Joe Nocera had a brutal — and brutally honest — column today. He essentially states that the Madoff victims were willing accomplishes through their own naivete and bad judgment.

“And yet, just about anybody who actually took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs,” said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply. . .

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.”

While there can be no doubt that the SEC was asleep at the switch, so too were these investors. Not only did they ignore all of the Madoff red flags, many of them put all of their monies with one single manager. That is a huge mistake.

Nocera adds that some investors who had been in a previous billion-dollar Ponzi scheme — where investors managed to recover ~60 cents on the dollar — then turned around and gave their money to Madoff.

Astonishing . . .

>

Source:
Madoff Had Accomplices: His Victims
JOE NOCERA
NYT, March 13, 2009

http://www.nytimes.com/2009/03/14/business/14nocera.html

Category: 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.

86 Responses to “When Smart People Do Dumb Things”

  1. AGG says:

    When the ficticious Indiana Jones took off with a big jewel from the idol in the cave, had the natives caught and killed him, would he be considered a victim?
    If a man gains the whole world but loses his soul, is he a victim of the devil?
    What’s a victim? Someone who was defrauded by a ponzi scheme and lost lots of money?
    Hell, every taxpayer is a victim then. Where’s the cutoff? The amount of money? If it made the papers? It sure isn’t public indignation. We’ve been PRed and pissed on so long that we can’t tell hype from tripe. Is a victim now defined as someone without legal recourse to fraud because Cox and friends gamed the government to castrate law enforcement. It all seems relative and arbitrary to me. Perhaps I’m a bit jaded but anyone who ever was worth more than a million bucks isn’t a victim in my book.

  2. ottovbvs says:

    ….I read this…It’s a bit unfair……does every Jewish retiree have to be a forensic accountant?…….A Ponzi merchant claiming annual returns of around 10%…..isn’t that fairly close to what just about every mutual fund and reputable financial journalist has claimed the average stock market returns to have been over the last fifty years ie. +/- 9%……..Given the societal norms involved and the essential normality of Bernie’s claims you can understand why people got suckered in……It’s the job of the SEC to protect regular investors from scum like this and they failed despite repeated warnings……The wider financial community doesn’t escape unscathed either…… there were clearly a lot of organizations that were either complicit or had a good idea what he was up to and said nothing.

  3. ottovbvs says:

    AGG Says:

    March 14th, 2009 at 6:48 pm
    Perhaps I’m a bit jaded but anyone who ever was worth more than a million bucks isn’t a victim in my book.

    …….So the Paediatrician, Oncologist, small business owner, mid to upper level corporate manager who worked all his life, sent his kids to school, paid his bills, isn’t a victim…….No you’re not jaded…..just missing any sense of value judgement.

  4. “It’s the job of the SEC to protect regular investors from scum like this and they failed despite repeated warnings”

    tis is the enfeebling ‘thinking’ that unlocks the barndoor, in the first place..

    yes, in the first place.

    http://www.thefreedictionary.com/enfeeble

  5. AGG says:

    It’s all really politics:
    The American political system is essentially a contract between the Republican and Democratic parties, enforced by federal and state two-party laws, all designed to guarantee the survival of both no matter how many people despise or ignore them. – Richard Reeves

    ottovbvs,
    Yep, my value judgement is totally absent. I get excited and angry about people who have to go without food and/or shelter because of government and business protection of illegal and conscienseless predators. If a doctor or some other professional loses his dough, he still has his career and he sure won’t be hungry. Perhaps you have just forgotten the way most of the world lives. Madoff is a crook but Pauloson, Bush, Cox, Rubin, Clinton, and the “rats” in the supine court (Roberts, Alito, Thomas, Scalia) make Madoff look like a piker.

  6. Dow says:

    Absolutely. Let’s blame the victims for erroneously trusting the expertise of the former chairman of the NASDAQ stock exchange on financial matters.

  7. Tahoe says:

    When will we as individuals stand back and take responsibility, and feel the accountability of our own decisions. It all went wrong for sure. There was much lying for sure. But who is really accountable for their own actions. For me the common thread is that each of these swindlers or anyone involved in the string, perpetrator to accomlices to victim alike, takes their individual action on the basis of their own information that they gather and decision making process. It is generally sober and concious. Except in those cases where there is a gun to your head, we each make decisions on some basis that at that particular time makes sense, lies within the boundaries of acceptable risk and whatever other host of measures you make your decisions by. Each and every time they make a concious decision to lie, cheat, steal, or invest or or whatever – its their decision. No guns brandished by Uncle Bernie and his henchmen. Has the game been manipulated? Yes, but that was a risk, either accounted for in some meaningful way or not. They made decisions with complete and total disregard of substantially affecting peoples lives – yes even the victims – they did not ask the question – what if I lose all of this – what is my back up plan. Surely the perceived risk was low but investing is a game. Simple, for some with VERY low tolerance of risk, and increasingly more complex as the risk (ans reward) increases. “I don’t have a choice or have limited choices”. Of course you do. The choice is ONLY yours to make. Do you have the courage and fortitude and conviction to make the right decision and act in a manner respectful to other human beings?

  8. Bob A says:

    … and most of these people are totally convinced they have money, and deserve to have money, because they are ‘smart and well-educated’.

  9. jmertz74 says:

    Simple, you get what you pay for. Either you are a forensic accountant or you hire an advisor to be one for you. Just like self directed investing….. Either you can self direct or you can’t… WHO ON GODS GREEN EARTH WOULD PUT ALL OF THEIR MONEY IN ONE INVESTMENT????????????? One can’t help but be passionate about it. Yeah go ahead put it all on red. Just do it.

  10. Fredex says:

    Famous line from Animal House: “You fool! You trusted us.”

    So, the world is to be run by Animal House rules?

  11. AndrewShaw says:

    Let me throw a couple personal examples out as a question then:

    I have some money in a long/short strategy being executed by Mish’s firm, but the custodian is a major online broker. Is that dumb or not? I don’t really know these people, but they are showing non-correlated returns that are pretty good. I was impressed enough to try it. Am I greedy and blameworthy for looking for a work-free 8-12% annual return? From a blogger, even!

    I am also considering a managed futures account as well, with Superfund. They show a quite respectable non-correlated return as well(they are long/short as well, but in the futures market), but they are apparently the custodian for the funds and have up to a one-month gate policy(but you can get out any month you choose) Am I dumb to call a company that has humorous commercials on CNBC, and give them a large amount of money, again seeking a no-work return of 8-12+%?

