Is the Madoff Fraud a Fraud?
Jeff Knox
January 05, 2009
What if the $50 Billion fraud of Bernard Madoff was not the bilking of wealthy investors, but rather is the bilking of U.S. Taxpayers? If Madoff´s famous hedge fund simply went broke in a bad economy – as a large percentage of hedge funds have and are, all of Madoff´s investors would lose their money forever. If, on the other hand, Madoff committed fraud with a massive Ponzi scheme, his investors will be made whole by a federal government guarantee program.
Much has been made of Madoff´s duplicity and lack of conscience as he betrayed close friends and causes that were believed to be important to him. Under the Ponzi scheme scenario, Madoff used friendship and a dedication to charitable causes as leverage to pry fortunes out of naïve investors, using their money to provide dividends to previous investors and line his own pockets until the money simply ran out and Madoff threw in the towel, stepping forward to admit his guilt in an admirable fashion.
What doesn´t make sense is how savvy professional investors, banks, and the finance committees of major charities, not to mention federal regulators, failed to detect the fraud as it was being perpetrated. These market professionals take their fiduciary responsibilities very seriously and do not hand over hundreds of millions of dollars based solely on a personal relationship or good faith; they study, interrogate, and investigate before they invest. Some of the sharpest minds on Wall Street would have audited Madoff´s records going back at least 3 to 5 years and possibly for the life of the fund. It is inconceivable that none of them would have noticed that the records were not only doctored, but were complete fabrications.
Conveniently, these expert-proof records are no longer available as investigators say that very few records of Madoff´s operation exist and what is there are in shambles. That means no one will ever be able to determine exactly how Madoff fooled everyone so thoroughly or what exactly he did with the money.
If Madoff actually invested the money, got good returns, and kept good records, but was the victim of some bad decisions and a tough market, then why would he confess to fraud rather than confess to failure? And why wouldn´t the Wall Street professionals who examined his books defend their reputations, deny that they were incompetent or deceived and insist that Madoff was not operating a Ponzi scheme? Because the federal government guarantees investors against losses due to fraud, but does not offer any such guarantee against losses due to the market or poor investment choices. Any bank or financial group with money invested in Madoff´s fund would stand to lose any possibility of reimbursement if they were to blow the whistle on Madoff´s deceit.
By claiming that he is a fraud rather than a failure, Madoff puts the federal government and U.S. Taxpayers on the hook to repay his clients the money he lost for them. If he admits to simply making poor investment choices, his clients loose everything.
What if Madoff really was the good friend and supporter he was painted to have pretended to be. What if his confession and shame are actually the acts of a martyr trying to protect his friends, causes, and faith community from his own failure?
A noble gesture perhaps, but one which quickly loses its noble flavor when it is realized that by claiming to be a fraud Madoff repays his wealthy clients with money he is stealing from the pockets of you and me at the point of the government´s gun.
The more I look at the Madoff case, the more I am convinced that the fraud was not perpetrated over the past several years, but is really being perpetrated right now.
Congress and government regulators need to thoroughly investigate Madoff´s claims and definitively determine whether he is actually a master scam artist or just a failed investor trying to make amends.
Jeff Knox served as General Manager of KSBN-Money Talk Radio for seven years and became very familiar with the markets and investing. He has continued his interest in Wall Street and watches the markets closely. Jeff is not an attorney or a licensed investment advisor.
Much has been made of Madoff´s duplicity and lack of conscience as he betrayed close friends and causes that were believed to be important to him. Under the Ponzi scheme scenario, Madoff used friendship and a dedication to charitable causes as leverage to pry fortunes out of naïve investors, using their money to provide dividends to previous investors and line his own pockets until the money simply ran out and Madoff threw in the towel, stepping forward to admit his guilt in an admirable fashion.
What doesn´t make sense is how savvy professional investors, banks, and the finance committees of major charities, not to mention federal regulators, failed to detect the fraud as it was being perpetrated. These market professionals take their fiduciary responsibilities very seriously and do not hand over hundreds of millions of dollars based solely on a personal relationship or good faith; they study, interrogate, and investigate before they invest. Some of the sharpest minds on Wall Street would have audited Madoff´s records going back at least 3 to 5 years and possibly for the life of the fund. It is inconceivable that none of them would have noticed that the records were not only doctored, but were complete fabrications.
Conveniently, these expert-proof records are no longer available as investigators say that very few records of Madoff´s operation exist and what is there are in shambles. That means no one will ever be able to determine exactly how Madoff fooled everyone so thoroughly or what exactly he did with the money.
If Madoff actually invested the money, got good returns, and kept good records, but was the victim of some bad decisions and a tough market, then why would he confess to fraud rather than confess to failure? And why wouldn´t the Wall Street professionals who examined his books defend their reputations, deny that they were incompetent or deceived and insist that Madoff was not operating a Ponzi scheme? Because the federal government guarantees investors against losses due to fraud, but does not offer any such guarantee against losses due to the market or poor investment choices. Any bank or financial group with money invested in Madoff´s fund would stand to lose any possibility of reimbursement if they were to blow the whistle on Madoff´s deceit.
By claiming that he is a fraud rather than a failure, Madoff puts the federal government and U.S. Taxpayers on the hook to repay his clients the money he lost for them. If he admits to simply making poor investment choices, his clients loose everything.
What if Madoff really was the good friend and supporter he was painted to have pretended to be. What if his confession and shame are actually the acts of a martyr trying to protect his friends, causes, and faith community from his own failure?
A noble gesture perhaps, but one which quickly loses its noble flavor when it is realized that by claiming to be a fraud Madoff repays his wealthy clients with money he is stealing from the pockets of you and me at the point of the government´s gun.
The more I look at the Madoff case, the more I am convinced that the fraud was not perpetrated over the past several years, but is really being perpetrated right now.
Congress and government regulators need to thoroughly investigate Madoff´s claims and definitively determine whether he is actually a master scam artist or just a failed investor trying to make amends.
Jeff Knox served as General Manager of KSBN-Money Talk Radio for seven years and became very familiar with the markets and investing. He has continued his interest in Wall Street and watches the markets closely. Jeff is not an attorney or a licensed investment advisor.
Print
Email
