I couldn’t agree with this article more: Madoff Enablers Winked at Suspected Front-Running. I look at Madoff as a Sociopath — he is a sick individual. The enablers, on the other hand, were simply greedy hacks who didn’t, (and probably couldn’t) do the suitable investigation and due diligence into Madoff’s asset management business.

Were they Corrupt? Incompetant? Both? Who is to say. The bottom line is they lost all of their clients’ monies, and need to be held accountable.


If the 70-year-old money manager was running a con, then his marketers like Access International, wittingly or not, were part of the scam.

The purported mission of such feeder funds was to vet hedge funds for wealthy clients. Instead, the line between victim and perpetrator was blurred. Middlemen like Littaye funneled billions of dollars to Madoff, even, in some cases, when they suspected he was engaged in questionable trading practices. In return, they reaped hundreds of millions of dollars in client fees.

Lower Returns: Wolfer says he heard of traders trying to replicate the split-strike conversion strategy Madoff told investors he used — buying shares of large U.S. companies and entering into options contracts to limit the risk — and getting far lower returns. He also says he heard Littaye and other middlemen talk about how Madoff may have used the knowledge he gained from his market- making firm, New York-based Bernard L. Madoff Investment Securities LLC, to get in and out of stocks ahead of market swings.

That’s front-running, a term usually applied to brokers’ trading for their own account — and profit — ahead of clients. It’s also applicable to Madoff’s purported practice, says Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor.

“Front-running isn’t who’s getting the benefit; it’s who’s paying the price,” says Henning, noting that Madoff’s market- making customers expected the firm to obtain the best price available when buying or selling stocks. Instead, their interests were apparently subordinated to those of Madoff’s investment clients.

Front-Running: While front-running is illegal, it didn’t horrify Madoff’s champions.

“They were convinced that the risk was only that the Securities and Exchange Commission would do something about breaches of the Chinese wall in the Madoff organization,” Wolfer says. In the worst case, he says, “what could be expected was that at a certain point the SEC could say stop.”

Weasels all. I sincerely hope that the Trustee looks to confiscate the Funds of Fund managers’ houses, cars, watches, jets and boat — as the illegal proceeds of a crime. Auction ‘em off, put the proceeds into a fund for the scam’s victims.

The Madoff investors themselves aren’t blameless — as Paul Kedrosky asked, “why so many smart people get suckered into losing billions on an implausible con” remains a mystery of the Madoff affair. But they are far less culpable than the Do-No-Due-Diligence fund of fees funds managers . . .

Madoff Enablers Winked at Suspected Front-Running
John Helyar, Katherine Burton and Vernon Silver
Bloomberg, Jan. 27 2009


They Knew What They Were Getting Into
Paul Kedrosky
Daily Beast, December 16, 2008 | 7:36am


Category: Finance, Investing, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Blame the Enablers”

  1. leftback says:

    We thnk alike on the FoF issue. There’s going to be some nice yard sales in Greenwich, Fairfield and Darien.

    Now it looks like you have a new Ponzi scheme to investigate, closer to home in Hauppauge. This guy targeted the middle class instead of the upper class but he seems to have used the classic Madoff methods of word of mouth and “my guy’s doing something special”, only in Long Island it was friends of friends instead of fund of funds. Of course this guy is small potatoes compared with Bernie. But $400M is not chump change.

    I am quietly astonished at the ease with which investors were bilked by a convicted felon. Of course it stands to reason that more and more of these schemes are coming out into the open.

  2. TheReformedBroker says:

    the way things work, they will be able to use the proceeds of the crime (fees that were paid by victims) to mount their own legal defense way before anything is impounded or confiscated.

    In essence, the people who were robbed are the unwitting underwriters of the fraudster’s legal bills, whether they like it or not.

    Madoff should have a public defender, not a $400 an hour top attorney who is paid with stolen money.

    Im getting sicker by the minute

  3. dead hobo says:

    BR said:

    The Madoff investors themselves aren’t blameless, but they are far less culpable than the Do-No-Due-Diligence fund of fees funds managers . . .