    I guess I can see why someone would believe that a non-correlated, nice and steady return would be possible(since I myself believe it), but I am just a hack investor/trader with a Geography degree so I have no way of analyzing these things properly. How is someone like me supposed to decide? I have to ultimately give my trust to someone. Why wouldn’t someone trust the former chair of the NASD and one of the largest market-makers?

    I am not ready to blame the victims, although the “all the eggs in one basket” people have me scratching my head furiously.

    Anyway, here I am admitting my greed for a respectable return that is not tied to the general market performance, where my only duty is to supply the capital. Do I deserve to lose my investments that are allocated to these strategies?

    Keep in mind there is no way for a layman to truly “get” what is going on, kinda like Jon Stewart’s mom.

  12. blueoysterjoe says:

    This reminds me a little of a person who is beaten up after entering a dark alley after midnight.

    It is wrong in this case to use a counterfactual in order to assign blame: IF ONLY this person had not gone into the alley after midnight, then he wouldn’t have been beaten up, therefore the assault his fault. This is not right. The person to blame is still the person who assaulted him and not the other way around.

    However, even though it’s true the victim is blameless when it comes to the commission of the crime, he does bear some responsibility for not sufficiently understanding the riskiness of environment. He is not a person acting without agency. He did choose to enter a situation that was obviously risky, and this can’t be ignored either.

    So I think it’s difficult to discuss things like blame and responsibility when it comes to any situation where 1) a crime was committed but 2) the victim willfully put himself in an unsafe situation. I think it’s important to be very clear with one’s language, because I don’t think Madoff’s victims are too blame, but at the same time, they did fail to act responsibly, and so both Madoff and the victims have some behavioral adjustments that need to be made. In the end, if people want to avoid becoming victims themselves, they need to look at this whole mess and then act responsibly and avoid these dark alleys in the future.

  13. greg says:

    Where are the investors who actually made money with Madoff? Since this has been going on for 15 years or so, anyone who gave him 1 million dollars 10 years ago or more, has got their money back, since he was showing returns in excess of 10 % per year, according to any reporting I’ve heard. Just wondering out loud why no stories have been done on any of these people?
    BR. Maybe the investors were following Andrew Carnegies’ advise..Concentrate, put all your eggs in one basket, then watch that basket.Sadly,they forgot the concentrate and watch part. I guess Balzac was right..Behind every great fortune, there is a crime.

  14. blueoysterjoe,

    you are describing “contributory negligence”

    http://legal-dictionary.thefreedictionary.com/contributory+negligence

  15. Empire says:

    “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs”

    It is interesting to note that, following these same criteria, no one would have invested with Warren Buffett before Berkshire went public…

  16. bonghiteric says:

    I don’t…
    perform my own dental work
    replace my carburetor
    self diagnose any inflammatory medical condition
    build my own computer
    attempt to repair a leaky pipe inside my ceiling
    etc., etc., etc.

    I do however use my best judgement to find someone that I believe is capable of rendering the services I need.

    I also have enjoyed several films by Kevin Bacon, read a book by Elie Wiesel, and wished I could’ve been old enough to see Sandy Koufax pitch. They are experts in their chosen professions. Their ability to accumulate savings from working in their profession is, IMHO, in no way correlated to their understanding of how to invest their income. They and a vast majority of the other investors (Fairfield and the other feeder funds and the partners in those funds (including Merkin) notwithstanding) were victims. Given the demands on our time from work, family, customer service calls and other time-sucks, to say otherwise is disingenuous and lazy hindsightful analysis.

  17. Arthur says:

    You don’t need to be a forensic anything to find out that the stock market can be a great place to lose a lot of money. Obviously (?) its long term performance must not be confused with a warrantee. (Maybe we should spend a day on that in high school math class. And why is Jon Stewart’s 75-year-old mother even playing the stock market? Is she counting on living past 100??)

    We all got used to the inebriating attractive bubbly returns…. but if the market went up in a perfect Madoffian straight line every year there would be no stock market, of course.

  18. super_trooper says:

    “Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? ”
    I thought the first rule was to not put it all in one stock. The point with a fund is that it’s diversified.

  19. bonghiteric says:

    @ Empire,
    BRK was a publicly traded company before Buffet eventually bought the controlling interest.

    “It is interesting to note that, following these same criteria, no one would have invested with Warren Buffett before Berkshire went public…”

    That’s just your opinion, man.

  20. Paul Jones says:

    Trust is a four letter word.

  21. lloydalter says:

    I thought this was an appalling article, and designed to ring around the blogosphere for weeks. Blaming the victims for not doing due diligence when many of them were dealing with trusted consultants, listening to ads that said “trust us”, people have lives to live and depend on people to hire to manage things for us. I don’t hire three different kids to mow my lawn because I have some deep seated fear that one might not show up, I rely on the people that I hire to do things that are peripheral to my daily life. Nocera is dead wrong on this.

  22. Avl Dao says:

    We had a great thread going this morning in response to the Monkey Boy blog, and I used a link to this article in there…with regards to ‘evolution’ and the current state of advanced primates’ decision-making skill sets, it (Madoff’s willing ‘victims’) were quite a perfect fit.

  23. franklin411 says:

    Barry,
    The entire premise of your post is flawed.

    “Smart” and “Rich” are neither the same nor correlated.

  24. ruick says:

    i don’t see any difference between madoff victims and many lower income people who were coxed into ARM mortgages. Both were scams. why do we only feel sorry for madoff victims? why arn’t we going after mortgage fraud?

  25. Avl Dao says:

    Were these ‘smart people’ ? Hmmm. Anyway…
    The type of decision-making displayed by Madoff’s victims – as opposed to those who did due diligence and didn’t fall for his schemes – are just more examples of how the assorted 25-yr cycles (secular bull market, consumer debt/spending) created an environment that rewarded (i.e. that allowed paper wealth to accrue to Madoff’s victims, pre-Madoff) people who would not have thrived (accumulated such wealth to turn over to Madoff) in an alternate economic environment that had required a different set of decision-making skills to even accumulate the pre-Madoff wealth to begin with).
    In essence, the 25-yr cycles and booms simply delayed the old adage, “A Fool & His Money Are Soon parted”. During those 25 yrs, an unusually large number of people with tendencies to do lots of dumb things financially still accumulated wealth, despite their efforts, and became available for fleecing by the Madoff’s of the world.
    Long boom cycles = lots more dumb sheep for the Madoff-wolves.
    Fewer or more shallower booms and boom cycles = greater proportion of smart sheep who see Madoff-wolves approaching from a mile away.

