Madoff Never Traded?
Alternative title: The End of Self-Regulation
A Boston Globe article today reveals that Madoff’s firms may never have traded — despite NASD/FINRA audits every 2 years since 1960.
“As investigators try to untangle the scheme that Bernard L. Madoff hid from investors and regulators for a decade or more, one basic fact is emerging: He may not have been making any trades at all.
A federal agency that regulates brokerage firms says there is no record of Madoff’s investment funds placing trades through his brokerage operation. That leaves only two options – either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades.
“There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser,” said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.
FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff’s broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said…
If Madoff was making no real trades, the complicated statements he sent out to customers were apparently fiction – and in fact may have been part of his coverup. Statements were often so complicated that investors had to call representatives of the firm for explanations.”
So much for self-regulation. That a fraud this size took place right under the noses of NASD/FINRA is astounding.
The counter argument is that the money management side of Madoff’s operation was not covered by the NASD. The two firms were separate entities, different floors, etc. Even still, one has to marvel that anyone could answer “Not my job.”
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Source:
Madoff might not have made any trades
Beth Healy
Boston Globe, January 15, 2009
http://www.boston.com/business/articles/2009/01/15/madoff_might_not_have_made_any_trades/
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January 15th, 2009 at 3:25 pm
Perfect strategy.. no wonder the guy never made a loss. He didn’t need stops, either.
January 15th, 2009 at 3:26 pm
For some reason I cannot get enough of this story. Probably the same reason why I have to watch a Law & Order or Dateline episode until the very end – an insatiable desire to witness justice. IMO, justice in this case would be to strip Madoff and his immediate family members of every one of their assets, toss Bernie in jail, strip all other family members naked and drop them off in a slum somewhere.
It makes me sick to think that Madoff’s wife will live out her years living in a penthouse eating fancy foods and wearing luxurious clothes. I rationalize this by reminding myself that there are many positives about living in America. The absence of justice for white-collar criminals simply isn’t one of them. But I guess you take the good with the bad. I’d still rather live here than 90% of the rest of the world.
January 15th, 2009 at 3:33 pm
I’m sorry but I can’t help chuckling at the evolving absurdity of this story. All brilliant tragedies have some element of comedy in them and this epic comedy. If it’s true this guy never made any trades with all of that dough, this will go down in history books as the biggest con job of all time, bar none.
January 15th, 2009 at 3:38 pm
Gotta give the guy some credit – at least he wasn’t churning!
January 15th, 2009 at 3:42 pm
@Imelda: That is hilarious. Probably pretty low stress too not having to actually do any work or make any trades. Just had to fake it every day. Not a bad life he had doing this. He’s at the end of the road anyway. Heck of a job, Brownie, I mean, Bernie!
January 15th, 2009 at 3:43 pm
Free Bernie Madoff…that’s right…no jail time for Bernie.
Of course he would be rubbed out in about 10 seconds. Of course I say no jail time for whoever offs him either.
January 15th, 2009 at 3:45 pm
It’s the kind of mystery that Sherlock Holmes might have solved. Elementary, my dear Watson.
The Curious Case of the Dog that Didn’t Bark in the Night. It’s fascinating that no-one in New York or Chicago noticed that the greatest exponent of Split Strike Conversion never actually traded an option.
January 15th, 2009 at 3:48 pm
OT: US Air plane just went down into Hudson River. Got chills seeing video on TV. Too reminiscent of 9/11 for me.
January 15th, 2009 at 3:59 pm
But those complicated statements – he couldn’t have done all that by hand, by himself (maybe he learned how to set up an Excel spreadsheet?). No – gotta be some helpers … “Microsoft Access programmer wanted – good at report formatting”….
January 15th, 2009 at 3:59 pm
is this what happens when the police (regulators) treat those they are suppose to policing? and i wonder how many others did this also? its to easy for lots of folks to do this. and with our police on the job, nobody would ever know.
January 15th, 2009 at 4:00 pm
Live feed at CNBC.com right now, a bunch of ferries are out there
– looking for survivors as far as I can tell.
January 15th, 2009 at 4:12 pm
So…how many more Madoff’s are out there? You know he’s not the only one.
January 15th, 2009 at 4:29 pm
Barry, you should stop pumping “Fusion IQ’s Timing Signals “. I think your signal hit an embarrassing BUY signal for the general market last week.
Now this week your followers got killed. It would only be fair to advertise both the winning and losing trades, if you choose to advertise at all.
January 15th, 2009 at 4:32 pm
Dow;
I think we’ll have another 10 Madoffs…probably the sum of those will be in the 25 Billion range.