    Elements of civil fraud:

    A material false statement.
    Bad intent (lies) if intentional fraud, a reckless disregard for the truth if negligent fraud
    Intention of the fraudster for the victim to rely on the statements
    Reliance on the statement by the victim

    This is Elementary Business Law I.

    BR: I believe that everyone must take responsibility for their own investments and trades. See this column from 4 years ago: Take Responsibility for Your Stock Losses.


    I would think that proof of civil fraud by the victims against cash wranglers would be a slam dunk and the easiest money a lawyer made in a long time.As I said before, the people who funneled cash to Madoff are on the hook for a lot. I doubt that a defense that ‘smarter people than us were fooled’ would work given the number of companies that walked away because they weren’t fooled. This would be especially so if the wranglers profited from the fraud by collecting fees.

    The victims who used wranglers just need to lawyer up and go after the crooks and phonies who they handed their cash over to.

    PS: FYI, a lot of the people you see on TV and read about may not be crooked, but they are not as smart as you think. They’re just salesmen after fees and, if they’re lucky, a piece of any profits they might accidentally make.

  4. Moss says:


    You said it best…weasels all. I like what Dylan Ratigan has been doing. We need people like him to press the public humiliation angles on all these unethical crooks. CNBC would be wise to focus on all this deceit and fraud. One of their segments should bring to light each day one of these situations. Is anyone from CNBC listening?

  5. dead hobo says:

    To put it another way, I think even the prosecutors who went after OJ Simpson in the first trial could win a civil suit against the cash wranglers. And those clown were excellent examples of how the worst lawyers on Earth operate. Hopefully, they’re doing better now or in a more suitable line of work.

  6. OkieLawyer says:


    Perhaps the Plaintiffs should ask for “suit money.” There is usually a provision in the law for a defendant to pay for a Plaintiff’s legal bill up front (usually used when the Plaintiff is destitute and the case has merit). That certainly looks like it is the case here.

    Not only should the Plaintiffs ask for it, the Judge should grant it. That would at least reduce the problem of the Defendant getting to defend with the proceeds of the crime.

  7. Lugnut says:

    Wait a minute, how can you be ‘front running’ when you supposedly weren’t making any trades at all (per last post on his practices)?

    Does anyone really know what the hell happened with Maddoff yet?

  8. greg says:

    Hey Luggy, it’s littleoscar, how are you. What I’m wondering is this, under the current climate is Bernie Madoff not too big to fail? Shouldn’t he qualify for TARP money?

  9. TheReformedBroker says:

    the plaintiff in this case is The People for the criminal aspect, and then the civil would come after

    Im not an attorney, but I believe that in both cases it is not fair that these criminals get to use ill-gotten gains to hire the best lawyers and stall the process forever and a day…

    this is like if someone steals a truck and when caught, uses the money from fencing the truck’s contents to mount a defense. it would never be permitted, the cash would be held as evidence, it would not stay in posession of the crook


  10. dead hobo says:

    BR said:

    The Madoff investors themselves aren’t blameless


    Why are you asking the victim to share blame? Our culture in based on the false idea that ‘An Expert Always Comes From Somewhere Else’. And financial channels and print reports frequently hold the ‘people who got it right’ in the highest public esteem, fostering the myth that some people exist who are clairvoyant in the financial arts.

    The victims fell for the relentless hype, proffered daily, that all you need to do is give an Expert your money and they will make it grow. Hint, some people on TV and in print are intuitive and capable of relating cause and effect over the very short term, especially if they have insight into the psychology of investors. Most of the rest (the vast majority) are just there to collect fees if they can make you like them (and also fill up air time for the network).

    The ‘victims’ here are blameless. They were seduced by the larger fraud of false expertise in the investments business. By implication, you are saying that it’s their fault for believing the hype in the first place and comparative negligence is involved. You are implying that only an idiot would believe the crap on the financial pages. And, if investors are not blameless then we must agree that fluffsters and hucksters have a normal place in business and they are only in the wrong if their fraud is egregious.

    I disagree. Fraud is fraud. The soft corruption of salesmen posing as financial wizards is still corruption. When you give your money to someone given credibility by the financial press, you are blameless.

