CNBC on the “Scam of the Century”

CNBC delves into the Bernie Madoff story tonight at 9 p.m. E.S.T. For those intrigued by white-collar crime, this should be quite an interesting show.

I’m still struggling to understand how a fund that claims to have $17 billion in assets can have defrauded investors for $50 billion.

Had he also borrowed $33 billion that he will never repay, so that $17 billion plus $33 billion adds up to $50 billion?

(Hat tip: Gary Zeune)


Charles

I couldn't agree more this story seems to be marked by the breathless rush for headlines even when the don't seem to make a great deal of sense. I want someone to start to explain how they get to their massive $ losses - how much of this loss is real, how much is theoretical based on promises made to investors..

Troy Camplin

I guess that would make the Social Security program the biggest scam of the 20th century, as it is essentially the same kind of Ponzi scheme, only done on a grander scale -- and done by our government. Another example of something our government does that is illegal for private individuals to do. There's no equality under the law when it comes to government. Some animals are more equal than others.

Hunter

Easy - you took $33B and put it in your pocket or paid "dividends" to your earlier investors. It never went onto the balance sheet. An investor's statement only tells how much of that investor's money is in the fund. It doesn't break down *everybody's* share.

$50B is probably the running total Madoff kept in his head - the magic number he needed to "make it right" to all the people he has ruined.

So the outstanding obligations of the now-defunct fund is probably $67B. And the fund had a nominal $17B to distribute to meet those obligations.

jonathan

He didn't 'manage' funds but said he made his money off commissions. The performance fees were passed on, for unintelligible and now obviously fake reasons, to the fund of fund investors who were supposed to do diligence on Madoff. (Can you say "lawsuit"?) The point is he took in perhaps $50B from a wide number of sources but the amount added up publicly is only that which appears in the fund of fund materials, plus maybe a little bit. If he said he took in $50B, it wouldn't have been a Ponzi.

BTW, check out the monthly returns. They don't meet Benford's Law.

Ari

$17billion is what the SEC showed he was managing. That is all he reported. But reports are coming out he managed much more, had many more clients, but didn't report them. He had three sets of books at least. $17 billion is the amount he showed and he was able to cover up redemptions with money out of his other stash, until redemptions shot up in the wake of recession.

Len, San Diego

I recall in my days as an investment adviser receiving at least 2 audits from the SEC. These were extensive audits and for two week you couldn't get these guys out of the office. I would always joke with them that my small operation was not successful enough to be doing something dishonest.
What I find difficult to believe is that the Madoff scam could pass two SEC audits in the past ten years. How could something this colossal miss their scrutiny.? We should begin our investigation with these SEC audits and attempt to uncover how their auditing procedures could have gone so far astray.

Bob

According to Harry Markopolos (one that report to SEC and try to verify Madoff strategy), the loss amount in range of $20 - 30 billion, and it seems Madoff want to grandeur(?) himself.

Or it could be that Madoff simply just did not record some of his clients and he forget all along, complicated with the return and principal, since it only appear in the statements each month with no fund available.

It is hard work for SEC to verify the estimated amount and list of victims. The danger is that it could be that some unverified clients included in the list of victims. Moral hazard all over again?

deepak

Did someone tell me $50 billion!!!!
No one knew!!!!
Clients like HSBC and RBS ???
Action should be taken against the big bankers and SEC

Mike S.

I believe the global warming scam is bigger.

Lee

#6 Len - I had the same experience with the SEC and CFTC. When I was managing some portfolios I had legitimate hedge positions which included futures and options. One of my clients who also gets trade confirmations started to piggy-back on some positions which doubled or tripled the open interest in the particular contracts. I got a call and a visit to explain why the trades are bunched up and follow my trading positions. They (SEC and CFTC) come down hard on us who try our best to comply while they ignore the big guys who could afford lawyers or bargain their way out of trouble.
An early sign of a Ponzi scheme is the rate of return which far exceeds the norm. One should question how the fund manager can attain such returns consistently or even defy market downturns. Some people I know got taken by Dominelli in the late 80's on what eventually was a classic Ponzi scheme. See the pattern evolving with these "confidence men".

http://www.allbusiness.com/legal/legal-services-litigation/10622712-1.html

Read more...

Maid'n

Would any of you guys mind telling me the name of the book where you can see tons of funny charts, curves and data interpretation?

(unusual data interpretation) If I remember right it is by a female economist?

I remember seeing it in a post (in this blog) several times, I have a complete black out, and can't find it in the previous entries

I would certainly appreciate it, thank you all!

; )

cjc

Could it be that his clients thought that their total portfolios were worth $50B, but had really invested $17B? 10 years of 1%/month returns gives you around $50B from an initial $17B investment.

Billy

Maid'n. Type "indexed" into google.

Casey

Losses can exceed total value if leverage is used. If an investor put in $100 into one of the "feeder" funds (which is where Madoff got a lot of his money), but the feeder fund then borrowed money to increase returns to make up for the extra fees they charge, more than $100 is at risk.

Jack

The problem is that it is much too early into the scandal to be airing a report on it. Many facts are yet to be uncovered. CNBC should postpone this special

Steve

"I believe the global warming scam is bigger.
- Mike S."

Yes, when GW is finally proved beyond a doubt, the 25 year delay in dealing with it will be traced to a small number of scumbag scientists (using the term loosely) who have pocked millions spouting the line favorable to the polluters and fundamentalist right wing scum. The extra cost will be trillions and the only billions will be the lives lost.

the jokestir

An explanation of this is easy--it's called taking "from Peter to pay to Paul", "double entry book-keeping" or the double standard. Now I think I understand religions and not only ours.Why hadn't I thought of this before?

Troy Camplin

Yes, Steve, when GW is finally disproven beyond a doubt, the 25 years of dealing with it will be traced to a small number of scumbag scientists (using the term loosely) who have pocketed millions spouting the line favorable to the socialists and Marxist left wing scum. The extra cost will be trillions and the only billions will be lives lost.

The same kinds of simplistic, linear, deterministic models used for justify socialism are the same ones used to justify global warming and "climate change."

simple and real minded

Dear Troy;

I don't know where you are getting your information from, but it clearly is not from the facts. if it were, you would not have started off with an assumption . Scientists ask questions we don't know the answer to-

John K.

Troy (19),

There are far more justifications for socialism than "simplistic, linear, and deterministic models." Look around you.