaway Beach once seemed like the embodiment of the American Dream.
MORE: Investor Furor Over '$50B Scam'
To those who hail him as an innovator who transformed the way stocks are bought and sold, it is baffling that Madoff, 70, would need to branch out into an illegal side business. Perhaps, they say, the American Dream was not enough.
"It is sad and shocking news," Robert Battalio, a professor of finance at Notre Dame who has studied Madoff's impact on the market, told The Post.
"Madoff was instrumental in bringing instantaneous trading to retail customers - and even now that he has many imitators, he still handles 5 percent of the market."
In the 1970s, Bernie and brother Peter set up Madoff Securities, which spent $250,000 to upgrade the technology in the largely unused stock exchange in Cincinnati. At their peak, they were handling 10 percent of all stock trades.
Madoff developed computer algorithms making it possible to automate the process of pricing and trading stocks.
His company was soon trading thousands of stocks at a time without ever having to pick up the phone, as well as during hours in which the markets were closed.
To entice brokers to steer their trades through his firm, Madoff offered them a one-cent-per-share payment, which critics decried as a "kickback."
Even after the market was flooded with imitators, this business made Madoff a multimillionaire many times over. By 1985, he was earning well over $6 million a year.
The company was always a family affair. He and his brother were eventually joined by his sons and nieces.
"What makes it fun for all of us is to walk into the office in the morning and see the rest of your family sitting there," Bernie's son, Mark Madoff, told Wall Street & Tech in 2000.
Ironically, it was Madoff's sons who turned him in.
jeremy.olshan@nypost.com
http://www.nypost.com/seven/12132008/news/regionalnews/a_life_built_on_bull_143955.htm
=====
FLA. ELITE LOSES ITS JUICE
'WE JUST BECAME WHOLE LOT POORER'
By JULIE KAY, RICHARD JOHNSON and LUKAS I. ALPERT
BURNED BY BERNIE: Places like Boca Pointe Golf Club are reeling as members learn they were allegedly conned by Bernard Madoff.
Last updated: 6:10 am
December 13, 2008
Posted: 1:12 am
December 13, 2008
A financial chill swept through the Sunshine State yesterday as it emerged that many potential victims of the biggest Ponzi scheme in history live in South Florida.
"It was a very somber day here. Everybody was in shock. There were a lot of clients here," said an employee of the Palm Beach Country Club, where many of financial guru Bernard Madoff's investors were members.
As the scope of the scam that may have lost $50 billion comes to light, many Floridians said they had little hope of recovering their life savings.
MORE: Investor Furor Over '$50B Scam'
"I expect to get back zero," said former newspaper writer Susan Leavitt of Tampa. "When he tells the feds he has $200 million to $300 million left out of billions, what can you expect."
And one hedge-fund manager, Douglas Kass, estimates that "at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven.' "
Madoff's sons turned him in to authorities after he allegedly admitted his hedge fund was "all just a big lie" and "basically a giant Ponzi scheme."
His biggest investors appear to have been hedge funds and other institutional investors. But many more were individuals who had invested their family fortunes with a man they regarded as a financial genius.
"Palm Beach became a lot poorer in the last 48 hours," said a member at the Trump International Golf Club, where Madoff played regularly and where his brother Peter is a member. "Many, many people got wiped out."
Sources say Jerome Fisher, the founder of the Nine West women's shoe empire, was said to have lost $150 million, and Carl Shapiro, who founded the Kay Windsor garment company, reportedly lost $400 million.
They did not return calls for comment.
Madoff primarily worked the so-called "Jewish circuit" in both New York and Florida, where he used his position with prominent organizations to win confidence.
Places like Palm Beach Country Club and the Boca Pointe Golf Club in Boca Raton were filled with deep-pocketed targets.
The club counts high-profile members - including New England Patriots owner Robert Kraft and New York real-estate magnate and Miami Dolphins co-owner Steven Ross. There is no evidence either was victimized.
Many victims were reluctant to speak out of shame.
"They don't want to read their names in the newspaper. They're too embarrassed already," said a source who knew many of the victims.
"Every big guy was his client," a club member told The Palm Beach Post.
"There are a lot of people who lost a whole lot of money with this guy. But no one will admit to it in public."
Leavitt said many were drawn to Madoff because of his reputation for exclusivity.
"He had a closed fund, which is why people put more money into it, instead of diversifying," she said. "You couldn't just come in off the street and plunk down $100,000."
She said that in addition to her personal funds, she allowed Madoff to manage money for a family philanthropy.
