Markopolos' bosses at Rampart asked him to design a product that could replicate Madoff's returns.
After four hours of trying and failing to replicate Madoff's returns, Markopolos concluded Madoff was a fraud. He told the SEC that based on his analysis of Madoff's returns, it was mathematically impossible for Madoff to deliver them using the strategies he claimed to use. In his view, there were only two ways to explain the figures—either Madoff was front running his order flow, or his wealth management business was a massive Ponzi scheme.
This submission, along with three others, passed with no substantive action from the SEC. The culmination of Markopolos' analysis was his third submission, a detailed page memo entitled The World's Largest Hedge Fund is a Fraud. The biggest red flag was that Madoff reported only seven losing months during this time, and those losses were statistically insignificant.
This produced a return stream that rose steadily upward at a nearly-perfect degree angle. Markopolos argued that the markets were far too volatile even under the best of conditions for this to be possible, a fact that would have been clear to anyone who understood the underlying math.
The Velocity of Money: A Novel of Wall Street by Stephen Rhodes
In part, the memo concluded: He's organized this business as a 'hedge fund of funds ' privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed. If this is not a regulatory dodge, I do not know what is.
In , financial journalist Erin Arvedlund wrote an article for Barron's entitled "Don't Ask, Don't Tell", [39] questioning Madoff's secrecy and wondering how he obtained such consistent returns. She reported that "Madoff's investors rave about his performance — even though they don't understand how he does it. When high-volume investors who were considering participation wanted to review Madoff's records for purposes of due diligence , he refused, convincing them of his desire that proprietary strategies remain confidential.
By selling its holdings for cash at the end of each period, Madoff avoided filing disclosures of its holdings with the SEC, an unusual tactic.
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Madoff rejected any call for an outside audit "for reasons of secrecy", claiming that was the exclusive responsibility of his brother, Peter, the company's chief compliance officer ". Friehling , a close Madoff family friend. Friehling was also an investor in Madoff's fund, which was seen as a blatant conflict of interest. Typically, hedge funds hold their portfolio at a securities firm a major bank or brokerage , which acts as the fund's prime broker.
This arrangement allows outside investigators to verify the holdings. Madoff's firm was its own broker-dealer and allegedly processed all of its trades. Ironically, Madoff, a pioneer in electronic trading , refused to provide his clients online access to their accounts. Madoff operated as a broker-dealer who also ran an asset management division. In , Joe Aaron, a hedge-fund professional, also found the structure suspicious and warned a colleague to avoid investing in the fund, "Why would a good businessman work his magic for pennies on the dollar? And only if Madoff was assumed to be responsible for all the options traded in the most liquid strike price.
Gradante , co-founder of hedge-fund research firm Hennessee Group, observed that Madoff "only had five down months since ", [89] and commented on Madoff's investment performance: In , Michael Ocrant, editor-in-chief of MARHedge wrote a story in which he interviewed traders who were incredulous that Madoff had 72 consecutive gaining months, an unlikely possibility. The Central Bank of Ireland failed to spot Madoff's gigantic fraud when he started using Irish funds and had to supply large amounts of information that should have been enough to enable the Irish regulator to uncover the fraud much earlier than late when he was finally arrested in New York.
The scheme began to unravel in the fall of , when the general market downturn accelerated. Madoff had previously come close to collapse in the second half of after Bayou Group , a group of hedge funds, was exposed as a Ponzi scheme that used a bogus accounting firm to misrepresent its performance. Madoff only survived by moving money from his broker-dealer's account into his Ponzi scheme account. By then, at least two major banks were no longer willing to lend money to their customers to invest it with Madoff.
In June , Markopolos' team uncovered evidence that Madoff was accepting leveraged money. To Markopolos' mind, Madoff was running out of cash and needed to increase his promised returns to keep the scheme going. The trickle became a flood with when Lehman Brothers was forced into bankruptcy in September, as well as the near-collapse of American International Group at the same time.
Unknown to them, however, Madoff had simply deposited his clients' money into his business account at Chase Manhattan Bank , and paid customers out of that account when they requested withdrawals. To pay off those investors, Madoff needed new money from other investors.
However, in November, the balance in the account dropped to dangerously low levels. He had just barely enough in the account to meet his redemption payroll on November Even with a rush of new investors who believed Madoff was one of the few funds that was still doing well, it still wasn't enough to keep up with the avalanche of withdrawals. In the weeks prior to his arrest, Madoff struggled to keep the scheme afloat.
MSIL had neither customers nor clients, and there is no evidence that it conducted any trades on behalf of third parties. Shapiro , a year-old Boston philanthropist and entrepreneur who was one of Madoff's oldest friends and biggest financial backers. Judge Lifland ruled that Rosenman was "indistinguishable" from any other Madoff client, so there was no basis for giving him special treatment to recover funds. Madoff asked others for money in the final weeks before his arrest, including Wall Street financier Kenneth Langone , whose office was sent a page pitch book, allegedly created by the staff at the Fairfield Greenwich Group.