    BR: I advise all investors to live by a simple credo: Your money, your responsibility.
    I’ve been pounding the table on this for years — no one is going to take better care of your money than you.

  11. Dan Duncan says:

    Dead Hobo at 8:31 writes:

    “The victims who used wranglers just need to lawyer up and go after the crooks and phonies who they handed their cash over to.”

    That’s fine of you are Spielberg or Geffen…but not so easy for the Middle Class victims.

    And besides–any legal action against the Madoff enablers will most likely be conducted in a bankruptcy court.

    So…there’ll be a whole set of victims with much of their savings depleted asked to put up 100k retainers in order to chase bankrupted Fund of Funds in the hopes of getting 15cents on the $. [Yes, they might partner up---but that brings a whole new set of complications.]

    And adding further insult to the injury—-the money they lost will most likely be treated as a Bad Debt by the IRS….so they really won’t even get a meaningful deduction. Oh yeah, and one more thing: Depending on the returns credited to their account up to the point of the scandal—they may even have to pay a tax!

    Yes, many made a foolish decision to go with Madoff—but this is harsh to say the least.

  12. You see this Barry

    Dick Fuld: Protecting the Assets That Remain!

    Only in weaselville can a person buy a $13 million house for a C-note

  13. dead hobo says:

    Dan Duncan

    I think you need to open up a can of whoop ass.

    Also, I think the victims have a lot more going for them than you imagine. Amended Returns can provide a little relief for taxes paid on phony interest. Uncle Stupid will provide more relief on future returns for conversion losses, I suspect.

    As for the courts, all the victims need is a lawyer with bad breath, a shiny suit, and a surly disposition. Nature will take it’s course after that. I doubt bankruptcy will affect many of the cash wranglers.

  14. Bad Excuses for Poor Investments

    At times, the excuse-making from investors is even worse. Over the years, I have heard every complaint imaginable for why losses occur. Inevitably, these gripes go something like this: “It’s not my fault but the fault of:

    # The analyst analyst who recommended it.
    # The banker who did the deal.
    # CNBC, which hyped it.
    # The talking head who loved it.
    # My brother-in-law, who got a hot tip on it.

    I’ve heard people complain about their broker’s broker bad advice, the lousy execution they got, and how a market maker market-maker or specialist specialist hurt their trade. Other kvetches? Management stinks, insiders insider-trading are dumping shares, regulators are overzealous. Margin calls margin-call did it. Or was it the president’s policies or congressional gridlock or Chinese imports? Really, who can trade when the economic data are cooked, and the “Plunge Protection Team” counters your best positioning?

    I’ve overheard people complain that they lost money because Alan Greenspan raised, lowered and/or left rates unchanged. Oh, and Eliot Spitzer, too.

    Well, folks, I’ve got some bad news for you. None of those are the reason any of you lost money. The dirty little secret is much simpler. You lost money because you bought a stock, and that stock went down, and then you sold it. Period, end of discussion.

    -Take Responsibility for Your Stock Losses
    This column was originally published on April 12, 2005.

  15. dead hobo says:

    BR said

    BR: I believe that everyone must take responsibility for their own investments and trades. See this column from 4 years ago: Take Responsibility for Your Stock Losses.


    You must have posted this reply after I wrote my 3rd comment above.

    I don’t offer absolution to fraudsters. By implication, you appear to believe that I am to blame if I am stupid enough to believe a fraudster with credentials. The elements of fraud speak for themselves. All involve A MATERIAL MISSTATEMENT and THE INTENTION THAT THE VICTIM FALLS FOR IT. This is different from making a bad decision, or so the law appears to believe.

  16. Greg0658 says:

    a excellent line of thought on the exact subject .. I logged in to rant on the bigger picture in a factious manner

    from the original post “confiscate the Funds of Fund managers’ houses, cars, watches, jets and boat — as the illegal proceeds of a crime. Auction ‘em off”

    doesn’t our economy need those items boiled down into recycled commodities to stimulate growth?

