Bernie Madoff on Netflix

[happyhoix]

I watched this over the weekend. I thought I knew all about the scandal, but one thing I didn’t know - the SEC was hugely at fault for how big it got. Over and over, the SEC was alerted that Madoff had something fishy going on. Madoff had a legitimate trading business on the 19th floor of the Lipstick building in NY, with very chic, high end offices. Two floors down was the secret ‘hedge’ fund (Ponzi scheme). It was not registered with the SEC as a hedge fund. 

A rival fund got hold of several years of the secret fund’s returns, and their analyst concluded it was impossible for a legit fund to perform the way it had (94% of the months saw a return, only 9 months in five years showed a loss). To achieve that, it would have to have advance knowledge of when to buy and sells stocks. The rival concluded Madoff’s fund either was amazingly lucky, had the ability to see the future, or was a Ponzi scheme. They sent their detailed findings to the SEC for the first time when the fund was only at 3 billion dollars - and were ignored. They repeatedly sent additional data to the SEC over the subsequent years, and continued to be ignored. At one point the head of the SEC, who was big friends with Madoff (Madoff was on an advisory council for the SEC) called and asked if he was running a hedge fund - he denied it, and the SEC did nothing. At another point they sent two auditors to audit the firm, and when they asked if he was running a hedge fund, Madoff said he wasn’t and told them to call their SEC boss about it. They did, and left without finding anything. 

Several financial reporters published articles about the secret fund - and when finally, the hedge fund became public knowledge, all Madoff had to do was register his hedge fund with the SEC. 

What finally brought it crashing down wasn’t regulators but a run on the fund from people asking for their money. It got to the point where Madoff didn’t have enough money to cover all the requests to cash out that he had to confess to his sons (who worked in the legit end of the business) and his wife. His sons, after consulting a lawyer, turned Madoff into the FBI, and it finally crashed the Ponzi scheme. 

I really hope this has caused some significant changes at the SEC. They could have significantly reduced the number of victims Madoff snared if they had just busted the thing earlier. 

Has anyone else seen it, and what did you think? 

[Deleted]

Fascinating and sad.

First of all, why would anyone believe in a steady annual return of 9%, year in and year out, no volatility? It ain't happening unless something fraudulent is going on. I wonder if the more sophisticated investors figured someone else was getting the short end of the deal but didn't care as long as they got their 9%.

Maddening that the managers of the feeder funds did nothing but funnel their investors' money into Madoff's bank account and raked off a fee. For doing what, exactly?

Yes, the SEC was grossly negligent. Too bad they can't be sued. I doubt it's changed much- the last Presidential administration was focused on less regulation and more free market- something I generally support but not in this case. It's also an unfortunate fact that the sharpest knives in the drawer tend to go into private industry where they can rake in mega-bucks and not into public service, so the industry people are well ahead of the regulators. Sometimes, too, there's a lot of running back and forth between jobs in industry and in regulation and they all scratch each other's backs.

Final sad details: Two suicides that they mentioned, and Madoff's ashes still rest in some lawyer's office because no family member will claim them.

[wvugurl26]

I took my required CPA ethics course last month. The instructor was discussing rules around taking on an engagement. He said that Madoff basically bought the required annual audit. He hired a 3 person audit firm that had no business doing the audit. They lacked the knowledge to audit something like that. That was the first I'd heard about that. I had heard the SEC had ignored it for years.

[gs11rmb]

I'm about halfway through the final episode.  I'm stunned by the willingness of some very smart people to ignore the obvious.  How could experienced money managers not smell a rat?

I knew I would feel sorry for many of the 'regular' victims but I was surprised to feel so much pity for his family.  His wife and sons seem like genuinely nice people who were also blindsided by the fraud.

[minnesotapaintlady]

And once again I'm back to questioning if I REALLY want to consolidate all my assets with one firm.  Yes, the convenience would be great and it sure would make it easier on my kids someday when they're dealing with my estate, but...what if...

[azucena]

One big firm with multiple reporting layers is pretty safe. Don't overthink it.

[jerseygirl]

Madoff kept the funds in his own ‘business’ and made up balances etc

Fidelity or others are not comparable to what Madoff did

[Deleted]

Jan 11, 2023 18:38:29 GMT -5 azucena said:

One big firm with multiple reporting layers is pretty safe. Don't overthink it.

I agree.  There were a lot of red flags with Madoff, starting with impossibly-high but stable returns and the use of an exotic tactic that would not have produced those results.  Harry Markopoulos, the guy who knew it was too good to be true, had been ordered by his firm to come up with a competing product using the same tactic and he couldn't- just one with similar average returns but a lot more volatility.  Most stayed with Madoff, of course.