However, it was far too little and far too late. By the week after Thanksgiving, Madoff knew he was at the end of his tether. With banks having all but stopped lending to anyone, he knew he could not even begin to borrow enough money to meet the outstanding redemption requests. On December 4, he told Frank DiPascali , who oversaw the Ponzi scheme's operation, that he was finished. He directed DiPascali to use the remaining balance in the Chase account to cash out the accounts of relatives and favored investors. On December 9, he told Peter that he was on the brink of collapse.
At that point, Madoff asked his sons to follow him to his apartment, where he admitted that he was "finished", and that the asset management arm of the firm was in fact a Ponzi scheme — as he put it, "one big lie".
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Mark and Andrew then reported him to the authorities. Madoff intended to take a week to wind up the firm's operations before his sons alerted authorities. Instead, Mark and Andrew immediately called lawyers. When the sons revealed their father's plan to use the remaining money to pay relatives and favored investors, their lawyers put them in touch with federal prosecutors and the SEC.
Madoff was arrested the following morning. Investigators were looking for others involved in the scheme, despite Madoff's assertion that he alone was responsible for the large-scale operation. He would have had to nurture the Ponzi scheme daily. What happened when he was gone? Who handled it when somebody called in while he was on vacation and said, 'I need access to my money'? You would need office and support personnel, people who actually knew what the market prices were for the securities that were being traded.
The Velocity of Money: A Novel of Wall Street
You would need accountants so that the internal documents reconcile with the documents being sent to customers at least on a superficial basis," said Tom Dewey, a securities lawyer. David Kotz , who was conducting an investigation into how regulators failed to detect the fraud despite numerous red flags. Williams of the U. Postal Service was brought in to conduct an independent outside review.
A violation of the ethics rule took place if the friendship was concurrent with Kotz's investigation of Madoff. Madoff's firm reported to its customers for decades. It is unclear exactly how much investors deposited into the firm. The year-old financier paused, then said: Apart from 'Bernard L. Madoff' and 'Bernard L. Previously, Madoff was thought to be cooperating with prosecutors. On March 10, , the U. Attorney for the Southern District of New York filed an count criminal information, or complaint, [] charging Madoff [] with 11 federal crimes: Madoff pleaded guilty to three counts of money laundering.
Madoff gave the appearance that he was trading in Europe for his clients. On March 12, , Madoff appeared in court in a plea proceeding, and pleaded guilty to all charges. The charges carried a maximum sentence of years in prison, as well as mandatory restitution and fines up to twice the gross gain or loss derived from the offenses. He accepted a lifetime ban from the securities industry, and also agreed to pay an undisclosed fine. In his pleading allocution , Madoff admitted to running a Ponzi scheme and expressed regret for his "criminal acts".
He wished to satisfy his clients' expectations of high returns he had promised, even though it was during an economic recession. He admitted that he hadn't invested any of his clients' money since the inception of his scheme. Instead, he merely deposited the money into his business account at Chase Manhattan Bank. He admitted to false trading activities masked by foreign transfers and false SEC returns. When clients requested account withdrawals, he paid them from the Chase account, claiming the profits were the result of his own unique "split-strike conversion strategy".
He said he had every intention of terminating the scheme, but it proved "difficult, and ultimately impossible" to extricate himself. He eventually reconciled himself to being exposed as a fraud. Only two of at least 25 victims who had requested to be heard at the hearing spoke in open court against accepting Madoff's plea of guilt. Judge Denny Chin accepted his guilty plea and remanded him to incarceration at the Manhattan Metropolitan Correctional Center until sentencing.
Chin said that Madoff was now a substantial flight risk given his age, wealth and the possibility of spending the rest of his life in prison. Madoff's attorney, Ira Sorkin filed an appeal , to return him back to his "penthouse arrest", await sentencing, and to reinstate his bail conditions, declaring he would be more amenable to cooperate with the government's investigation, [] and prosecutors filed a notice in opposition. Madoff's funds in the future. Prosecutors recommended a prison sentence of years, the maximum possible under federal sentencing guidelines. They informed Chin that Irving Picard , the trustee overseeing bankruptcy proceedings for the Madoff organization, had indicated that "Mr.
Madoff has not provided meaningful cooperation or assistance. The judge granted Madoff permission to wear his personal clothing at sentencing. On June 29, Judge Chin sentenced Madoff to years in prison, as recommended by the prosecution. Chin said he had not received any mitigating letters from friends or family testifying to Madoff's good deeds, saying that "the absence of such support is telling.
