$50 billion at stake after Wall St broker Bernard Madoff is arrested over ‘world’s biggest swindle’

Times Online ^ | 13 Dec 08 | Tim Reid

[SkyPilot]

Some of America’s wealthiest socialites were facing ruin last night after the arrest of a Wall Street big hitter accused of the largest investor swindle perpetrated by one man.

Shock and panic spread through the country clubs of Palm Beach and Long Island after Bernard Madoff, a trading powerbroker for more than four decades, allegedly confessed to a fraud that will cost his wealthy investors at least $50 billion – perhaps the largest swindle in Wall Street history.

Mr Madoff, 70, a former Nasdaq stock chairman, was apparently turned in by his two sons and arrested on Thursday morning at his Manhattan apartment by the FBI. Andrew Calamari, a senior enforcement official at the US Securities and Exchange Commission, described the scheme as “a stunning fraud that appears to be of epic proportions”.

[CutePuppy]

Hey! He had one or two token Republican donors! That way, the MSM can say he was bipartisan in his corruption

Exactly, they understand well and extend the concept of "useful idiots". It's that kind of duplicity, "truthiness" and lying by omission that is most maddening about our "esteemed" media.

[Liz]

"It appears that at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven.'"

Hah.

I do not believe the so-called "investors" sob stories for a nanosecond.

As the bard of Avon wrote: “tis better to be thought a hapless victim of a Ponzi scheme than to admit to tax evasion.”

The warning signs were there for all to see:

STEADY RETURNS UNDER EVERY MARKET CONDITION---whether up or down

ASSETS ESTIMATED AT $13B BUT Madoff's FILINGS SHOW HOLDINGS OF LESS THAN $1B IN SHARES.

Impossible to believe astute businessman who made fortunes in competitive businesses would allow themselves to be scammed……unless......these elites were in collusion with Madoff to engage in a massive tax evasion scheme.

That would explain why savvy, astute businessmen people were giving this guy huge sums ---$100-500 million--- to “invest.”

Keep in mind, at the end Madoff was left with some $300 million out of $50 billion. That much money does not just evaporate.

Apparently Madoff kept a cut of the “investment” and wire-transferred the bulk offshore to friendly money laundering havens.

The whole scam crashed b/c Madoff probably wanted a bigger cut but the "investors" refused.

[SkyPilot]

You're right. And I should not have asked. Sorry.

[SkyPilot]

Impossible to believe astute businessman who made fortunes in competitive businesses would allow themselves to be scammed……unless......these elites were in collusion with Madoff to engage in a massive tax evasion scheme. That would explain why savvy, astute businessmen people were giving this guy huge sums ---$100-500 million--- to “invest.”

Liz,

As usual, you are astute. Not trying to just polish your apple, but that is exactly what I was thinking.

There is going to be some NYC meltdowns before this is over. Don't go investing in any high end restaurants this spring.

[ovrtaxt]

Here's a chart of how it breaks out. Here's a link to the formula.

In the final analysis, this banking method creates new money from nothing, in the process devaluing all other existing money in circulation- of the same currency.

This is exactly why counterfeiting is illegal- it's theft from all other holders of the counterfeited currency.

Amazing that fractional reserve banking is even legal- it's the greatest fraud going today. Just remember- gold is their mortal enemy.

[Liz]

It's ludicrous to believe astute businessmen would put all their eggs in one basket and give Madoff hundreds of millions to "invest." There is more here than meets the eye.

There are a zillion ways Madoff and his investors could have pulled off massive tax fraud.....using "tax-exempt do-goodism" as a cover. ONE SCENARIO The money is passed to tax-exempt non-profit entities, Madoff and the entity take a cut, then wire transfer the bulk to numbered bank accounts offshore for the "investor" at a later date. Madoff might also have distributed falsified "loss" statements to investors to defraud the IRS.

REFERENCE

MY EMPHASIS----- New York "charities" scrambled to cut ties with longtime trustee Bernard Madoff, and one nonprofit group that "invested" with him was forced to shut down.

The Robert I. Lappin Charitable Foundation, which promoted Jewish education, fired its staff and closed yesterday, "effective immediately." "The money [is] gone," said foundation trustee Robert Lapin, who added that the charity's money had all been invested with Madoff's firm.

