Madoff's Lessons

Crime: Yes, 150 years is a long sentence for a 71-year-old criminal. But few will shed tears for Bernie Madoff as he goes to jail. And yet, the man who financially ruined hundreds of people holds lessons for the rest of us.

The magnitude of Madoff's crime boggles. He took $17 billion from investors in his fund — which boasted of beating Wall Street's major averages with double-digit returns year after year. Such consistent, outsized returns should have been a red flag.

This, of course, is reminiscent of the infamous Charles Ponzi, who in the 1920s vowed to double people's money in just three months. Things went well — as long as those willing to join his scheme outnumbered those cashing in. Once the arithmetic reversed, however, it crashed — spectacularly.

But compared with Madoff, Ponzi was a piker. Ponzi's fraud, even in today's dollars, would be just over $150 million. By comparison, Madoff was a pro: He sheared his sheep clean.

"He stole from the rich. He stole from the poor. He stole from the in between. He had no values," said victim Tom Fitzmaurice.

Problem is, if investments / accounts are not self-directed, i.e. if people rely on manager to make investment decisions for them, and they in turn invest in other funds and funds of funds, there is really not much they can do or show.

It's a third-party accounting. Plus, some of the managers, even in reputable firms, have occasionally been known to falsify trading tickets and statements.

In order not to be Madoffed people have to self-direct their investments and keep them relatively simple. Not everyone is adept or has the time or desire to manage the money themselves. Trusting people is often fraught with risk, relying on their financial advisor is only as safe as his integrity is high. Some of the people who invested their money with managers or supposedly "conservative" funds never knew or heard the name Madoff or his "feeders", their money just happened to be in the pool with other people. They are not those who "invested" with Madoff or Jaffe et al precisely because they could "dial specific return" or launder money. Merkin and some others used OPM to invest with Madoff to pad their income.

Madoff Investors 'Greedy': Hugh Hendry - CNBC, June 30, 2009

Now, few people will shed a tear over this:
Merkin Sells His Rothko's - CNBC, June 30, 2009

..... [Ezra] Merkin, sources tell me, was spending as much as $60,000 a month to keep his vaunted collection of Rothko’s on the walls of his apartment. That expense and the fact that Merkin’s art was used as collateral on some of his personal debt, was a central reason he decided to sell it.
Merkin found one buyer for the entire collection (unknown, but likely to be a large international art dealer).
It was Merkin who initiated the sales, not the Attorney General’s office, but in learning of the sale, the N.Y. AG stepped in and got a judge to make sure the proceeds from the sale are kept safely in a so called “lock box” pending the outcome of the litigation against Merkin. The sale fetched $310 million, but after paying back loans and taxes the lock box will receive roughly $191 million in proceeds. .....

The N.Y. AG is seeking restitution on behalf of Merkin’s investors for the $2.4 billion he lost them as a result of investing most of the funds under his control with Bernie Madoff. If you haven’t read the complaint (filed on April 6) it’s worth taking a look. While Merkin has not been charged criminally, if all the charges in the complaint are true (Merkin’s attorney says they are without merit) he can count himself lucky he’s not facing a criminal indictment. While that would force prosecutors to prove intent, a high bar, the complaint does raise some interesting questions.
A few of my favorites are the apparent self dealing Merkin was doing as the “chair” of a non-profit when it came to its investment decisions (page 48). The fact that Merkin invested less than $2 million of his own money in his Ascot Fund, which was investing all of its more than a billion dollars with Madoff (page 10) and perhaps most surprisingly that only one year ago, Merkin had 62.5% of the $1.2 billion in assets in his Gabriel Capital fund invested with the private equity firm of Cerberus.

