February 19, 2009
The Madoff Report
Prior to December, 2008, Bernard Madoff was well-known in the investing industry, but less so in wider circles. After the fallout of his potentially $50 billion Ponzi scheme his name has become almost as infamous as Charles Ponzi himself. As we learn more about his scheme, more people are stepping forward admitting to have lost substantial amounts of money with Madoff.
If people had properly researched Madoff and his firm prior to investing would they still have went through with the investment? After conducting research on the public records available on Madoff prior to December, 2008 we learn a few things. While the answer is not necessarily conclusive, some important facts surface that could have potentially saved billions of dollars.
Below is an excerpt from the research report we wrote on Madoff:
Madoff could be questioned for his unusually consistent returns his firm was able to achieve. In 2001, investing insiders noted that others who have used Madoff's investing strategy had nowhere near the same degree of success. The insiders marveled "at the seemingly astonishing ability to time the market and move to cash in the underlying securities before market conditions turn negative; and the related ability to buy and sell the underlying stocks without noticeably affecting the market." The same insiders speculated that part of the returns Madoff was able to achieve came from other activities related to Madoff's market making. In 2001 Madoff refused to reveal total assets under management.
Regarding other issues, Madoff could be attacked for being the money manager for two accountants who illegally took in over $440 million in the sale of unregistered securities in 1992. Madoff claimed that he did not know the money had been illegally raised. In the early 1990's Madoff started the controversial practice of paying brokers a penny a share to get their market orders. A NYSE letter to the SEC attacked Madoff, noting that another exchange previously had referred to such payments for orders as "bribes."
Madoff has been a consistent contributor to Democratic candidates and committees. His federal contributions from 1998 to 2008 total $156,050. Madoff's largest recipient of his contributions was the Democratic Senatorial Campaign Committee with contributions totaling $100,000.
While the information on Madoff would not have predicted the subsequent scandal, this type of background research on individuals and institutions is a vital element in the decision-making process. When millions and sometimes billions are on the line, knowing more about who you are working with can make all the difference.
Full Madoff report here: Madoff Report.pdf
Posted on February 19 at 11:40 AM