    We can take solace in the ratio of people who had the due diligence smarts- or gut instincts – to walk away from Madoff versus the ones who didn’t.
    We’ll never know the exact ratio but I’ve seen 99:1 ratios in smaller ponzi schemes where it took years to accumulate all the suckers for the schemes. Madoff had decades to troll the gi-normous quatity of boutiful fishing waters during the 25-yr cycles.

  26. ottovbvs says:

    Arthur Says:

    March 14th, 2009 at 8:03 pm
    You don’t need to be a forensic anything to find out that the stock market can be a great place to lose a lot of money. Obviously (?) its long term performance must not be confused with a warrantee. (Maybe we should spend a day on that in high school math class. And why is Jon Stewart’s 75-year-old mother even playing the stock market? Is she counting on living past 100??)

    ……Er these folks were invested in a Ponzi scheme which was sold as being on the level…… if they’d actually been invested in the stock market they’d have been in much better shape over the last 20 years…….And what’s it got do with Jon Stewart’s mother?

  27. AndrewShaw says:

    I brought up Jon Stewart’s mom as an example of someone who could not be expected to do due diligence. I don’t know how she was invested, but Stewart brought her up in the Cramer interview.

  28. Tahoe says:

    Blame. Why do we need to blame anyone? Sh*t happens. Uncle Bernie’s happen. Sometimes they’re big. Sometimes they’re not so big. Being aware of the risk and understanding the consequences is survival in its most elemental form. There is a risk to losing all your money NO matter where you put it. If having a ton of money is really that important then you better make sure that the safe guards you put in place are absolutely fail safe because you can’t imagine what you would do without your moeny. Of course we place our trust in many things every day. Our kids and their teachers. My cable and internet provider. I trust that my neighbour next door won’t blow me up in the middle of the night. We identify, measure and assess risk every second of every minute of every hour of every day. We don’t know we’re doing it because the 100 trillion cells that “run” our body have been trained and have learned what to be aware of, what to avoid, and what to be attracted to. We sort through this stuff in an amazing manner and we make decisions. Yes we have the right to believe in fairness. Doesn’t mean we’re going to get it. You try to “manage” your “life”, all aspects of it. I remember something my dad said. “Mistakes – as long as they don’t land you in jail or kill you, try not make the same one too often.” The five occupants of the car sitting at the stoplight that gets plowed by a cement truck driver having a bad day and choosing to drown his sorrows in vodka trusted they were reasonably safe. My sister driving to school on a chilled November Monday morning didn’t expect to get t-boned, also a drunk driver. Complete and guaranteed full avoidance of risk is not realistic. Investment decisions have to be made within the boundaries of your risk profile. And when is all is said and done it will likely be something you did not anticipate that will require a course adjustment and life makeover. Surely there are many that can be identified as sources of your woes. But ultimately it comes down to you only have control over those things you do yourself. No matter how vial and revolting somoeone else’s behaviour is its outside your control. Should we not be allowed reasonable expectations of honesty and integrity? Absolutely. Doesn’t mean we’re going to get the level that we reasonably expect.

  29. impermanence says:

    The legal, financial, medical, etc. institutions purposely render their languages opaque. The less people that understand what’s going on, the more they can take advantage. This system is all about creating dependency, not a savvy, well-educated public. Then, once people are conned into trusting, and end up getting scammed, they are blamed for not taking responsibility for themselves. What a joke. How many thousands of commercials have you seen from financial institutions imploring people to “trust.”

    Unfortunately, it is the most unbalanced among us who get to the top. Does it really surprise anybody that a great number scammers, con-artists, thieves, and other wonderful people motivated by excessive greed and the desire to get something for nothing (this society’s most virulent cancer), are omnipresent?

  30. steel breeze says:

    By any reasonable definition, Madoff’s investors were victims. Probably not the world’s sharpest investors, but still victims.

  31. Avl Dao says:

    How many commercials do you see saying, ‘Drink this beer and you’ll be popular’? How many say, ‘Use this shampoo and your sex appeal will improve 2-fold’? Uncounted numbers of commercials.

    C’mon, some of us…many of us…evidently not most of us …were taught and grew-up to believe not everything they tell us on commercials are true. Ditto for whomever we test out as an advisor.

    It is not the most unbalanced of us who do well in investing or who steer clear of sharks and scammers.
    Is to say otherwise simply offering a defeatist cop-out?

    And Tahoe: do you really think that copier machine is going to work 100% of the time you try? Do you really believe that 100% of ur cellphone calls will never get dropped?
    In middle and high school, and by college, did she always mean it when she said, “I’ll always be in love with you”?
    Humans live and then….we LEARN! We learn from mistakes and we adjust. We’re rewarded by careful observers of our environment…of copier machine reliabity…of cell phone reliability.
    Of fleeting puppy love and fickle lovers.
    Or at least most of us do.
    Let’s not make sweeping assessments of 6.6 billion humans where the fallibilities and gullibility of some get ‘cleansed’ by falsely casting them as universal 24/7/365 conditions for 100% of us.

    Let’s admit some folks are more gullible, less observant, shorter, faster, healthier, uglier than others and that there are times when it becomes apparent and generates consequences, fair or not.

  32. Arthur says:

    Didn’t mean to be obtuse (or rude) re Jon Stewart’s mother but very senior citizens should not be heavily invested in the stock market. ever. Doesn’t everyone know that?
    Many a good point in this thread, btw.

  33. drey says:

    Trusting that a kid will show up to mow your lawn as promised isn’t quite the same thing as trusting a single financial manager with your life savings – that was a truly crappy analogy.

    Make all the excuses you want for the victims – they were remiss, they know it, and now they’re paying the price. What kills me is all the good charitable work which has been lost forever…

  34. Tahoe says:

    Avl Dao Says:

    And Tahoe: do you really think that copier machine is going to work 100% of the time you try? Do you really believe that 100% of ur cellphone calls will never get dropped?
    In middle and high school, and by college, did she always mean it when she said, “I’ll always be in love with you”?

