a) I was taught the same thing by my parents; ie, “You cannot cheat an honest man.”
b) Part of that lesson was “There ain’t no such thing as a free lunch. Anyone offering you a free lunch is trying to get something out of you. Always. There are NO exceptions.” An honest man knows what is an “honest return” or an “honest wage.”
c) Madoff’s returns were “modest” compared to dot-com equity returns, yes, but put in the perspective of long-term, sustainable returns of “safe” investments, they were very high - like DOUBLE what the real market returns for such claimed risks.
Moreover, for the strategy he claimed to employ, the returns were impossible, because his mythical returns showed almost no perceptible correlation to rather large market volatility. To achieve this is nearly impossible, requiring market timing of an omniscient being.
d) Madoff was promising these higher-than-long-term-average returns with a consistency that was unheard of. You can achieve Madoff-like consistency with much lower returns using Treasury notes and bonds, but not with equities. Using Treasury notes and bonds won’t get you to even half of Madoff’s supposed returns.
e) As Harry Markopolos noted, a “line that goes up and to the right without any deviation is a something out of geometry class, not financial markets.” Investment “professionals” know this. The “sophisticated” investors in Madoff’s fund should have known this was a scam within five to 10 minutes of looking at his claimed returns and his claimed methods of achieving them. Markopolos went further, looking for the footprints of a $50 billion fund in the options markets.... and found NOTHING. There simply isn’t enough liquidity in OEX options to allow a $50B fund to trade without sticking out like a submarine periscope in a bathtub. No complicated access to internal market information was ever necessary to spot this - merely some looking around at option exchange data on OEX stocks showed that the volume necessary for Madoff to actually be doing even 50% of what he claimed was simply not there.
f) Now to your point that “Typically, Ponzi schemes promise extremely high rates of returns...”
Yes, for the amateurs. That gets them busted.
The two recent biggest ponzi schemes have used very modest (by comparison to the small fry) rates of return, coupled with the idea of “safe” returns to suck in investors far and wide into schemes in the billions of dollars that ran over 10 years.
Here’s the OIG investigation for Allen Stanford:
http://www.sec.gov/news/studies/2010/oig-526.pdf
What was he promising?
“The FlexCD Account required a minimum balance of $10,000, had maturities and annual interest rates ranging from one month at 7.25% to 36 months at 10% and withdrawals of up to 25% of the principal amount were allowed without penalties with a five day advance notice. “
That sounds within the realm of the possible, right? 7.25% APR for a one month CD and 10% for 36 months?
Not on stuff with the supposed safety of these investments. The 7.25% APR for a one month CD is astronomically high for that maturity, meaning there’s either significant undisclosed liquidity risk or outright fraud. Turns out, it was the latter.
BTW, in the OIG’s report, you see that the field staff thought that Stanford was a Ponzi scheme as far back as 1997. The enforcement arm of the SEC never pursued a case against Stanford.
The OIG field staff thought Allen Stanford was running an offshore
Ponzi scheme as far back as 1997. The SEC never pursued it.
"Hi there, Americans. Obama put me in charge of the trillion dollar
stimulus. My son and brother are gonna help me disperse the money. "
================================
Fraudster had links to offshore fund run by Bidens
Reuters on Yahoo | 2/23/09 | BY Ajay Kamalakaran
(Reuters) – A fund of offshore hedge funds run by two members of VP Joe Biden's family was marketed exclusively by offshore firms controlled by Texas financier Allen Stanford, charged by regulators with an $8 billion fraud, the Wall Street Journal said.
The Bidens $50 million fund was jointly branded between the Bidens' Paradigm Global Advisors LLC and the offshore Stanford Financial Group entity headquartered in Antigua, and was known as the Paradigm Stanford Capital Management Core Alternative Fund, the paper said. Stanford-related offshore companies marketed the Biden fund to investors and also invested about $2.7 million of their own money in the fund, the paper said, citing a lawyer for Paradigm.
Paradigm Global Advisors is owned through a holding company by the vice president Biden's son, Hunter, and Joe Biden's brother, James, according to the WSJ. Paradigm's attorney, Marc LoPresti, who represents Hunter Biden and James Biden, as well as Paradigm, told the paper he did not know which Stanford entity invested the roughly $2.7 million.
Marc LoPresti, who represents Hunter Biden and James Biden told the paper the Bidens NEVER met or communicated with Stanford. (/snicker)
(Excerpt) Read more at news.yahoo.com ...