January 15th, 2009 at 4:40 pm
Madoff’s wife: another argument for community property. Although I suppose they could have done a separation of property agreement. Can’t believe she didn’t benefit from the fraud.
January 15th, 2009 at 4:44 pm
I can’t even write thank-you note to a client without NASD/FINRA reading it first. Back to my continuing ed…
January 15th, 2009 at 4:44 pm
Steve Barry wrote: “Free Bernie Madoff…that’s right…no jail time for Bernie. Of course he would be rubbed out in about 10 seconds. Of course I say no jail time for whoever offs him either.”
The term “outlaw” originally meant “someone who is outside the law,” which (among other things) meant that anyone who killed that person would not be tried.
Possibly-related etymology: “privilege” is someone who operates by “private law”.
January 15th, 2009 at 4:48 pm
Excerpt from …
THE PSYCHOPATH – The Mask of Sanity
Special Research Project of the Quantum Future School
http://www.cassiopaea.com/cassiopaea/psychopath.htm
Imagine – if you can – not having a conscience, none at all, no feelings of guilt or remorse no matter what you do, no limiting sense of concern for the well-being of strangers, friends, or even family members. Imagine no struggles with shame, not a single one in your whole life, no matter what kind of selfish, lazy, harmful, or immoral action you had taken.
And pretend that the concept of responsibility is unknown to you, except as a burden others seem to accept without question, like gullible fools.
Now add to this strange fantasy the ability to conceal from other people that your psychological makeup is radically different from theirs. Since everyone simply assumes that conscience is universal among human beings, hiding the fact that you are conscience-free is nearly effortless.
You are not held back from any of your desires by guilt or shame, and you are never confronted by others for your cold-bloodedness. The ice water in your veins is so bizarre, so completely outside of their personal experience, that they seldom even guess at your condition.
******************************
Another excerpt
The Psychopathic Personality
Revised: July 29, 2007
http://www.oregoncounseling.org/Handouts/PsychopathicPersonality.htm
The psychopath is one of the most fascinating and distressing problems of human experience. For the most part, a psychopath never remains attached to anyone or anything. They live a “predatory” lifestyle. They feel little or no regret, and little or no remorse – except when they are caught. They need relationships, but see people as obstacles to overcome and be eliminated. If not, they see people in terms of how they can be used. They use people for stimulation, to build their self-esteem and they invariably value people in terms of their material value (money, property, etc..).
A psychopath can have high verbal intelligence, but they typically lack “emotional intelligence”. They can be expert in manipulating others by playing to their emotions. There is a shallow quality to the emotional aspect of their stories (i.e., how they felt, why they felt that way, or how others may have felt and why). The lack of emotional intelligence is the first good sign you may be dealing with a psychopath. A history of criminal behavior in which they do not seem to learn from their experience, but merely think about ways to not get caught is the second best sign.
The following is a list of items based on the research of Robert Hare, Ph.D. which is derived from the “The Hare Psychopathy Checklist-Revised, .1991, Toronto: Multi-Health Systems.” These are the most highly researched and recognized characteristics of psychopathic personality and behavior.
* glibness/superficial charm
* grandiose sense of self worth
* need for stimulation/prone to boredom
* pathological lying
* conning/manipulative
* lack of remorse or guilt
* shallow emotional response
* callous/lack of empathy
* parasitic lifestyle
* poor behavioral controls
* promiscuous sexual behavior
* early behavioral problems
* lack of realistic long term goals
* impulsivity
* irresponsibility
* failure to accept responsibility for their own actions
* many short term relationships
* juvenile delinquency
* revocation of conditional release
* criminal versatility
January 15th, 2009 at 4:55 pm
The 2nd half of Tarp was just approved.
January 15th, 2009 at 5:05 pm
Re the above long posting …
It seemed important to share this insight into Madoff. His persona, as projected through the news, fits this profile like they were describing him personally.
One thing not mentioned in these postings is that the psychopathic personality is attracted towards professions where there is ease of entry, thee are no objective professional qualifications required, and personality matters far more than technical prowess.
People are objects who exist to provide benefit. They just have to keep you coming back for more. That’s their objective in life … figuring out how to make you look the other way when challenges arise to their credibility. Then getting more from you after you supported them and came back. Many probably will convince you, successfully, to crap on anyone who ‘attacks’ them.
The financial profession of recent years is a fertile ground for this type of personality.
January 15th, 2009 at 5:12 pm
I said
The financial profession of recent years is a fertile ground for this type of personality.