    1st Q – no; 2ndQ – no; 3rdQ – no. I thought I was saying that I didn’t think you could expect the ideal – my apologies for not being more clear with my thoughts….

  35. I’ll post this, now:

    lawn mowing=”all eggs in one basket” investing decisions..

    then, “I rely on the people that I hire to do things that are peripheral to my daily life”

    ~nice..

    and: “Given the demands on our time from work, family, customer service calls and other time-sucks, to say otherwise is disingenuous and lazy hindsightful analysis.”

    sure, let us not mention why Tax Rates, and the #’s different Taxes, exist..

    Hint: Taxes are social control mechanisms..

    and, let’s gloss over: “Madoff is a crook but Hank Paulson, Bush, Cox, Rubin, Clinton, and the “rats” in the supine court (Roberts, Alito, Thomas, Scalia+ the 5 others) make Madoff look like a piker.

    and forget the 535 we ‘elect’ as Representatives, or the 600,000+, more, in positions granted at the ‘ballot box..

    Hello, have mirrors been outlawed? yet?

    propaganda/disinfo/mis-direction, ya gotta love it, it works like a F&*$ing charm..

  36. quiddity says:

    I agree with ottovbvs’ first comment.

  37. psm2000 says:

    It is hard to trust anyone anymore. You cannot trust FDA, USDA, SEC, Audit Firms, Big Pharma, Mutual Funds (remember the frequent trading scandal), CEOs (option backdating) and on and on. Given this environment, trusting one financial manager for ALL your savings is crazy regardless of the fact that he was a so-called pillar of the Jewish community. May be that was something to do with it. Other Jewish people implicitly trusted him.

    But just because they put all their eggs in one basket does not mean that that they were entitled to be cheated. SEC is the mainly responsible and so are auditors and other regulatory bodies (NASD or whoever). You cannot expect individual investors who are not finance experts to know this.

    This is different than people losing money because of stock market drop. They should have known that the stocks are risky and they rise and fall. But Bernie is more like Worldcom (you can look up the other Bernie on the Federal Prison website…what fun) where it was out and out fraud.

    Sean

  38. AGG says:

    Barry, At first glance this looks off topic but I alledge that it is not because it shows the way PR is making suckers (victims) of us all. My point is that there is a concerted and continuous effort to define what we view as reality. This cognitive dissonance has gotten out of hand so you have lots of people seeing through it. However, we are still being “taken” because we are being denied all the information about what’s really going on. Take a look at this and think about it for a while:
    From Unknown News website–
    A cache of radioactive materials has reportedly been found in the home of a murdered American millionaire Nazi, along with “literature on how to build ‘dirty bombs’ and information about cesium-137, strontium-90 and cobalt-60. The Nazi in question, one James G. Cummings, wasn’t a Muslim, so you won’t see several days of round-the-clock headlines about his terrorist plans, though his plans were apparently better planned and further along than the infamous and wildy implausible plots to blow up the Brooklyn Bridge or Sears Tower. [ Bangor Daily News ]

  39. Avl Dao says:

    well they aint gettin any TARP funds as restitution…LOL…and it looks like the amounts left to make folks whole is a pennies on the dollar.

    As a taxpayer, no fed bailouts for Madoff victims.

  40. Pat G. says:

    When anything sounds too good to be true it probably isn’t. However, how much money was lost in the Madoff scheme which was invested my money managers through 401K contributions? Yes, as someone else here said we have other things to do, like making the money to invest. In this case, I believe I’d rank this as a shared responsibility. And the people not earning the money to contribute let alot of other folks lose money because they were either inept or corrupt. Or both. So in essence, they failed us.

  41. Arthur says:

    re confusing a “stock market drop” with Madoff’”s massive fraud: the bubble made the scale of Madoff possible. He was revealed by the end of the bubble. People not taken in by Madoff but still heavily in the market also got badly hurt. I suggest the Madoff crime and the wider collapse are highly related; in a sense they both illustrate possible results of combining greed, reduced critical judgment/oversight/critique and fraud. Good news is it’s all too human; machines have not taken over yet.

  42. mountainaires says:

    Okay, look….people do dumb things when they are suckered by a sociopath. But is that any reason why the government SEC regulators shouldn’t be held accountable for their complete failure to do their jobs in this case?! Of course it isn’t. To argue that the victims hold complete responsibility is ludicrous; the SEC is there for a reason, or so we are led to believe. Otherwise? It’s every man/woman for him/her self and the SEC should be abolished. The premise of the article, to put it bluntly, sucks.

  43. old trader says:

    “Given this environment, trusting one financial manager for ALL your savings is crazy regardless of the fact that he was a so-called pillar of the Jewish community. May be that was something to do with it. Other Jewish people implicitly trusted him.”

    There’s actually a particular name (which escapes me, at the moment) for this particular scamming technique. About a week ago, was listening to CNN radio, and a guest, who’s a financial fraud ivestigator, discussed this very point.

    If, for example, I were a Cuban (or of Cuban descent) running a scam, it would make sense I’d troll the Cuban/Latino community for victims, than, for example, a Waspish country club.

  44. awilensky says:

    All well and good, that the affinity scam engineered by the evil Madoff was enabled by willful blindness by an unsophisticated pool of investors; however, in the case of an SEC under proper governance, he may just have wreaked havoc on a good rip and run for a few good years of stealin’, rather than an untrammeled decades long reign of fire.

  45. OkieLawyer says:

    Mark E Hoffer Says:
    March 14th, 2009 at 7:36 pm

    blueoysterjoe,

    you are describing “contributory negligence”

    Mr. Hoffer:

    “Contributory negligence” occurs only in negligence cases, not in criminal cases where someone is a victim. One involves accidents, the other involves malice (intentional wrong). You never analyze cases involving intentional wrongs with accidental legal theories.

    The Madoff case was primarily one of affinity fraud.

    Something that no one has brought up, so I will:

    “Birds of a feather flock together.” The one thing I noticed in my law practice is that typically people who commit these types of crimes communicate with one another. It is very common for the fraudsters to sell the list of their “marks” to one another. Therefore, many of the victims are victimized over and over using similar, but different tactics. There are people in this world who simply incapable of protecting themselves. (Why can’t you guys get this?) Often they lack certain educational, intelligence or social skills to prevent unscrupulous individuals from exploiting them. We should protect them even though they may not know better. It is what civilized communities do.

