It should be remembered that Bernard Madoff was an innovator who played a major role in the development of online trading and the development of secondary markets for equities. He was highly successful and built a legitimate fortune. He was highly regarded and sat on many major committees and other bodies.
Madoff grew an unlicensed advisory business alongside his highly successful, and above board, trading operation. He argued that with fewer than fifteen clients it did not need to be subject to regulation but considering the size of the fund should not have been credible.
Initially investors were drawn by Madoff from his own Jewish community but he was soon accepting investments from intermediaries. These grew into major feeder funds in their own right. Erin Arvedlund demonstrates in Madoff, The Man Who Stole $65 Billion that despite investors’ and fund managers’ claims few did any real due diligence on Madoff’s investment business. Many chose to ignore advice critical of Madof; not believing that someone of Madoff’s standing was untrustworthy.
However some did pay attention to the evidence and steered well clear. Others took it on themselves to expose what they believed could only be a fraud, or at the very least was the result of “front loading” or other illegal practices. Others turned a blind eye as long as they believed it was in their financial interest.
With such a large fund Madoff’s activity should have been visible in the markets but no one saw any trade for Madoff’s so-called “hedge fund”. In an industry where everybody knows who is trading what, if not at the time, then soon after the event. With Madoff there was nothing visible which should have raised a red flag but few acted.
Some insiders and journalists tried but could not get the authorities to act or investors to do proper checks before investing.
Despite the evidence it was never properly investigated by the regulators, the Securities Exchange Commission. According to the evidence in Madoff they were tardy in the extreme and one Madoff investor, Robert Chew, who lost everything confessed “We knew it was too good to be true ... We deluded ourselves into thinking we were all smarter than the others”.
Erin Arvedlund was one of the journalists to raise concerns and in Madoff, the Man Who Stole $65 Billion provides detailed coverage of Bernie Madoff’s rise and fall. It is based on wide ranging interviews and first-hand accounts from a wide range of sources. It pulls no punches and is a damning indictment of so-called financial service professionals and the regulators with the responsibility for protecting the less sophisticated investor. Much of the failure appears to be down to laziness and trust in reputation rather than doing basic checks,
The language is straightforward and does not require specialist knowledge so it is easy to read. However Madoff is not easy to follow as it jumps back and forth as the complex web of relationships is explored. Erin Arvedlund has produced a book that is comprehensive in its coverage and the consequent detail makes it feel repetitive as the same issues arise with new players. It shows a Byzantine web of organisations, investment funds and individuals who were happy to turn a blind eye to possible wrongdoing as long as they benefited. Arguably many who invested with Madoff were complicit in illegality even if they did not know what form it took.
All investors should read this book and be warned that they cannot rely on the reputation of individuals or organisations. They need to ask hard questions and avoid investment services that cannot, or will not, provide answers or visibility of their operations.
It should be required reading for all providing financial services. All fund managers, financial advisers and especially regulators should respond to warnings. They should conduct and act on proper due diligence. If they had done so Madoff would have been caught many years earlier.
Madoff, the Man Who Stole $65 Billion is essential reading for all investors and they should take heed. It could save them a fortune.The $65 Billion is arguable, as Erin Arvedlund points out. It includes gains Madoff claimed to have made and not paid out. The real figure will have to wait many years until lawyers and accountants have completed their work. Bernie Madoff is in jail but the story is not complete; there may be others yet to be indicted.
Madoff, the Man Who Stole $65 Billion (2009, ISBN: 978-0-141-05446-7) by Erin Arvedlund is published in paperback by Penguin at £9.99.
First appeared on Suite101