One more thought
————————–
So has been the modern incarnation of the Republican Party (Live on borrowed money, stick someone else with the bill, say whatever it takes to keep the gullible in line)
January 15th, 2009 at 5:36 pm
dead hobo @ 5:12
A good thing that the D’s never run deficits (or mislead the public).
January 15th, 2009 at 5:39 pm
DL Said
January 15th, 2009 at 5:36 pm
dead hobo @ 5:12
A good thing that the D’s never run deficits (or mislead the public).
Wonderment
—————————-
Are you pitching or catching?
January 15th, 2009 at 5:46 pm
DL Said:
January 15th, 2009 at 5:36 pm
dead hobo @ 5:12
reply
—————
You make me look biblical. I’m good, but not yet legendary or mythological.Thanks, anyway. Time for some Ripple.
January 15th, 2009 at 5:55 pm
@dead hobo
Could DL be Don Luskin??
I think so.
January 15th, 2009 at 6:01 pm
Moss Said:
January 15th, 2009 at 5:55 pm
@dead hobo
Could DL be Don Luskin??
I think so.
opinion
—————
Pitching AND catching.
January 15th, 2009 at 6:16 pm
uh, maybe I’m dense ….. but isn’t the blonde bimbo head of FINRA now the new SEC head ?
nah, that couldn’t be. That would be like the stupid being promoted or something.
something like “Peter Principle” …. or ….. “we’re all screwed” … comes to mind.
January 15th, 2009 at 6:46 pm
Quote from Howard Sirota, NY securities lawyer:
“This sanctimonious hypocrite who lectured me about trivializing the Holocaust cheated numerous Jewish charities, including small ones that can’t survive,” Sirota said in an interview. “I’d love to put a hatchet in Bernie Madoff’s head, and I know there are other Jews who feel that way.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=aFPPXNIu_yYU&refer=us
Read the whole thing if you haven’t already….
January 15th, 2009 at 7:04 pm
@CPJ13:
It looks like your link shows public (gov’t) debt/GDP…the chart I post is public plus corporate plus consumer debt per GDP, basically TOTAL credit per GDP. The chart you point to is a subset of the one I post.
January 15th, 2009 at 7:23 pm
Gotcha. Thanks.
January 15th, 2009 at 7:35 pm
I think we should put an airline pilot in charge of the economy – to ditch a passenger jet in a river and have everyone on board come out in one piece is an amazing display of aviation skill. Awesome.
January 15th, 2009 at 7:36 pm
@CPJ13
In fact if you click through the link on Paul’s site to the FT article, my chart, albeit from 1974 on, appears next to yours.
January 15th, 2009 at 11:04 pm
@Karen: “Jan. 15 (Bloomberg) — Michael Steinhardt, the philanthropist who helped start Birthright Israel, says the leading topic of talk among New York Jews isn’t the invasion of Gaza. It is Bernard Madoff’s suspected $50 billion fraud. ”
I guess some stereotypes exist for a reason.
~~~
BR: I find your comment offensive.
January 15th, 2009 at 11:25 pm
DP, I found this quote fascinating:
“No anti-Semite ever did this much damage to the American Jewish community,” said Jonathan Sarna, a professor of American Jewish history at Brandeis University in Waltham, Massachusetts, in an interview.
I’m amazed at the arguments this has caused in my own small family of 4. WW2, the creation of the nation-state… the fact that Madoff did this to his own “tribe” … we’ve argued ever angle.
January 15th, 2009 at 11:30 pm
The end of self-regulation ? You mean the end of government regulation. This is an indictment of the SEC.
[BR: I was specifically referring to the NASD's biannual audits of Madoff Securities, every 2 years since 1960. The self-regulatory organization never noticed anything awry. SROs are going to be dramatically curtailed, and gov't regulation is going to get much stronger]
As for Bernie Madoff, he is clearly the world’s most talented Ponzi scam artists, so they should put him in charge of the Fed to reflate the economy.
Despite their claims to the contrary, the SEC has had an astronomical amount of resources. Since 2003, their budget has nearly doubled to $1b per year. Under Bush, the SEC has had anualised budget growth of 15.3% and staff growth of 6.7% – easily the highest rates of any president.
The Madoff case proves just how counter-productive government regulations are. A rival of Madoff urged the SEC to audit him in 1999.
http://online.wsj.com/article/SB122903010173099377.html
In total, the SEC probed Madoff’s business 8 times over the years.
http://online.wsj.com/article/SB123111743915052731.html
And of course, Madoff’s family had close ties to the SEC:
http://blogs.wsj.com/washwire/2008/12/17/sec-nominee-has-madoff-connection/
January 16th, 2009 at 2:06 am
deadhobo: Your list of characteristics of psychopaths a fits most of the top Bush Administration players.