  46. Arthur says:

    from the previous thread:

    Facts, in and of themselves are relative. Any physical property is relative. There is no such thing as “absolute” fact. Or can you give me one?

    How about:
    The SEC has been less than useless, absolutely.

  47. deanscamaro says:

    @lloydalter:

    Wow! I can’t somehow wrap my mind around hiring someone I might hire to mow my lawn versus someone to handle my life savings. Due diligence!!!! Why do people always excuse someone who does something dumb and blame the party who takes advantage of them? Sure, they are doing something bad, but you are ultimately responsible for not buying into their scheme. An old John Wayne saying, “Life is tough; its tougher if you’re stupid”.

  48. try2bamused says:

    Sorry, but Nocera is doing what the MSM does tediously well: driving while looking in the rear view mirror.

    It’s amazing to me how many people now are grabbing credit for having taken the time to “kick the tires” and who saw enough of the “very clear set of warning signs” to avoid Madoff.

    Right.

    I mean, where the f’ck have these geniuses been for the last 10 f’cking years? Sitting on their pile of cash, in the basement, sniffing glue?

    Rewind 2 years. Nobody – save for one lone analyst – had the balls to say the emperor had no clothes.

    And everybody wanted in.

  49. Marcus Aurelius says:

    ottobv is correct. Furthermore, of victim and criminal, only one commits a crime. The other may be a fool, but foolishness is not criminal.

    As for recompense, the victims will never be made whole – as victims never are. Making the victim whole is not the goal of punishment. The victims, however, should be entitled to a share of the wealth (the entire wealth) of anyone involved in the scam, at any degree of involvement.

    Anyone who was granted money by Madoff for no services, or who commingled funds with his (his wife and family, for example), or anyone who contributed to or benefitted from the fraud, should be vigorously prosecuted and have all of their assets – even those not derived from the scam – put at risk of loss, should they be found guilty of involvement. Those assets should be liquidated, distributed equitably among the victims, and the perpetrators and co-conspirators left penniless and imprisoned.

    Because they’re fucking predatory criminals.

  50. It is interesting to note that, following these same criteria, no one would have invested with Warren Buffett before Berkshire went public…

    Have you ever read anything about Buffett? The people in the Buffett partnership knew the deal going in. In fact, IIRC, they could cash out once(and maybe twice) a year. He wasn’t coy about what he was doing, unlike Madoff.

  51. OkieL,

    see context:
    http://www.thefreedictionary.com/context

    blueoysterjoe Says:

    March 14th, 2009 at 7:23 pm
    This reminds me a little of a person who is beaten up after entering a dark alley after midnight.

    It is wrong in this case to use a counterfactual in order to assign blame: IF ONLY this person had not gone into the alley after midnight, then he wouldn’t have been beaten up, therefore the assault his fault. This is not right. The person to blame is still the person who assaulted him and not the other way around.

    However, even though it’s true the victim is blameless when it comes to the commission of the crime, he does bear some responsibility for not sufficiently understanding the riskiness of environment. He is not a person acting without agency. He did choose to enter a situation that was obviously risky, and this can’t be ignored either.

    So I think it’s difficult to discuss things like blame and responsibility when it comes to any situation where 1) a crime was committed but 2) the victim willfully put himself in an unsafe situation. I think it’s important to be very clear with one’s language, because I don’t think Madoff’s victims are to blame, but at the same time, they did fail to act responsibly, and so both Madoff and the victims have some behavioral adjustments that need to be made. In the end, if people want to avoid becoming victims themselves, they need to look at this whole mess and then act responsibly and avoid these dark alleys in the future.

    Mark E Hoffer Says:

    March 14th, 2009 at 7:36 pm
    blueoysterjoe,

    you are describing “contributory negligence”

    http://legal-dictionary.thefreedictionary.com/contributory+negligence

    is not ‘the blind alley’ metaphor an example of ‘contributory negligence’?

  52. Andy Tabbo says:

    I don’t mean to go off on a Libertarian rant here…..

    But the SEC is the problem. The mere creation of a government institution “helps us” creates a false sense of security.

    The government should simply take the stance: “Hey investors. Good Luck. Y0u put money in whichever company or manager you want to invest with. Make DAMN SURE you know what your doing. Ask around. Seek advice. Pay for services that “red flag” financial firms. Do your homework. You’re ON YOUR OWN. If anyone reports FRAUD to us, we’ll investigate it like crazy and root out the criminals. The world of financial firms is too great and unlimited for us to police on our own, so we’re relying on the public to give us tips. Please report any unusual activity to 1-800-DropADime.”

    I guarantee this would be a MUCH better and enforceable policy than what we currently possess.

    The sense of “governmental oversight” is creating a false sense of security.

    - AT

  53. James says:

    Joe Nocera’s “they deserve what they got” argument is a brew that’s just a little too thin for my tastes. After all, if the argument is investors didn’t do due diligence, then what are we to say about the SEC? If the SEC with all its resources and numerous tips couldn’t turn anything up, then why should we have expected individual investors to have done any better? Indeed, one can make a pretty strong argument that the very fact Madoff had been in business so long was proof positive he had to be running a clean operation, since nobody in their right mind would have ever believed regulators could ever have been so asleep for so long.

    And it’s all worthwhile asking where the media was in all of this. How was it that the New York Times and Wall Street Journal totally missed the world’s biggest ponzi scheme for twenty years if, as Joe Nocera and Barry Ritholtz say, the red flags were everywhere?

    Me thinks there’s a little too much 20-20 hindsight going on here.

  54. karen says:

    andy, not to upset you but i wouldn’t try a voice of reason on this thread and, 2, you don’t need to sign off with AT… as we’ve got enuf white space on this site. : )

  55. Andy Tabbo says:

    James.

    You make the case. Think it through…

    What if there were no SEC?

    What would you do if there were no SEC?

    What would happen? Who could you trust with your investments? How could you possibly knno who was honest and who was not?

    Maybe…..

    A group of private investigators would be created who’s sole job and who’s sole livelihood was dedicated to making ‘good decisions’ about “who was honest and who was not” would be created. Perhaps this group motivated by money and reputation would tenaciously follow up leads by the likes of Markopolous et. al. and publish these findings for all to see…..