Madoff was deep into do-goodism. News reports srecounted that he raised millions for Jewish groups. On Friday, as the scam unfolded, he resigned as chairman of Yeshiva University's Sy Syms School of Business and as it's board treasurer (HOPE THEY CHECKED THEIR BOOKS). Yeshiva's board scrubbed all mention of Madoff from its Web site.

At Hofstra University, a stunned board held an emergency meeting and voted unanimously to put Madoff "on leave."

Madoff also sits on the boards of (a) North Shore-Long Island Jewish Graduate School of Molecular Medicine, (b) the Picower Institute for Medical Research and (c) New York City Center, a theater organization.

With his wife, Ruth, Madoff also runs a "self-funded non-profit, with about $19 million in assets," according to the latest IRS filings. The couple has given millions to Jewish charities, the Dalton School, the Metropolitan Opera, Queens College, Lincoln Center Theater, the Robin Hood Foundation, and groups for underprivileged kids.

SOURCE http://www.nypost.com/seven/12132008/news/regionalnews/charity_trustees_a_bustee_143968.htm

FReeper Dave has posted extensively about tax-exempt non-profit fraud.

[CutePuppy]

STEADY RETURNS UNDER EVERY MARKET CONDITION---whether up or down

In fairness, that WAS a big selling point of hedge funds, accurately or not, because they were mostly doubling down and using leverage with some downside protection on the market that was mostly going up since November 1994 (Gingrich Revolution), or traded on insider information and "special situations". Excessive leverage (up to 100:1) was how LTCM blew up in 1998.

ASSETS ESTIMATED AT $13B BUT Madoff's FILINGS SHOW HOLDINGS OF LESS THAN $1B IN SHARES.

That's just shares of individual companies that are required to be listed on SEC 13-HR quarterly forms, and sometimes in 13-G forms, among others. Bernie was mostly using S&P index trading strategy with options - see NY Post article reference in my post here http://www.freerepublic.com/focus/bloggers/2147748/posts?page=8#8

Here is the info on his latest SEC listed shares in individual companies.

As the bard of Avon wrote: “tis better to be thought a hapless victim of a Ponzi scheme than to admit to tax evasion.”

Very good and probably accurate observation re individual investors investing in tthese kinds of funds. Mixed with huge sums of other funds and "funds of funds" invested with Madoff for management, it's easy to move them anywhere, including donations under the radar to political campaigns.

Everyone marveled how Obama could raise such huge sums of money, much of it from untraceable sources - McCain Couldn't Compete With Obama's Money - WSJ OpinionJournal.com. This reminds me a lot of the Clinton's Norman Hsu's strategy of "reverse Ponzi scheme" where money went into the "investment fund" with the goal of being distributed (or reimbursed) to small political donors. Only Obama's fundraising was done on a much larger scale and much more quietly, using Internet and small transactions - exactly like trading in stocks when buyer doesn't want to "show" large accumulation or distribution of trades. It seemed to me that Obama's "bundlers" ("handlers", really) made Clintons look like pikers in the fundraising game...

... And combined with sudden and deliberate tanking of financial markets (and subsequent freezing of liquidity which kills the economic activity) in the early to middle of September (short-selling attacks on Lehman, Merril, Morgan Stanley et al - see Anatomy of Morgan Stanley Panic and keywords shortselling, econoterrorism, financialterrorism, sorostm) it provided more money to them, and all but assured Obama's victory.

Additional wrinkle to the theory - some of this "donor" money now could be claimed as a tax loss write-offs to offset the gains, this year and in the future. Not too shabby, mixing [financial] business with [political] pleasure.

[Liz]

Everything Madoff did is suspect and cannot be rationalized against existing measures---he did not give a fig about laws, rules and regulations.

EXCERPT Madoff was single-handedly managing billions of dollars in offices he kept separate from the rest of his firm........The only oversight was conducted in a Rockland County accounting office only slightly larger than a cubicle. The firm's main office was in NYC.

Madoff made his fortune embracing the latest and best technology, BUT he forbade investors to get online access to their accounts, insisting instead on paper printouts....

For well over a decade, competitors and experts said they found Madoff's track record suspicious. He seemed immune to any volatility in the market and, no matter what was happening in the economy at large, managed to finish each month with almost identical profits. . Madoff dismissed attacks as envy and said critics simply did not understand the complexities of his strategies.

Aksia LLC was hired to investigate Madoff several years ago, said principal Jake Walthour. The probe only increased the concerns about the fund. Madoff's returns were "abnormally smooth" from month to month, and it seemed impossible to replicate his investment strategy or verify his track record.