Chin called the fraud "unprecedented" and "staggering", and stated that the sentence would deter others from committing similar frauds. He stated, "Here the message must be sent that Mr.
Madoff investment scandal
Madoff's crimes were extraordinarily evil. Chin said "I have a sense Mr. Madoff has not done all that he could do or told all that he knows," noting that Madoff failed to identify accomplices, making it more difficult for prosecutors to build cases against others. A former federal prosecutor suggested Madoff would have had the possibility of a sentence with parole if he fully cooperated with investigators, but Madoff's silence implied that there were other accomplices in the fraud, which led the judge to impose the maximum sentence.
Madoff apologized to his victims at the sentencing, saying, "I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. This is something I will live in for the rest of my life. I know that doesn't help you. His inmate number is On July 28, , he gave his first jailhouse interview to Joseph Cotchett and Nancy Fineman, attorneys from San Francisco, because they threatened to sue his wife, Ruth, on behalf of several investors who lost fortunes.
Madoff provided a confidential list of his and his firm's assets to the SEC on December 31, which was subsequently disclosed on March 13, in a court filing. Madoff had no IRAs , no k , no Keogh plan , no other pension plan and no annuities. No offshore or Swiss bank accounts were listed. Ruth Madoff, and Peter Madoff, invested as "passive limited partners" in real estate funds sponsored by the company, as well as other venture investments.
On March 2, , Judge Louis Stanton modified an existing freeze order to surrender assets Madoff owns: He has also agreed to surrender his interest in Primex Holdings LLC, a joint venture between Madoff Securities and several large brokerages, designed to replicate the auction process on the New York Stock Exchange. Andres Piedrahita's assets continue to remain temporarily frozen because he was never served with the complaint.
The SEC believed keeping the assets secret would prevent them from being seized by foreign regulators and foreign creditors. The Montreal Gazette reported on January 12, that there are unrecovered Madoff assets in Canada. Breeden was retained to serve as Special Master on behalf of the Department of Justice to administer the process of compensating the victims through the Madoff Victim Fund.
On February 4, , the U.
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Bankruptcy Court in Manhattan released a page client list with at least 13, different accounts, [] but without listing the amounts invested. According to The Wall Street Journal [] the investors with the largest potential losses, including feeder funds, are:. Some investors have amended their initial estimates of losses to include only their original investment, since the profits Madoff reported were most likely fraudulent. Although foundations are exempt from federal income taxes , they are subject to an excise tax , for failing to vet Madoff's proposed investments properly, to heed red flags, or to diversify prudently.
The directors' assets have been frozen. Clients primarily located in South America who invested with Madoff through the Spanish bank Grupo Santander , filed a class action against Santander in Miami. District Court in Manhattan. Despite being a victim of Bernard Madoff's fraud, the bank offered in March to compensate eligible investors 50 percent of the money they initially invested with Madoff. UBP was the first bank to settle Madoff trustee's claim. With this settlement, the Trustee agreed to discharge his "clawback" claims against UBP, its affiliates and clients.
Kohn and the bank are under investigation. Jeanne Levy-Church's losses forced her to shut down both her foundation, and that of her parents, the Betty and Norman F. JEH helped the less fortunate, especially ex-convicts. Silverman for "effectively aiding and abetting" Madoff's fraud. The bank denies any wrongdoing. It is listed as the 71st-largest in the nation by the Council on Foundations.
Jeffry Picower has been a friend of Bernard Madoff for 30 years. The Picower Foundation, along with other smaller charities who invested with Madoff, announced in December that they would be closing. In June , Madoff's brother Peter was "expected to appear in Federal District Court in Manhattan and admit to, among other things, falsifying records, making false statements to securities regulators and obstructing the work of the Internal Revenue Service. He had [reportedly] agreed to a prison term of 10 years. His left wrist was slit [] and de la Villehuchet had taken sleeping pills , in what appeared to be a suicide.
Harry Markopolos said he had met with de La Villehuchet several years before, and had warned him that Madoff might have been breaking the law. On February 10, , highly decorated British soldier William Foxton, OBE, [] 65, shot himself in a park in Southampton, England , having lost all of his family's savings.
Madoff's elder son, Mark Madoff, was found dead on December 11, , two years to the day after his father turned himself in. He was found hanged inside his New York apartment in an apparent suicide, but authorities said he left no suicide note. Mark had unsuccessfully sought a Wall Street trading job after the scandal broke, and it was reported that he was distraught over the possibility of criminal charges, as federal prosecutors were making criminal tax-fraud probes.
Among the many Madoff family members being sued by the court-appointed trustee Irving Picard were Mark's two children. In his lawsuit, Picard stated that Mark and other Madoff family members improperly earned tens of millions of dollars, through "fictitious and backdated transactions" investment transactions, and falsely documented loans to buy real estate that weren't repaid. Picard also argued that Mark was in a position to recognize the fraud of his father's firm, as Mark was a co-director of trading, was the designated head of the firm in his father's absence, and held several securities licenses—series 7, 24 and 55 with the Financial Industry Regulatory Authority.