    Alas, what if there were no government sanctioned “ratings agencies?” What would happen then? Maybe we would get a group of ratings agencies designed for the sole purpose of “gettin’ to the bottom of things” because their business livelihoods depended on it….who would pay for shitty service when it comes to rating bonds?

  56. Andy Tabbo says:

    Thank you Karen. I’ve got a special post for tomorrow….

  57. My gut keeps nagging me that many of the people who have lost a ton of cash to Madoff would probably find it, stuffed in a briefcase, if only they checked the deepest darkest part of their closet. For those who are wondering what I’m talking about, I think there are going to end up being more ‘victims’ to this ponzi than there were actual clients. I think some people have found a way to hide some ill gotten gains down a ponzi hole. That is just my gut…..or dinner

    As for the victims of the world I’ll leave it to Jesus Who said it so succinctly. He was referring to sin but I personally believe it also works as a general principle based upon my experience:

    “Woe to the world because of its stumbling blocks! For it is inevitable that stumbling blocks come; but woe to that man through whom the stumbling block comes!”

  58. and come to think of it how do we know this whole Madoff thing wasn’t a group tax dodge? You give the guy a check for a million bucks, he gives you back $950,000, pockets his cut and you both go away scott free when the thing implodes.

    Not only that but you get to add 10% of your money to that pile every year. If you’re dealing in drugs, stolen or illegal goods….oh man! What a tax dodge.

  59. psm2000 says:

    How the Common… has a good point.

    How does IRS figure in any of this Madoff fraud? Did his fund declare cap gains at the end of the year? Did the victims pay taxes on these investments over all these years?

    If they did and most likely from other sources of income, they are out of more than the money they put in (or thought they had). So XYZ has 1 million with Madoff. With 10% return, that is 100K on which he needs to pay tax on that (assuming this was not an IRA). This is about 35K assuming high net worth individuals. I am sure Kevin Becon is not in the same tax bracket as I am :-(. So you are out 1 million hypothetical money but also $35K per year actual out of pocket money.

    A comment on what Andy Tabbo says above:
    The government institutions are there to protect us. If SEC did its job, this would have been over a long time back. If Feb/Congress did its jobs, the market would be fine (lower but w/o this drop). We are getting closer and closer to a poorer country where people do not trust the government at all. Where a cop regularly takes a bribe and passes it up the chain. Where businessmen regularly defraud government by bribing politicians. These are all signs of “third world-ness” and we are getting there much faster than I imagined.

  60. These are all signs of “third world-ness” and we are getting there much faster than I imagined.

    The whole world is becoming third world. That is ironic considering there is only one world. Leave it to mankind to manage that. I put that in the same category as a world that is 3/4 covered by water and only man could manage it in such a way that half the population doesn’t have clean drinking water. That’s not by accident. That takes real effort

  61. farmera1 says:

    I find it unfair to blame the victims. Too many people as in most of us (say 99%) get taken for too much to blame the victims. What it does say is that the system isn’t fair and stacked against the outsiders to an extreme degree. No SEC no investing is where this leads.

    How about the investors that gave money to AIG, GM, Bear, GE, Citi, etc. are they to blame? They invested in fraudulent enterprises, so they obviously are at fault by the articles reasoning.

    Same with Cramer, he pumps and manipulates stocks. Do I blame those that get taken by Crammer and his kind, no. Do I blame those that get taken by mutual funds for
    excessive costs and insider (front running) dealings. Do I blame those that invest in companies that are run to enrich the executives ( that would include most US companies) NO. There has to be some party that makes sure the playing field is at least almost flat. If not there isn’t going to be any trust or investing eventually.

    A local ponzi scheme removed several million dollars from people in my rural area. It was a “relationship” scam connected through local churches. A friend approached me about whether he should
    “invest”. I told him I wouldn’t touch these guys with a ten foot pole. He said the two people he respected for financial savy had told him the same thing, I being one of the people raising red flags. He said based on what I and his other friend had said, he wasn’t going to get involved.

    So we are to the point where I think investing in this country has changed forever. The outsiders like I am sitting in the middle west have no chance against the insiders like Crammer, the CEOs of many companies, the mutual fund managers etc. If the playing field isn’t fair, we don’t have a fair chance and shouldn’t be investing which is what eventually will happen and I think is happening now.

  62. call me ahab says:

    people in the end are responsible for their own well being- for instance if someone breaks into my house, smacks me over the head with a hammer and then steals all my valuables it would be somewhat ridicules of me to say “hey where were the police.” Also- I have been a firm believer in the motto “if it sounds to good to be true it probably is”. A person who hands his money over blindly is a fool.

  63. danm says:

    Ironically, had it not been for the 2-3 decades of excesses and bubbles, many of those people probably would not have had that much money to invest in the first place. Anybody who did not see their personal financial situation and their place in the world in light of this, were ripe for the taking.

    Too many people out there think they are God’s gift to the world and worthy of entitlements.

    I think the Madoff swindle is disgusting but his actions worked because people were gullible. It,s called symbiosis. It’s sad but they deserved eachother.

    It’s parents’ duty to educate their children in financial matters but most are not doing a good job at it, evidently, and in the end you reap what you sow.

    And the more we make these losers whole, the less they need to think for themselves and the more often swindles will occur. We are there now.

  64. globaleyes says:

    “Kicking the tires” is a good way of putting it. Mist of Madoff’s investors never questioned why his returns dramatically exceeded the rates available on 1-year treasuries. Madoff understood greed – his clients did not. Conclusion: when it comes to Madoff investors, the smarter you are, the dumber you look.

  65. danm says:

    I have some money in a long/short strategy being executed by Mish’s firm, but the custodian is a major online broker. Is that dumb or not? I don’t really know these people, but they are showing non-correlated returns that are pretty good. I was impressed enough to try it. Am I greedy and blameworthy for looking for a work-free 8-12% annual return? From a blogger, even!

    Anyway, here I am admitting my greed for a respectable return that is not tied to the general market performance, where my only duty is to supply the capital. Do I deserve to lose my investments that are allocated to these strategies?
    ————————————

    I find your comment disturbing.

    You obviously understand the risk. So if you lost your money, you’d want me to pity you and help you fight to get your money back when I, applying the same logic, chose a safer investment generating lower returns?

    You don’t *deserve* to lose your money but in the end you will get what is coming, whatever that is. And if it’s a loss, you can be disappointed but you have no right to be surprised because you knew it was one of the possible outcomes!