Investors Compete for a Piece of the Madoff Pie - CNBC / NYT, June 29, 2009 Helen Davis Chaitman is a victim of Bernard L. Madoff’s multibillion-dollar Ponzi scheme. So is Burt Ross. That would seem to make them natural allies in their fight to recover their lost millions.
Instead, as Mr. Madoff prepares to be sentenced in Federal District Court in Manhattan on Monday, they are rivals warring over who should get how much from the government-chartered agency that insures customers of failed brokerage firms.
Some investors are angry that they could get less favorable treatment than others, depending on how they invested with Mr. Madoff — directly, or indirectly through so-called feeder funds — and how much they withdrew before the Ponzi scheme collapsed. .....
Indeed, while Monday’s sentencing of Mr. Madoff will satisfy the desire by victims that he be punished for stealing their money, it will take ~~months or even~~ years longer to resolve their claims. .....

......the apparent self-dealing of Madoff's pal J Ezra Merkin as “chair” of a non-profit's investment decisions. Merkin invested less than $2 million of his own money in his Ascot Fund, which was investing all of its more than a billion dollars with Madoff and perhaps most surprisingly that only one year ago, Merkin had 62.5% of the $1.2 billion in assets in his Gabriel Capital fund invested with the private equity firm of Cerberus..........

BACKSTORY Merkin was Fifth Avenue Synagogue president, and chaired Yeshiva U's Investment Committee with Madoff----he placed $1.8B w/ Madoff.........via Merkin‘s Ariel and Ascot Partners offshore hedge funds.

Wealthy Fifth Avenue Synagogue congregants include infamous tax dodger Mark Rich who renounced his American citizenship to evade prosecution. Rich's fellow congregants sprang to his defense and used their stature and power to get Rich a Clinton pardon.

At the same time, J Ezra Merkin was feeding Madoff, he was also GMAC chair and got a $6B taxpayer bailout. Where is that money now? GM IS BANKRUPT. What does Merkin know?

MERKIN'S CAYMAN ISLAND HEDGE FUND As GMAC chair, Merkin ran hedge funds as a sideline and was feeding funds into Madoff's operation (and pocketing hundreds of $millions in fees)-----Merkin's name is connected to (1) Ariel Fund, based in the Cayman Islands (a partnership between Merkin and Fortis Bank in an infamous money laundering haven), (2) Ascot Partners, (3) general partner of Gabriel Capital LP, a $5 billion family of hedge funds, and, (4) managing partner of Gotham Capital.

Merkin and Cerebrus' Stephen A. Feinberg, bought Bank Leumi from the Israeli government for $500 million. Fineberg's private equity firm---Cerberus Capital Management LP---also owns Chrysler Motors.

The US Treasury bought a $5 billion stake in GMAC and lending $1 billion to GM. This latest loan is IN ADDITION to the $13.4 billion the US Treasury lent earlier to J Ezra Merkin's GM, and Fineberg's Chrysler.

SWILLING TIMELINE In 2006, GM sold 51 percent of Merkin's GMAC to Feinberg's private equity firm Cerberus Capital Management LP (which also owns Chrysler).

HOGGING AT THE PUBLIC TROUGH In May 2004, Feinberg's "private investment group," Cerberus Capital Management, LP (Cerebrus is the three-headed dog that guards Hades), became majority owner of IAP Worldwide Services, Inc, one of the US Army’s largest contractors in Iraq. In Afghanistan, Feinberg's IAP runs a drug/addiction center" in Kunduz---Kunduz is the largest opium supplier in the world. IAP also provides infrastructure support for the British Ministry of Defence in Kandahar....apart from supporting the US Army in Basra. Feinberg's company----IAP-----also serves a broad array of federal clients including the US DOD, NASA, the US Geological Survey, the US Agency for International Development, the IRS, and a variety of other federal agencies.

WERE THEY USING SECRET FEDERAL RESERVE INFO TO PROFIT? On October 19, 2006, John W. Snow, Secretary of the Treasury under George H.W. Bush, was named chairman of Cerberus. Knowing the Feds rise and fall of interest rates could make zillions for insiders.

Merkin also co-owns an Israeli bank w/ Cerebrus's Fineberg. Israel is the only place in the world where an individual can fly in, debark, go to a bank with a suitcase full of cash and nobody asks where it came from.......... or if taxes were paid on it.

Americans have not yet learned the full extent of official corruption, thievery, schemes and scams involving $BILLIONS in taxpayer bailouts. What does Merkin know?

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