January 16th, 2009 at 4:51 am
Madoff’s only crime was getting caught, and even then he may yet come out on top.
Bernie Madoff triumphed over others by force of his will and his will alone. And even now he sits high up in his castle, secured against the silly protests of incompetent government prosecutors and wailing ninnies running in circles on the streets below.
Bernie Madoff is an ubermensch in the true sense of the word. Morality is the herd instinct in the individual. Madoff is a dominating personality, larger-than-life, heroic in stature; his investors are mere animals whom he’s culled for meat and hides.
January 16th, 2009 at 6:54 am
@ dead hobo and Mike in Nola:
I’m glad you are starting to see things more clearly. See this link from my blog:
The Psychology of Right-Wing Republicans (for Mike in Nola)
And The Sociopath Next Door (for dead hobo)
January 16th, 2009 at 8:18 am
Barry
the fraud took place at the broker/dealer where the commissions were being charged and transactions being faked.
The repsonsibilty is FINRA’s, not the SEC’s. He never took a penny in advisory fees, just claimed to get paid for the brokerage work.
They don’t pursue people like madoff who are connected and big enough to be in the inner circle, they bully small firms/ reps who don’t have the resources or money to stand up for themselves.
January 16th, 2009 at 10:54 am
@jmborchers Says:
January 15th, 2009 at 4:55 pm
The 2nd half of Tarp was just approved.
LOL!
That has to be the best juxtaposition in the history of this blog!
January 16th, 2009 at 3:32 pm
According to Phil Grande(philsgang.com– I URGE all of you to listen to his radio show, especially this Tuesday’s which is archived!) “23 PERCENT OF THE OWNERS OF THE FEDERAL RESERVE FAMILIES had money with Madoff ” . Phil has been RIGHT about everything, as right as BR. Could this be why regulators were waived-off?
January 16th, 2009 at 3:49 pm
@gordon: If that’s accurate, then you can bet they will be bailed out and made whole quietly by the Feds. What’s to stop it at this point since there’s no transparency on where the bailout money is going anyway?
January 16th, 2009 at 3:58 pm
And Schapiro told congress her agency failed to see what Madoff was doing due to “structural” problesms (shades of Condi and 9/11). Somebody needs to light a very large fire under her ass. She’s a dodger and a weaver. I hope she goes down quick. I think she’s dirty.
January 16th, 2009 at 4:14 pm
PHIL GRANDE (http://philsgang.com/GetPage.asp?ID=443) said they are working behind the scenes in Congress to make the SIPC insurance UNLIMITED, & RETROACTIVE, TO BAILOUT MADOFF “investors”. Also,
listen to Wed. radio show. Phil explains the entire Paulson-Jamie Diamond deal to let Lehman go under because JPMorgan was the one in trouble, not Lehman. Diamond needed a new building, Paulson and him went to prep school together, etc. Phil Grande is the ONLY ONE ON RADIO telling the truth. He loses many affiliates, as producers ask him to be more positive or they lose advertising, he DOESN’T need them, and tells them to take a hike.
January 16th, 2009 at 6:55 pm
Mannwich & AGG … have you heard of Intrade starting an Instrument on someone getting a Medal of Freedom form GWB in the next 84 hours for “opening our eyes to reality”
January 16th, 2009 at 7:38 pm
Greg0658,
No, I haven’t. But speaking of reality, I can’t remember her name right now (Brookday or something like that) but this nineties Chicago Mercantile Exchange director fought (and lost) Greenspan and Rubin on derivative regulation. She wanted it and they didn’t. She’s the one who should be the SEC head.
January 16th, 2009 at 8:19 pm
@AGG: Or Spitzer.
January 16th, 2009 at 9:11 pm
Looks like a mini-Madoff here in SW FL. I think Ponzi should be taken off the hook and that this should be renamed a “Madoff Scheme” forevermore.
http://www.heraldtribune.com/article/20090116/BREAKING/901160241/2055/NEWS?Title=Fund_manager_gone_and_possibly__350_million_with_him
January 16th, 2009 at 10:31 pm
I believe that what we will hear in the coming months is going to make the information that we currently have seem tame. The amount of people who had to be involved had to be quite large. Even worse, the amount of people who are out a lot of money is going to be huge. I wrote a piece on my blog about Madoff (below) and after doing a little research, I couldn’t help but think that many innocent were affected by a tragic event but some had to know that the promised returns were a little too good to be true.
http://www.elementary-finance.com/education/bernie-madoff-ponzi-scheme/