"That is gone," she said. "We were very philanthropic. Those days are over." With Post Wire Services
lukas.alpert@nypost.com
http://www.nypost.com/seven/12132008/news/nationalnews/fla__elite_loses_its_juice_143977.htm
=====
ALARM BELLS IN 1999 IGNORED
By JEREMY OLSHAN
GREED DRIVEN: Disgraced Wall Street financier Bernie Madoff gets a chauffeured ride from his East 64th Street home yesterday.
Last updated: 6:09 am
December 13, 2008
Posted: 1:12 am
December 13, 2008
"Madoff Securities is the world's largest Ponzi scheme."
That's was Harry Markopolos' conclusion in a 1999 letter to the Securities and Exchange Commission - an alarm that he sounded 10 years before Bernie Madoff was arrested for running just that.
Prosecutors, who now say Madoff pulled of a $50 billion Ponzi scheme, cannot explain why it took so long to respond to the warnings.
MORE: Investor Furor Over '$50B Scam'
Experts are baffled that investors and regulators did not wise up to the ruse sooner.
"I'm shocked investors turned a blind eye to returns that were too good to be true, constant, steady, small, positive returns," said Jim Vos, of the hedge-fund consulting firm Aksia LLC.
But Madoff apparently made them an offer that was too good to be scrutinized.
Madoff was single-handedly managing billions of dollars in offices he kept separate from the rest of his firm, said Vos, who steered clients away from the fund.
The only oversight was conducted in a Rockland County accounting office only slightly larger than a cubicle.
And Madoff, who made his fortune embracing the latest and best technology, forbade investors to get online access to their accounts, insisting instead on paper printouts.
"When something is too good to be true, it probably is," Vos said.
For well over a decade, competitors and experts said they found Madoff's track record suspicious. He seemed immune to any volatility in the market and, no matter what was happening in the economy at large, managed to finish each month with almost identical profits.
Markopolos, who worked for a Madoff competitor when he made the charge of fraud, continued to cry foul for years, to little avail.
Madoff dismissed these attacks as envy and said critics simply did not understand the complexities of his strategies.
Some 11 to 25 investors at a time, it seems, were willing to play along - at least before the economic meltdown in recent months persuaded them to pull out.
They told Madoff they wanted to liquidate their assets, not realizing Madoff had already vaporized them.
Aksia LLC was hired to investigate Madoff several years ago, said principal Jake Walthour. The probe only increased the concerns about the fund. Madoff's returns were "abnormally smooth" from month to month, and it seemed impossible to replicate his investment strategy or verify his track record.
Madoff claimed to be moving as much as $13 billion in and out of the market every month, but "no one on the street could verify it or even see his footprints," Walthour said. "That organization was incredibly secretive."
When they staked out the tiny accounting firm no one had ever heard of, investigators concluded something was amiss.
"We decided there are several scenarios here, one of which is, this could be a Ponzi scheme," Walthour said. "None of our clients invested."
Those who have invested in the fund have told investigators that withdrawing cash from it was an arduous process that involved faxes and inexplicable delays.
That's because in a Ponzi scheme, money from new investors is used to pay those seeking to withdraw their money.
With Bloomberg and Post wire reports
jeremy.olshan@nypost.com
http://www.nypost.com/seven/12132008/news/regionalnews/alarm_bells_in_1999_ignored_143971.htm
Scov, good post. The other use of ill-gotten money is to "lend" it back to the company. Then the company "forgives" the debt in exchange for an excuse to issue even more shares to the scammer CEO so he can rinse and repeat. So when you hear CEOs brag that they invested millions of their *own* money into a company, it's almost guaranteed that the source of the money was from selling their free shares.
- Jeff
James Turek, the scam CEO of Plasticon (PLNI) was just nailed by the SEC for selling company shares for his own personal use. One improper use was buying a Cadillac for himself as I recall. Sound familiar? See: http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25021650
The very same people who did the research on Turek also contributed research on Beebe to the SEC, along, obviously, with many others here. This is not to say Beebe -- and other management -- will meet the same fate. You just never know. And it took scam CEO Mike Sylver ten years before being found guilty of felony fraud, so who knows about the timing. But suffice to say if history is a good guide, the SEC should eventually have a say in all this. So if I were other management, past or present, I'd be trying to cover my butt with the SEC (or coming clean with everyone here) before it's too late.
- Jeff
The fact Beebe settled his lawsuit case likely means he finally got some substantial money from somewhere. The appearance by Quixo at about the same time combined with power back on at the plant could signify a new round of hype coming this way. Guess we'll soon see.
- Jeff
From nothappy, re mine ownership...
From: nothappy 9/23/2008 1:00:57 PM
of 819
Not really sure if the company even owns the patented land, John BB would have had to put it in the company for that to be true, do not know if he did that or not.
