It’s sad to see the pictures of all the happy faces at the Madoff & Co. Christmas party on the company website. Why? The legit trade execution firm is now tainted with the shadowy dealings of founder, and former Nasdaq chairman Bernard Madoff, who ran a separate hedge fund that has imploded in what he allegedly described himself as a “a giant Ponzi scheme”.
As a commodity broker myself in days past, I can tell you I never met a fellow broker or trader who liked the term “hedge fund”. Originally the thinking was to create funds to balance other asset classes held by rich folks, hence the term, but the reality is they are speculation funds. And in this case speculation, greed and perhaps fraud have made the front pages, but at the bottom of the page. This news is overshadowed today by the auto bailout bill not being passed by the US Senate, but it is very very big news for Wall St. since the Madoff funds investors were the smart guys of Wall St. and total losses may be from 17 $billion up to 50 $billion.
Supposedly turned in to the authorities by his sons, if it is true this would be the largest ponzi scheme in history, and like all of them the unraveling starts when people demand their money back, and fresh funds coming in are not available to service the prior “investors”. Hedge fund redemptions, forced selling and trading losses don’t help matters.
Bloomberg reports that “Jim Voss who runs due diligence firm Aksia LLC, said he spent several months probing Madoff’s firm on behalf of clients, only to recommend against investing in it.
Among the red flags, Vos said: Madoff’s auditor, Friehling & Horowitz, operated from a 13-by-18-foot office in Rockland County, New York. Vos had an investigator stake out the office. A call to the New City, New York, office of Friehling & Horowitz after business hours wasn’t returned.
“I’m shocked by how investors turned a blind eye to returns that were too good to be true, constant steady small positive monthly returns,” Vos said. “When something is too good to be true, it probably is.”
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