Monday, December 15, 2008

Madoff throws $50 billion into the toilet: Wall Street's largest securities fraud ever; what about "right from wrong"?

Apparently the $50 billion sinkhole created by Bernard L. Madoff is the largest ever securities fraud in the nation’s history. The fact that the ponzi scheme seems to have gone on since about 1991 right in front of the nose of the SEC without anyone’s noticing (almost; there were flurries in 1992 and 2001) makes one wonder if there are more of these out there. Madoff's crimes make Martha Stewart's publicized indiscretion in 2001 seem like a traffic ticket.

So far, most of the damage seems to be to wealthy investors and charities, but some were completely wiped out. New York Times online has a story by Ian Urbina (published Dec. 14) “A Palm Beach Enclave, Stunned by an Inside Job” with a cloudy picture of the Palm Beach Country Club, link here. The print version of the New York Times Monday Dec. 15 showed the round building on the East Side where Madoff conducted his “black ops” in secret on the 17th floor. (Remember, the "proles" live in West Palm Beach, which is much larger in population; and Belle Glade, a third world migrant enclave on Lake Okeechobee, is but 50 miles away.

It’s not clear if the losses are likely to affect the mutual funds of “ordinary” investors and retirees, but NBC reports it is spreading to “smaller investors” who did invest directly with Madoff.

The scheme seems to have consisted of paying off established clients with money deposited by newer clients, without real investment. Yet Madoff was able to produce normal looking accounting statements.

All of this is quite confounding, considering the fixes supposedly in place after the Enron and WorldComm “cooked books” and collapses.

Another story in the Monday Business Day "Fleeing Investors Put a Strain on Funds" by Geraldine Fabrikant, indicates that other investors are pulling funds out of reputable investment boutiques and hedge funds, to cover positions elsewhere, but also out of fear of more undisclosed scandals. Hedge funds often slow the practice down with a practice called "gating."

In fact, I remember that ABC "Nightline" covered Enron’s collapse Dec 12, 2001, the night before my own layoff from a financial services company.

All of this went on under the noses of Bill Clinton and George W. Bush. How can we toss away $50 billion and nobody sees it?

There will be a lot more execs from Wall Street led away in handcuffs, I hope. Doesn’t anybody on Wall Street know basic right from wrong?

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