    What is wrong with you people?

    Let me tell ya… you Americans are so out of touch with reality, it’s not funny. You are living on a different planet from the rest of the world. It’s a dangerous world out there, wake up! Especially when Americans are forcing their way of life down your throat for their own benefit, under the pretext of democracy. You Americans are now getting hit at your own game and you are still oblivious to it all. The enemy is within.

  66. OkieLawyer says:

    Mark E Hoffer Says:

    March 14th, 2009 at 7:36 pm
    blueoysterjoe,

    you are describing “contributory negligence”

    http://legal-dictionary.thefreedictionary.com/contributory+negligence

    is not ‘the blind alley’ metaphor an example of ‘contributory negligence’?

    No, it’s not. (In fact, I was thinking of responding to that very post for the very same reason.)

    See a similar principle in embezzlement:

    More often than not, embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done without their knowledge or consent. Often it involves the trusted person embezzling only a small proportion or fraction of the funds received, in an attempt to minimize the risk of detection. If successful, embezzlements can continue for years (or even decades) without detection. It is often only when the funds are needed, or called upon for use, that the victims realize the funds or savings are missing and that they have been duped by the embezzler.

    The crime is meant to evade detection. All crimes of confidence are. Consider also that many of the early victims cashed out successfully. Given this, are the later investors “walking into a blind alley?” I don’t think so.

  67. grumpyoldvet says:

    You know it isn’t just the SEC that’s been corrupted. Take a look at what been going on in the FDA, Consumer Safety Commission, etc. For years, since the sainted Ronnie Raygun, became President, we’ve been told the government isn’t the solution, it’s the problem. Well we have reaped what we have sown. We believed his bullshit, free markets, the market is always self-regulating and all the other nonsense that’s been fed to us in the name of “individual freedom”. We need a reality check here and maybe realize that stripping government of all regulations, or easing up on regulations is not the answer.

    While many here are intelligent enough to do due diligence on financial advice, drug testing, etc. many today are stressed to the breaking point. How many are working more than 40 hrs per week, having both partners working full time, dealing with children’s homework, sports activities, evaluating whether the schools are teaching their children instead of robotizing them with tests, etc. Maybe we need to re-evaluate our thinking of the last 30 years.

  68. danm says:

    Often it involves the trusted person embezzling only a small proportion or fraction of the funds received
    ————-
    There were quite a few red flags. Two important ones are:

    1. Assets in trust with him.
    2. The auditor was a one man show.

    Even if his stuff had been legit, it’s a lot of power in his hands.

  69. OkieLawyer says:

    @ grumpyoldvet:

    The conservative/libertarian axis complains about government not working after they have effectively sabotaged it.

    The conservative/Republican/Libertarians campaign on a theme of “Government doesn’t work. Elect us and we’ll prove it to you.”

    @ the rest of you:

    The SEC (or any other government agency) is part of the police powers of the state. The fact that they have to exist should be evidence to you of how many businesses cannot be trusted. (And yet our entire economic system is based on trust. Even the word credit comes from the Latin word credo which means faith.)

    Here, watch The Ascent of Money when you have some time.

  70. gloppie says:

    Greed makes people stupid.
    That statement is even clearer when one realizes that competition is a loosing strategy at the group level.
    Cooperation is the only winning strategy at group levels.
    I believe this market will keep going down, and a lot of “investors” have still yet to realize how greedy (stupid) they were.
    I do not think the state should spend one dime to make good for the Bernie Madoff victims losses.
    Yes these are victims, but they are not hurting. I think homeless people deserve more help first.
    I think Bernie should be sent to a slum somewhere to learn how to survive form other people’s trash.
    And it should be made into a documentary.

  71. dead hobo says:

    And if you asked the modern Republican Party about how to prevent this form of bad behavior, the answers would probably be

    1) lower taxes
    2) Cut spending, expect for pet Republican projects.
    3) Let the markets regulate themselves
    4) We need the right judges on the federal bench and Supreme Court
    5) Expect foreign entities to do what the USA tells them to do and shut up about it.

    Of course, this has nothing to do with the problem above in any respect. It’s just the stock answer to everything.

  72. deanscamaro says:

    @grumpyoldvet
    “Maybe we need to re-evaluate our thinking of the last 30 years.”

    I think you have said it all right there! Slow down the pace and stop the herd mentality. You don’t have to keep up with the neighbors, buy the bigger SUV or house, putting yourself into deeper and deeper debt, just because everyone else is. We need to get away from the herd mentality and not decide we need to put your investments into a scam that sounds too good to be true (because it probably isn’t), just because all our friends or associated people in a group do (Quick, jump in because everybody else is, so it must be good! We don’t want to miss out!). Everyone is responsible for their own actions.

    I think expecting an organization like the SEC to protect us from everything is wrong. There are two different paths here: 1. We need to be careful, protect ourselves and perform due dilligence. 2. We need to put something in place to minimize the scams out there in the world. Just because there is something in place like the SEC to help minimize scams, doesn’t mean we can just lean back and forget about being careful with our own decisions.

  73. Famous line from Animal House: “You fool! You trusted us.”

    And here’s the unexpurgated version ;)

    So, the world is to be run by Animal House rules?

    Fat, drunk and stupid is a GREAT way to go thru life, son! ;)

    My advice to you is to start drinking heavily…

  74. sunny45 says:

    Who said LIFE is fair?

    You come into this WORLD alone and leave it ALONE! Take responsibility for your action. If you don’t know the rules of game, don’t play. Shake that ‘poor me’ syndrome. No body owes you anything for the action you took. Accept your KARMA and move on!

    Remember, there are 2 Billions on this Earth earning less than a $ a day! Count your blessings!

  75. ronin says:

    A fool and his money are soon parted.
    (Sorry if someone else quoted this above but I didn’t bother to read all the comments.)

    A true story:

    Someone contacted me in Asia and said, “Dear Bud, can you help raise money for this fund?” I said, “That depends, let me take a look.”

    Well, the very first thing I did was Google the fund manager’s name–WOW, WHAT THAT WILL DO FOR YA!!!!

    I told the person that called me to shove it (in so many words).

    According to several articles I read, that’s the amount of due diligence you had to do on Madoff.

    It ain’t rocket science!