But if he did the company owns
Patented claims referred to as Saturday Night No.1 and No.2
patent survey #5797
And has claims on
UMC-385900,385901,385902,385903,385904,385905,385906,385907,
385908,385909,385910,385911,385912,385913,385914,385915,385916,
385917,385919,385920,385921,385922,385923,385924,385925,385926,
385927,385928,385929,385930,385931,389851,393800,393801,393802,
393803,393804,393805,393806,393807,393808,393809,393810,393811,
393812,393813,393814,393815,393816,393817,393818,393819,393820,
393821,393822,393823,393824,393825,393826,393827,393828,393829,
393830,393831,393832,393833,393834,393835,393836,393837,393838,
393839,393840,393841,393842,393843,393844,393845,393846,393847,
393848,393849,393850,393851,393852,393853,393854,393855.
Which i was only able to physically mark out half of before i was removed from that project. To my knowledge as of today
(9-23-08) the property has still not been completely marked so there for, not really claimed as per BLM regulations and could easily be disputed.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24982439
More from nothappy via SI...
To: Jeffrey S. Mitchell who wrote (817) 9/23/2008 12:25:36 PM
From: nothappy of 818
No i was not payed for my silence was always just an employee,
and still have not been payed, would like to be but, paying the bills is more important, to bad that never happened either.
Those pictures were taken in the fall of 2006 it was John bb's first time to the site and Patrick Larive(previous owner)took us on a tour of the property.
To bad it was on the wrong site, which John had pictures taken of and posted on the company web site. I found out that we were at the wrong location and said something about the location being wrong and was told i was wrong and that it was the right site. then was asked to go claim the areas pictured in the pictures linked to this site.
Which I was unable to claim for the company because it was owned by others and was un-claimable.
Those pictures are not of land that is owned or even claimed by Perihelion. And in my opinion were part of a scam started by the owners of Saturday Nite LLC, then perpetuated by john BB
to get good PR and raise capitol.
THE GOLD PICTURED COULD NOT HAVE COME FROM THE PATENTED SITE.
or even the claimed areas around the patented lands.
The gold in that area is referred to as flour gold because after processing it is like a fine powder. Very rare to find the type of gold pictured in these pictures in that area of Utah.
John bb knew this and was very angry with me for saying what i said at the time, which was "Did you even check this place out or do any research, before you bought this mine or what."
Then my job became to make a road to the site which i did to remove the dump piles from the property and secure the permits to access the site from BLM which was done. Then i was removed from project and asked to return to FLA. where i was put in a house and which was payed for by the company(which company i really am not sure) and put of as far as my pay went with lame check is in the mail type excuses.
Having no other resources i had to play my hand to the end hoping to get payed, WHICH NEVER HAPPENED.
Not having any power or authority, not much i could do.
have not been able to post due to lack of connection and funds to get a connection.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24982296
The FOIA requests are to see if any potential criminal charges can be added to the civil actions that are likely building up against Beebe. Are you saying you expect we'll find money was illicitly exchanged here?
- Jeff
Since you seem to be good at finding lawsuits, I hear Beebe is being sued by his (ex) lawfirm. Can you confirm this for me? Or do you also stop paying lawyers when you leave town? TIA.
- Jeff
It appears that our insider has just confirmed that PRGL (or did he mean Beebe personally) does indeed have the money to pay the Opp townfolk but does not deem that a wise use of the proceeds. How sad.
- Jeff
To be a top-notch scammer, you have to be able to lie with the conviction of someone telling the truth. It's human nature to be trusting of people, so I can't blame anyone who put their faith in Beebe. And even if you figure out you are just one of many being conned, it's human nature to say "I don't want to cause trouble; if you give me my money back I'll go away quietly." In fact, I give credit to people who finally have the courage to come forward. It's not easy admitting you were conned.
Many people play pennies strictly on the greater fool theory. It doesn't matter if the company is a scam or legit as long as they can buy low and sell high. You can tell these types by their extreme use of obfuscation, often in the form of questions they hope people confuse as rhetorical when in fact it's wishful thinking at best, false and misleading at worst. I'm sure you've run across these types before. Whoa ha ha ha!
- Jeff
Looks like someone on SI is not happy:
From: nothappy 9/15/2008 7:09:32 PM
of 816
A good question to ask is, why would Gold American express cards for his wife and others involved in Perihelion not be good enough, and why would John BB upgrade the gold cards to Platinum. I would like to see those invoices.
I personally was issued a Platinum card which i used for gas to and from the mine and other Perihelion expenses, realted to business.
I did not use it to move my personal belongings or pay for a POD storage. Like John BB and his wife Lora did.
Wonder, if as a share holder, i could get a copy of those records, anyone know how to start that process?