    I’m doggin the latest debate – “sod for the National Mall as stimulus” … how about concrete? it lasts longer, comes from my area and is installed by tradesmen instead of j6p … concrete will help raise global temperature so we use less gas and oil – warmth from the sun (its free ya know)

    Now Thats Stimuless without waste
    (except for the perfectly good jets and boats boiled down)

    I still love this line JoJo “a waste is a terrible thing to mind”

    Disaster Capitalism – bring it on
    (did ya see the story on barges of excess humans shipped out into the ocean seas to be swamped by waves)

    War gives people a fighting chance
    Disaster Capitalism – bring it on
    we’re starving out here … just not in my backyard


    RP “we are using kerosene on a house fire it’s not water”
    or is it
    beavers building dams – starving downstream river banks – so the trees are softer to chew off

  17. Mannwich says:

    Many of them knew and didn’t care, so I have ZERO sympathy for them. They conspirators in this and deserve to lose their money. Next.

  18. Unsympathetic says:


    I think you’re pushing a different idea than what BR has been consistently advocating.

    What if the investors in Madoff after some time X weren’t naive? What if they KNEW GOING IN that he was fraudulent but simply wanted to take their gains before he was discovered? If so, their losses aren’t blameless, their tales of woe are simply alligator tears.. and most importantly for cash purposes, they should receive zero from any confiscation of gains up&down the chain.

    You want to believe this is a preposterous story? That’s your right – but I don’t buy it. I am, in fact, cynical enough to believe that people KNOWINGLY put money into a fraud.

    You say “the victim” shouldn’t share blame.. I think everyone actually agrees with that. However, I also say: The burden of proof is on you to show that any person in the Madoff investor base is deserving of the label “victim.”

  19. Dan Duncan says:

    I’m clearly missing something in this debate.

    Essentially there are 3 classes in the debacle.

    1. Madoff as Principal Criminal.
    2. Enablers–aka Passive Conspirators, who are the Funds of Funds. Fiduciaries who knew better, or had a responsibility to know better.
    3. Others who lost their investments.

    Classes 1&2 deserve all the punishment the law will allow…and then some.

    But why the antipathy directed towards class 3. Mannwich is pratically sneering with his contempt. Frankly, it’s kind of wierd.

    As for Barry’s comment: “I believe that everyone must take responsibility for their own investments and trades. See this column from 4 years ago: Take Responsibility for Your Stock Losses”…these aren’t stock losses, nor was it an “investment”. It was theft. There’s a huge difference between investing in a failed venture that made por trading decisions, and investing with a criminally deceptive venture engaging in a ponzi scheme.

    As to the need to take responsibilty for falling prey to a criminal scheme—fair enough. But it doesn’t mean many of these investors aren’t victims. Victims of their own foolishness? Fine. But they are also victims of a crime—and if there’s recource to be had—they deserve it (but not some kind of bailout by the rest of us, obviously).

    To Dead Hobo at 9:35—that’s funny Barrister imagery….”bad breath and a shiny suit”….very nice. If this ends up in bankruptcy court, however—there is an entirely different set of priorities in this setting—and all the halitosis and slimy, reptilian clothing won’t make a bit of difference— as “equitable treatment” of creditors will trump civil/tort considerations….and in the end Mannwich will be uncorking his bottle of champagne because the victims—(not “investors who suffered stock losses”)— ain’t gonna get jack.

  20. dead hobo says:

    Unsympathetic Said:
    January 27th, 2009 at 10:30 am


    I think you’re pushing a different idea than what BR has been consistently advocating.

    What if the investors in Madoff after some time X weren’t naive? What if they KNEW GOING IN that he was fraudulent but simply wanted to take their gains before he was discovered?


    Please try to use the rest of the day to grow a brain that works. What idiot would give their own hard earned cash to a thief with the hope that they would be the only person not ripped off? Are you NUTS?

  21. DL says:

    A related issue concerns the SIPC. I don’t think that they should be going overboard in trying to bail everyone out.

  22. DL says:

    Barry Ritholtz @ 9:59

    And what about the short sellers?