However, he worked in a division of Madoff's company distinct from the one involved with Madoff's fraud, which has not been accused of any wrongdoing. Following the Madoff investment scandal, the SEC's inspector general conducted an internal investigation into the agency's failures to uncover the scheme despite a series of red flags and tips. In September , the SEC released a page report [] on how the SEC missed these red flags and identifies repeated opportunities for SEC examiners to find the fraud and how ineffective their efforts were.
This resolved any potential criminal case against the bank arising from the Madoff scandal. JPMorgan entered into a deferred prosecution agreement with federal prosecutors to resolve two felony charges of violating the Bank Secrecy Act. The bank admitted to failing to file a "Suspicious Activity Report" after red flags about Madoff were raised, which, prosecutors alleged, did not have adequate anti-money laundering compliance procedures in place.
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Analysts suspect that these parties have remained silent because their investments were from illegal activities such as drug dealing or tax evasion, or because they had civil liabilities in the United States and did not wish to subject themselves to the jurisdiction of the U. From Wikipedia, the free encyclopedia. Queens , New York , United States. Participants in the Madoff investment scandal. Recovery of funds from the Madoff investment scandal.
List of investors in Bernard L. Natixis SA Carl J. The Wall Street Journal. Retrieved March 6, Retrieved February 11, Retrieved March 7, Retrieved October 16, Securities and Exchange Commission. Retrieved December 11, Retrieved December 17, Retrieved April 26, Retrieved December 13, Retrieved September 23, No One Would Listen: A True Financial Thriller. I loved every page of this epic story. A very detailed and complex story of stock market manipulation, insider trading and cyber warfare to bring down Wall Street, the US economy and ultimately a global recession.
Some very advanced terminology used derivatives, ugh. Most I could follow, some not so much. That said, I love a book that intellectually challenges. A very satisfying ending that spanned several chapters. Aug 19, Johnny rated it liked it Shelves: The Velocity of Money opens with the body of a successful Wall Street lawyer dropping from a skyscraper and smashing into a New York City cab.
This lets us know why the prestigious and fictional Wall Street firm has hired the protagonist. In some ways, the book is like The Firm meets a James Bond plot. As his spouse notes, his obsession causes him to work longer hours than before. Is he paranoid or should one take the conspiracy at face value? Well, since the story is told from a third person omniscient perspective, readers will know pretty quickly whether or not there is a real conspiracy. Initially, we are unsure, but then Rhodes lines up intriguing pieces of potential evidence for how such a fraud could be perpetrated and wraps them in some assumptions from the attorney.
I was fascinated by the descriptions of a trading floor which was evolving to meet its true electronic future. And there is one point at which some odd programmed trading acts as a monkey wrench in the machinery of the entire stock exchange. The description of the panic caused by early European selling was vivid enough that, as a reader, I almost felt like I needed to get out of the way of all the running around. One quickly gets the sense that Rhodes knows something about the stock market and is giving his readers an inside peek.
Readers certainly get some of the varied personalities of successful traders—some reckless, some bold, and some constantly looking for the fly in the ointment. The Velocity of Money may not quite be the Fail-Safe Cold War potboiler or Seven Days in May yet another Cold War jewel , but for people interested in finance who would like to have that world mixed with mystery, this novel might be just the replacement for those Emma Lathem mysteries that no longer come our way. Dec 20, Dustan Woodhouse rated it really liked it. Writing a review 15years later is perhaps not so useful.
It was a helpful book in its day, and I am sure there are still useful lessons in it. But much has changed on Wall Street since Rbarfuss rated it it was ok Jun 22, Janice rated it liked it Aug 07, Preeti rated it it was ok Dec 13, Girish Ananthakrishnan rated it liked it Jan 27, Costas rated it really liked it Sep 04, Vanessa rated it liked it Jan 08, Tony rated it liked it Apr 22, Aditi Ramachandran rated it liked it Jun 23, Wolf Irrsiegler rated it it was amazing Dec 12, Michael Shumrak rated it liked it Dec 25, Mariano rated it liked it Jan 11, Amy-Catherine rated it really liked it Dec 28, Henry Knox rated it it was amazing May 18, Andrew rated it liked it Aug 14, Lorelei DeMesa rated it liked it Oct 21, Brian rated it really liked it Jan 07, Luca rated it it was ok Dec 29, Dean rated it really liked it Jan 28, Gordief rated it liked it Jan 29, Raghupathi Krishnan rated it really liked it Feb 28, Raza Ali rated it liked it Aug 21,