I know for a fact Lora BB is not an employee of Perihelion yet had a perihelion credit card.
MY ONLY GOAL IN DISCLOSING THIS IS TO NOT BE LUMPED IN WITH
JOHN AND THE OTHER PEOPLE WHO WERE IN IT FOR THE WRONG REASONS
GREED.
I have contacted the SEC, Ala. Atty General as well as Fla., and Utah branches to offer my full cooperation if needed.
Unlike John Beebe, I have nothing to hide and always busted my ass for all the people who invested there hard earned money in us(Perihelion Global), but as a nobody i had no decision making authority. SORRY.(What ever that is worth)
JOHN AM I LYING, I KNOW YOU ARE GLUED TO THIS BOARD AND THE OTHER (PRGL). hOW ELSE WOULD QUIXOPIX KNOW WHAT TO SAY WITHOUT YOU SPELLING IT OUT FOR THEM.
YOU ARE A BAD , SAD , SCAM ARTIST.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24952155
Apparently you think the expression that begins with "fool me once" is unfamiliar to the people of Opp? I saw a rumor on the link you provided that Opp was handpicked by Beebe because he considered them easy marks. I assume by the way you constantly bring up Alabama facing bankruptcy that you think the entire state is easy pickings for "smart" guys like you and Beebe? And if you are not associated with the guy, what kind of favor do you think you are doing him by poking these fine trusting folks with a stick the way you have?
- Jeff
I'm confused. Are you speculating where all the money is hidden, or are you telling us? I'm going to assume the latter. Because I'd hate to think you were speculating according to stale and disproven press releases. That would mean we'd have to wait until the SEC and law enforcement finished their investigation before knowing where the money truly went. No fun.
So, simple question, do you or do you not proclaim to know what Beebe did with all the shareholder money?
- Jeff
If Beebe, the CEO of publicly traded company, thought he was getting screwed by Opp, he should have disclosed this as a material event long ago. He did not. So either Beebe was actionably negligent or by his actions admitting that Opp did what was required of them. Either way Beebe loses, and loses big. Case closed.
Perhaps a more appropriate discussion should be on what did all that shareholder money get spent? We know there are local businessmen who were not paid. We know there are attorneys not paid. We know there isn’t much equipment that was bought. That doesn't leave too many alternatives.
- Jeff
Three simple rules:
1. Label all paid promoters with a red "Paid Promoter" tag that is clickable for a definition of what this means.
2. No need to charge extra for such a membership, but-- no signatures that can be considered advertising unless they pay extra for an ad and thus members at a particular level are able to filter them out as they do now.
3. While disclosures are welcome and perhaps even required by law in many cases, they must be written in such a way as to not constitute free advertising. If they do rise to the level of advertising, iHub must be compensated accordingly.
Any paid promoter not abiding by these rules will be documented on a paid promoter outing thread and their personal information sent to the SEC. The implied threat here is that if you don't play fair on iHub, your reputation may be so tarnished that you may never get another such job again.
It should be common sense that anyone paid to promote an agenda should not be a moderator of a message board dedicated to free and unfettered discussions.
- Jeff
In memoriam... (note link to SI for additional memorials)
From: B.K.Myers 3/12/2008 3:34:42 PM
Read Replies (1) of 183
ZEEV FRIENDS,
Just received a call from one of Zeev's colleagues who asked if he sent me an email if I would post it which I surely said it would be done. With a heavy heart and a tears in my eyes here is his email:
Would you be so kind as to post the following message on the boards:
Dr. Hed's heart stopped suddenly on March 11. The Hed family thanks everyone for their kind messages.
The Hed family address is
12 Wagon Trail
Nashua, NH 03062
Thank you and best regards....
Dr. Richard Pavelle
President
Invent Resources, Inc.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24395401
Speaking of the legal system, since Harris is such a common name, I'm curious which of the following variations you have used as relates to public companies and filings? I ask because you used to go by Paul R. Harris when you were involved with BBAN.
Paul Rufus Harris
Paul R. Harris
P. Rufus Harris
P. R. Harris
Rufus Paul Harris
R. Paul Harris
Rufus P. Harris
R. P. Harris
Thanks.
- Jeff
Phil, yes.
- Jeff
Oh, well, then, in the spirit of the competition, I'll take the closest time available, which is 7:40am (same day, 3/3/06). Sorry I just sort of hit and ran but I'd have done the same thing last night.
- Jeff
3/3/06 8:02am
- Jeff
I tried for hours to get through to Canatout using my account at http://www.funphone.com/ but wasn't successful. Now I know why. However, while waiting for my call to go through, I did manage to get on the waiting list for my own Kidney ID and urge everyone to be safe and get one as well.
- Jeff