Madoff claimed to be moving as much as $13 billion in and out of the market every month, but "no one on the street could verify it or even see his footprints," Walthour said. "That organization was incredibly secretive." When they staked out the tiny accounting firm no one had ever heard of, investigators concluded something was amiss. "We decided there are several scenarios here, one of which is, this could be a Ponzi scheme," Walthour said.

Those who have invested in the fund have told investigators that withdrawing cash from it was an arduous process that involved faxes and inexplicable delays. That's because in a Ponzi scheme, money from new investors is used to pay those seeking to withdraw their money.

SOURCE Bloomberg and NY Post wire reports

http://www.nypost.com/seven/12132008/news/regionalnews/alarm_bells_in_1999_ignored_143971.htm

[SeekAndFind]

That's because in a Ponzi scheme, money from new investors is used to pay those seeking to withdraw their money.

Isn't this essentially what they're doing with our social security money ? Who is going to get arrested for doing this ? It's hundreds of times bigger than Madoff's ponzi scheme.

[Liz]

Everyone marveled how Obama could raise such huge sums of money, much of it from untraceable sources - This reminds me a lot of the Clinton's Norman Hsu's strategy of "reverse Ponzi scheme" where money went into the "investment fund" with the goal of being distributed (or reimbursed) to small political donors. Only Obama's fundraising was done on a much larger scale and much more quietly, using Internet and small transactions - exactly like trading in stocks when buyer doesn't want to "show" large accumulation or distribution of trades. It seemed to me that Obama's "bundlers" ("handlers", really) made Clintons look like pikers in the fundraising game...

FReeper Calpernia turned us on to ID theft used in campaign fraud---wherein stolen disks loaded w/ names and personal info are converted to campign filings to satisfy FEC requirements.

[CutePuppy]

FReeper Calpernia turned us on to ID theft used in campaign fraud---wherein stolen disks loaded w/ names and personal info are converted to campign filings to satisfy FEC requirements.

Correct. But actual money, and massive amounts of it, had to come from somewhere, and these types of schemes (which we first learned about with Clintons' bungling "bundler" Norman Hsu) where the money from wealthy political interests (from individuals to countries) would be funneled to campaigns via "investment funds", which later may or may not be claimed to be "Ponzi schemes".

The "unraveled" Ponzi scheme would then cover both the tax evasion (money moved offshore or invested off the books somewhere) and provide sizable tax deductions and write-offs (due to "investment" loss) on future gains.

McCain got hoisted on his own CFR petard.

[CutePuppy]

Isn't this essentially what they're doing with our social security money ?

Yes, only government calls it "pay-as-you-go", so it makes it legal and perfectly "safe". Nothing to worry about...

[DB]

It was paid as dividends on investment.

So the fact of the matter is, the earlier “investors” likely got their money back and then some.

It was the “investors” that were late to the party that lost everything.

[DB]

Generally it is always illegal to do what the government does. They don’t like competition...

[DB]

Greed.

[GOPJ]

I was visiting Brazil on business when the Cruzeiro collapsed. US dollars became very popular.

The dollar's worth was well known. If we have a currency collapse, what currency could we use? Also, many of us are far far away from barter - ours is an airy type economic system - castle in the clouds ... What does the supply side manager give the stock broker? Or the writer give the printer for trade to live?

[GOPJ]

So the fact of the matter is, the earlier “investors” likely got their money back and then some. It was the “investors” that were late to the party that lost everything.

Why would earlier investors get out? Seems they would invest more...

[DB]

I was saying they got their money back in interest payments over many years, not that they withdrew it. Essentially the “lost” $50 billion was mostly paid out and that’s why there’s little left. Had “investors” reinvested the dividends the principle would still mostly be there.

Also, if you have truly big bucks paying high dividends you don’t need to reinvest it, you’ve already got it. Now you enjoy it by spending it.

[Chunga]

Don’t expect too much from Calamari. The man has no backbone.

[fortheDeclaration]

[Real money is not an illusion but is based on the fact that it actually has some value as a commodity. It is paper money that is an illusion.]

Actually, money, paper or otherwise, commodities, services, real estate or whatever are worth what people will pay for them. "Money" is just a surrogate for things that people value. It's value that is highly illusory, subjective and, as anyone who owns California real estate knows, very fragile.

Well, that is true, all value is subjective, but real money (such as gold), as a medium of exchange, can always be traced back to a real commodity value.