Financial+Fraud

Dec 15th 2008 $17 billion of investors’ funds that his firm supposedly held earlier this year have all but evaporated and the hole could be as big as $50 billion. That would make it the biggest financial fraud in history. Details are still emerging, but Mr Madoff has himself described it as a giant Ponzi scheme. Returns came not from real investments but from influxes of money from new clients. Redemption requests for $7 billion, by investors looking to pull back from turbulent stockmarkets, forced Mr Madoff to admit that his coffers were empty   The affair has robbed an embarrassingly long list of supposedly sophisticated investors. Mr Madoff, impressed investors by the steady returns: 10-15% a year, even in rough times, with barely a down month. Global banks such as Banco Santander, BNP Paribas and HSBC, all three of which had until now survived the credit crisis relatively unscathed, are among those reported to be heavily exposed. So too is Bramdean Alternatives, a fund run by Nicola “Superwoman” Horlick, a celebrated British money manager. Several well-heeled Americans have reportedly lost everything but their properties.  A former chairman of the NASDAQ stockmarket, he has long been a fixture on Wall Street. He even has a tax exemption named after him. He has served on an advisory committee assembled by the Securities and Exchange Commission (SEC), America’s main market watchdog. Savvy marketing : Investors had to be invited, lending his operation an air of exclusivity. The firm had been investigated for “front-running”, using information about client orders to trade for its own account before filling those orders.  no one but he had full access to the accounts. As a broker-dealer, it was able to clear its own trades, a privilege that should give pause for thought. his books were audited by a tiny, three-person accounting firm. The SEC, did not get round to examining the books of Mr Madoff’s money-management business, even though he registered it with the commission in September 2006—though it did probe the market-making arm and found that it had violated some technical rules. For an agency that is fighting for its life, that is unfortunate. Even before this scandal the SEC was on the back foot, having stood by as the big Wall Street investment banks it was charged with policing ran amok. In its defence, the commission argued that its primary role was investor protection, not prudential regulation. Now it has been shown wanting in its core competence—though, with 11,000 fund managers to oversee, not to mention the boom in mortgage-related cases, some may think it inevitable. Congress is next year expected to revamp America’s dysfunctional system of financial regulation. One option, already proposed by Hank Paulson, the outgoing treasury secretary, is to fold the SEC’s responsibilities into a new set of agencies. Indeed, it makes Charles Ponzi’s promise in 1920 to double investors’ money in three months—which caused losses equivalent to around $160m in today’s money—look like a trifle.
 * Financial Fraud **
 * Bernie Madoff's pyramid scheme robs investors of $50 billion **