  76. dead hobo says:

    Dr. Kenneth Noisewater Said:
    March 15th, 2009 at 11:15 am

    So, the world is to be run by Animal House rules?

    Fat, drunk and stupid is a GREAT way to go thru life, son! ;)

    My advice to you is to start drinking heavily…

    Comment
    ———————————-
    Excellent words to live by.

    BTW, the world IS run by Animal House rules. Haven’t you noticed? Look at a few headlines in the papers. The only words missing are “You shouldn’t have trusted us.” Why would a predator warn it’s prey? Criswell Predicts “this will happen again.”

  77. Avl Dao says:

    These reader’s comments are a great complement to TBP’s 3/14 thread, “Monkey Boy” on evolution, human behavior and human decision-making skills.

  78. superubero says:

    I would so love to see the list of all the people who “kicked he tires” and walked away from Madoff. Time to let the cream rise to the top and give credit where it’s due

  79. dgov says:

    Hoffer,

    Go get a JD if you want to be a lawyer. The first sentence from your link to Wikipedia is as follows:

    “Contributory negligence is a common law defense to a claim based on negligence, an action in tort.”

    If you don’t understand what that sentence means it’s probably because you are unaware that tort law and criminal law are two completely different bodies of law. You have just made a mistake that would get you laughed out of a second-year criminal law class, and yet you expect us to be impressed by your Wikipedian education?

    We are not impressed.

    dgov

  80. dwkunkel says:

    The same people that claim they don’t have time for due diligence when it come to investing will spend days on research before buying a car.

  81. dgov,

    w/this: blueoysterjoe Says:

    March 14th, 2009 at 7:23 pm
    This reminds me a little of a person who is beaten up after entering a dark alley after midnight.

    is he not descibing a tort?

    past that, I’m looking to impress anyone, I was merely providing reference..

    though, to be clear, it was “the free dictionary”, not “wikipedia”

  82. dgov says:

    Hoffer,

    Yes and no. Let me apologize first for lashing out at you. But in this context, I think we’re clearly talking about criminal battery. Yes, you could sue the dude in the alley who beat you up under tort law, but in the first place, he’s almost certainly already going to have criminal charges brought against him (like Madoff), and contributory negligence is going to be no defense to those criminal charges.

    When you’re talking about a crime like embezzlement or criminal battery, it doesn’t matter how naive or credulous the victims were because there is no defense like contributory negligence in criminal law. Yes, you’re right, you could analyze the battery in the alley example under tort law, but the alley analogy only makes sense if it involves criminal battery: otherwise, it wouldn’t be a useful analogy.

    And of course the analogy is useful precisely because it shows that we shouldn’t be talking about how much blame to assign the victims when the question is irrelevant under the applicable body of law.

    dgov

  83. dgov,

    I hear you. there is, indeed, a grand gulf between the Law of Torts and Crim. Statutes.

    I brought up “contributory negligence”, primarily, due to my reading of this:
    “…However, even though it’s true the victim is blameless when it comes to the commission of the crime, he does bear some responsibility for not sufficiently understanding the riskiness of environment. He is not a person acting without agency. He did choose to enter a situation that was obviously risky, and this can’t be ignored either.

    So I think it’s difficult to discuss things like blame and responsibility when it comes to any situation where 1) a crime was committed but 2) the victim willfully put himself in an unsafe situation. I think it’s important to be very clear with one’s language, because I don’t think Madoff’s victims are too blame, but at the same time, they did fail to act responsibly, and so both Madoff and the victims have some behavioral adjustments that need to be made. In the end, if people want to avoid becoming victims themselves, they need to look at this whole mess and then act responsibly and avoid these dark alleys in the future.”
    esp. : “he does bear some responsibility for not sufficiently understanding the riskiness of environment. He is not a person acting without agency. He did choose to enter a situation that was obviously risky, and this can’t be ignored either.

    So I think it’s difficult to discuss things like blame and responsibility when it comes to any situation where 1) a crime was committed but 2) the victim willfully put himself in an unsafe situation…”

    from boj’s metaphor, above.

    this: “And of course the analogy is useful precisely because it shows that we shouldn’t be talking about how much blame to assign the victims when the question is irrelevant under the applicable body of law.”
    – though, is a useful distinction that, for too many of us, is usually not seen/lost in these types of ex-post analyses..

    though, again, I thought the principal of “contributory negligence” was useful, in theory, in this application, because it delineates the old adage that : “it does take two to tango”, and with that, in many regards, we should wonder about how of these “ills” we are, in fact, feeding..

  84. This thread may have passed by already, but for the record:

    AT is right. And, too, everyone that blamed the SEC.

    The SEC didn’t do its job, but it never does, and couldn’t possibly. It only gives cover to con artists like Madoff. If you asked the con artists on Wall Street, they would probably tell you the best thing that ever happened to Ponzi schemers was the false security the SEC blanket provides their victims.

    The victims appear to have lost pretty much everything. While, if Madoff had actually been investing the money in the stock market, they would probably be down about 50%. Better than nothing, I suppose. But unless you are prepared to lose everything you shouldn’t invest in stocks, or invest with somebody that does buy stocks, or at least says they do. Stocks can, and occasionally do, go to zero. There’s no law that says they can’t or won’t.

    Being prepared to lose all of your money is all the due diligence you need before investing in stocks, which these victims unfortunately did, if for the wrong reason.

    And one other due diligence item: Never, never, never invest w/ someone that you discovered through your religious affiliations. If somebody needs the cover of not only the SEC, but also God to make you feel comfortable investing with them, then you’d do better to hide your money under a mattress. My rule here in the Bible belt is never to do business that anyone that tells me they’re Christian. If they’ve gotta tell me, i.e., I can’t figure it out from their actions, you gotta believe they ain’t gonna behave like one in their business dealings.

  85. kandyman says:

    “When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.” Untrue.
    Bank of New York, Bank of America, Citigroup, Bank Medici, Tremont, HSBC Holdings, Royal Bank of Scotland Group, Grupo Santander, BNP Paribas, Nomura Holdings are on the list. These are the biggest of the big. Their worldwide resources said it’s OK. Are you, a little with no formal education but owns a couple carwashes, going to say you know better?
    “Not only did they ignore all of the Madoff red flags, many of them put all of their monies with one single manager”.
    Duh. Why wouldn’t they? Financial education isn’t taught in schools or in immigration classes, y’know.