Madoff's fund may not have made a single trade

Bernie Madoff's investment fund may never have executed a single trade, industry officials say, suggesting detailed statements mailed to investors each month may have been an elaborate mirage in a $50 billion fraud.

An industry-run regulator for brokerage firms said on Thursday there was no record of Madoff's investment fund placing trades through his brokerage operation.

That means Madoff either placed trades through other brokerage firms, a move industry officials consider unlikely, or he was not executing trades at all.

"Our exams showed no evidence of trading on behalf of the investment advisor, no evidence of any customer statements being generated by the broker-dealer," said Herb Perone, spokesman for the Financial Industry Regulatory Authority.

Madoff's broker-dealer operation, Bernard L. Madoff Investment Securities, underwent routine examinations by FINRA and its predecessor, the National Association of Securities Dealers, every two years since it opened in 1960, Perone said.

Madoff, a former chairman of the Nasdaq Stock Market who was a force on Wall Street for nearly 50 years, allegedly confessed to his sons the firm's investment-advisory business was "basically a giant Ponzi scheme" and "one big lie," according to court documents.

He estimated losses of at least $50 billion from the Ponzi scheme, which uses money from new investors to pay distributions and redemptions to existing investors. Such schemes typically collapse when new funds dry up.

Each month, Madoff sent out elaborate statements of trades conducted by his broker-dealer. Last November, for example, he issued a statement to one investor showing he bought shares of Merck & Co Inc, Microsoft Corp, Exxon Mobil Corp and Amgen Inc among others.

It also showed transactions in Fidelity Investments' Spartan Fund. But Fidelity, the world's biggest mutual fund company, has no record of Madoff or his company making any investments in its funds.

Mark D. Madoff, Co-Director of Trading, Bernard L. Madoff Investment Securities LLC, was on FINRA Mutual Fund Task Force : NASD Names 20 To Mutual Fund Task Force since June 2004.

One issue that is not much talked about is FINRA (NASD before 2007), because most people's attention was on SEC, which doesn't really regulate privately owned hedge funds, only their activities in public marketplace:

"Our exams showed no evidence of trading on behalf of the investment advisor, no evidence of any customer statements being generated by the broker-dealer," said Herb Perone, spokesman for the Financial Industry Regulatory Authority.

From NY Post: Bernie's Fake Trades

Officials at the Financial Industry Regulatory Authority, known as FINRA, told The Post that after examining more than 40 years' worth of financial records from Madoff's now-defunct broker dealer, there are no signs that Bernard L. Madoff Investment Securities ever traded shares on behalf of the investment-advisory business at the center of the scandal.

.....

While his advisory business is at the center of the scandal, all signs point to Madoff's broker dealer being a legitimate business that traded shares wholesale on behalf of investment banks, mutual funds and other institutions.

Madoff was previously vice chairman of FINRA's predecessor NASD. He was also a member of the Nasdaq stock exchange, where he served as chairman of its trading committee.

Richard Rampell, a Florida-based certified accountant who counts as clients several of Madoff's victims, said his review of dozens of statements supports FINRA's findings.

"Everything I saw on those statements told me that Madoff was clearing his own trades," he said. "There was no third party mentioned on any of those statements."

Steve Harbeck, CEO of Securities Industry Protection Corp., the outfit overseeing the Madoff bankruptcy to ensure clients get some sort of compensation, said his findings are similar to FINRA's.

"I do not have any evidence to contradict that," he said. "This is an amazing story that something like this could have gone on undetected for so long."

Harbeck added that he believed Madoff has been defrauding clients for at least 28 years. "I have seen evidence to that end and I have nothing to contradict it," he said

Chairman and CEO of FINRA is Mary Shapiro (SEC Commissioner since 1988 by Reagan appointment, Acting Chairman of SEC since 1993 by Clinton appointment, Chairman of CFTC since 1994 by Clinton appointment, President of NASD Regulation since 1996, Vice Chairman of NASD since 2002, Chairman and CEO of NASD in 2006) who is slated to become head of SEC in Obama administration. So where was FINRA during all these years? Could be a good question to ask Mary Shapiro during confirmation hearings?

LOL, smoke-and-mirrors is how the Demagogues do politics, so I guess it should be no surprise that this is how they approach running a $50 billion hedge fund, too!!

I have to say I did expect that Madoff would run a lot of trades SOMEWHERE, just so that he would always have evidence of some real investment activity..... he must have had great confidence that he could get away with just about anything, and he did for 2 decades apparently.

WOW, Shapiro needs to fry! Will any Rs grow a spine and do something about this?

I have to say I did expect that Madoff would run a lot of trades SOMEWHERE, just so that he would always have evidence of some real investment activity.....

It doesn't hurt to have your own trading floor where one can profit handsomely by illegal frontrunning of trades, or own the virtual exhange or quasi-ECN.

Madoff to leverage liquidity :

Speculation has been building that the New York broker-dealer is preparing to leverage its considerable volume -- the real currency in the electronic trading world is liquidity -- to attract more trades like an electronic commerce network, or ECN.
Principal Bernie Madoff said the firm isn't building an ECN but is investing in technology for a new trading system expected to launch next year. ECNs are taking a large share of stock trading in the United States.
"We are in the process of building a new trading platform, but it's not a ECN," Madoff told CBS.MarketWatch.com.
The trading platform "will be open to all of our 500 customers and a wide range of additional market participants, not just our clients, but eventually open to clients of other brokerage firms." It will be also be based on a decimal system.
"It could be an exchange, it could be a broker-dealer system, it could be any number of things," he said. "We're not leaning one way or another."
.....
Madoff is one of the bigger market makers around. According to the Nasdaq Trader, Madoff's sell-side volume on that exchange in January was 270 million shares, compared to the exchange's total volume of some 21 billion for the month.

Sounds pretty vague and very "flexible" in things they could do. His and his siblings' hands were in a lot of cookie jars.

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