The man in the picture, could turn out to be the biggest civilian criminal ever and he used to be the chairman of the NASDAQ. Bernie Madoff has been arrested on charges of fraud totaling $50 billion, a Gordon Geckko-filled stadium’s worth of damage.
Investment returns were merely new capital invested handed to the previous investors. This is commonly called a Ponzi scheme, except that the eponymous Ponzi was small fry compared to Madoff (which is a much better term for making off with someone’s cash, anyway).
Many of the world’s most ‘prestigious’ investment firms, from banks like Santander to hedge funds like Nicola Horlick’s, Bramdean, were directly or indirectly taken in by what equates to a street scam. The fact that such a crude scheme worked reveals either a system wide endemic lack of due diligence or a don’t ask don’t tell culture regarding returns that looked like they may have been based insider information.
From the Madoff website:
The Owner’s Name is on the Door
In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark… Bernard L. Madoff has been a major figure in the National Association of Securities Dealers (NASD), the major self-regulatory organization for US broker/dealer firms. The firm was one of the five broker/dealers most closely involved in developing the NASDAQ Stock Market…Madoff was also a founding member of the board of directors of the International Securities Clearing Corporation in London
Can’t make this up.
I was a former NASD Examiner. I found a million dollar stolen while I was employed there.
The Nasd blew it. They had monthly financials audits and outside audits.
The employees there did not catch it. But they did have a great lunch while doing the audit.
I’ve seen a few examples online on analysis of Madoff’s stats using Benford’s Law. All of which were “back of an envelope” types of things. I was wondering if there were any studies done by “grown up” mathematicians using Benford’s and possibly other techniques like Chaos Theory.
What is known of course is that the books were cooked. How well they were cooked and would it have been reasonable to say that a competent auditor could have spotted wrong doing is a big question IMO.
Anybody care to comment?