    They’re responsible for almost everything that goes wrong in the financial markets.

  23. Diogenes says:

    Dr. Robert Hare has developed a test for identifying corporate psychopaths.

    The test is called Business Scan 360.

    In my opinion, it should be administered to everyone seeking a broker/investment adviser license and to every corporate CEO.

  24. Mannwich says:

    @dead hobo: I think the point here is that many of Madoff’s investors possibly knew he was front-running or trading on inside information but didn’t care as long as he made them 8-12% every year. If that’s true, I have no sympathy for them. They knew he was breaking the law and didn’t care as long as they go theirs.

  25. dead hobo says:


    I repeat, only someone who is incredibly stupid would give their money to a crook, with the belief that “He Won’t Steal From Me!”. I refuse to believe that any normal person would do such a thing. You are living in fantasy, my friend.

    Privately, to yourself, name three people you know who have the money and are stupid enough to give a large sum of money to a crook. If you name someone other than yourself, please introduce them to me. Today only, I have Quit Claim Deeds available for ALL of Donald Trump’s properties at only 10 cents on the dollar … no 3 cents on the dollar. The line forms right here.

  26. Mannwich says:

    @dead hobo: I know plenty of people who put FAR less thought into managing their finances (or even thinking about them) than they do in planning their next vacation. I’m not one of them and will NEVER hand over mine/my wife’s money to anyone to manage it. I will always do it myself if I have the time to do so.

    You don’t think many uber-wealthy people would be fine with Madoff if they thought he was just insider trading or front-running and thus not screwing THEM over in the process? You don’t think they would be fine with that if they thought he’d never get caught and that if he was caught they could just explain that they “didn’t know”? Think again, my friend. Those are the kinds of people who hide untold billions in Switzerland with UBS to get out of paying taxes. How do you think some of these people got/stayed uber-wealthy to begin with? I can assure it wasn’t by playing by the rules……

    Again, if the criminal is thought to benefit THEM, far too many of these cretins will gladly engage (with a nod and wink, of course). You’re the one who needs to grow a brain stem if you think otherwise, my friend.

  27. dead hobo says:


    And of the people who used third parties to handle their funds in a fiduciary capacity, what percentage do you think were scammers (investors, not those who took the cash)?

    Besides, it doesn’t matter. Even if one or more knew Madoff was a crook but used a third party in a fiduciary capacity, they get to have and eat their cake. Said fiduciary is still liable for fraud, and, unless he can prove that his client also knew Madoff was a crook, is in deep sh*t. As a necessary condition for that defense, said fiduciary has to confess in order to not be liable to the client.

    And, if he tries that, all who weren’t in on the scam, plus the original investor if said fiduciary can’t make the case, is due for some payback from said fiduciary.

  28. Mannwich says:

    @dead hobo: You make a fair point about that. Perhaps the element of a third party gives them that “out” legally, which is why these clients didn’t ask more questions about Madoff.

  29. dead hobo says:

    mannwich said:

    which is why these clients didn’t ask more questions about Madoff.


    This brings me full circle. If these investment advisers are so smart, how come they need OPM to earn a living? If I had the Midas touch, I’d be secretive and greedy. The law of averages says that excessive gains and losses will diminish as more people enter the picture. If you have the secret, it automatically loses half of it’s value for every new entrant. Most people should just put their cash in a bank CD and forget about it.

    The most common way to make money in the market is buy low and sell high. The rubes do just the opposite. You have to try not to be a rube, and be willing to take their money.

  30. Greg0658 says:

    odd number posts .. soon not
    yesterday had 5 or better inputs flowing in
    news tv, cash tv, all Blago radio, local talk radio, youtube (thats was an excellent rescue from the Hudson … I looked for segments 10-20m 20-30m 30-40m and 40-47m but no find), and TBP off and on
    today only TBP so far … burnt out

    oh ya what important thing was I gonna say
    this is nearly a perfect world for us here in the 21st century in the modern western culture

    except for the social structure
    because imo mechanical engineers have doing a pretty good job

    Phil Collins – Another Day In Paradise – Live In U.S ’98