I've always gone with the big-name firms and have NEVER given discretion over trading in my account to anyone.  It's worked so far.  

[TheOtherMe]

I prepared tax returns for people who had invested everything with Madoff.  All of their money with him because of the great rate of return.

It was hard to listen to them.  I'm not an investor but I know better to invest everything with one firm with that kind of control.  

For some, it wasn't the first Ponzi scheme they had been caught up in, so they didn't learn the first time.

[haapai]

I've forgotten a whole lot about the Madoff Ponzi scheme but I seem to remember that the most remarkable thing about it was how long it lasted.  It took 2007 and 2008 to topple it, and a big part of why it didn't flop earlier is that he "managed" a lot of money for charitable foundations which withdrew as little as legally necessary and from other assets if at all possible.

I've always wondered how long he would have lasted if he had actually invested some portion of the money that he was supposedly managing.  Even if his actual return on investment was much lower than the 9% that he was consistently claiming, he could have withstood a longer run on investments before going bust.  

[happyhoix]

Jan 12, 2023 1:02:15 GMT -5 haapai said:

I've forgotten a whole lot about the Madoff Ponzi scheme but I seem to remember that the most remarkable thing about it was how long it lasted.  It took 2007 and 2008 to topple it, and a big part of why it didn't flop earlier is that he "managed" a lot of money for charitable foundations which withdrew as little as legally necessary and from other assets if at all possible.

I've always wondered how long he would have lasted if he had actually invested some portion of the money that he was supposedly managing.  Even if his actual return on investment was much lower than the 9% that he was consistently claiming, he could have withstood a longer run on investments before going bust.  

A lot of the reason it went on for so long was that he was very friendly with the SEC - he even sat on one of their boards - so the SEC never investigated any of the red flags about his fund. The other big reason was that one of his top four investors probably knew it was a Ponzi scheme. In Flush times he withdrew big chunks (like hundreds of millions) of dollars, but in crashes he would return big chunks when Madoff needed help sustaining the illusion.

In the end, his big investor either didn’t have enough money or just refused to give any of it back, and that’s finally what brought it down.

[Ryan]

I read a book that mentioned that a guy named Ed Thorpe (Hedge Fund guy) who spotted the fraud in 1991.  Not sure if he reported it or not, but here's an article explaining it.


www.forbes.com/sites/streettalk/2010/04/06/the-card-sharp-who-cottoned-onto-madoffs-fraud-in-1991/?sh=5771fa1a4617

[happyhoix]

Jan 12, 2023 18:31:21 GMT -5 Ryan said:

I read a book that mentioned that a guy named Ed Thorpe (Hedge Fund guy) who spotted the fraud in 1991.  Not sure if he reported it or not, but here's an article explaining it.


www.forbes.com/sites/streettalk/2010/04/06/the-card-sharp-who-cottoned-onto-madoffs-fraud-in-1991/?sh=5771fa1a4617

Yeah there was a mathematical guy at another fund company who figured out it was a fraud and did report it - multiple times over several years - plus multiple financial reporters - and the SEC did nothing. So I’m guessing even if Thorpe reported it, nothing would have happened.

SEC totally let the taxpayers down on this in a shameful way.

[minnesotapaintlady]

Jan 11, 2023 18:38:29 GMT -5 azucena said:

One big firm with multiple reporting layers is pretty safe. Don't overthink it.

Yeah, I'm not sure "pretty safe" is enough when we're talking my entire life's savings.

Not so much a Bernie Madoff scenario, but what about a major cyber hack or Ransomware?  Even if it doesn't result in funds being stolen it could easily result in the site being inaccessible for a long stretch of time.  My company was dead in the water for 6 weeks! 

[Tiny]

Jan 13, 2023 12:19:28 GMT -5 minnesotapaintlady said:

Jan 11, 2023 18:38:29 GMT -5 azucena said:

One big firm with multiple reporting layers is pretty safe. Don't overthink it.

Yeah, I'm not sure "pretty safe" is enough when we're talking my entire life's savings.

Not so much a Bernie Madoff scenario, but what about a major cyber hack or Ransomware?  Even if it doesn't result in funds being stolen it could easily result in the site being inaccessible for a long stretch of time.  My company was dead in the water for 6 weeks! 

You are talking "zombie apocalypse"   Fidelity, Vanguard, Schwab --  if one of them has a major cyber hack or Ransomware - millions of people and businesses (and pension funds)  will have problems.   In theory, Fidelity, Vanguard, Schwab take precautions (have a huge number of people working in the areas that keep their servers/systems/data safe.  They have back up plans.  They have company wide education for their employees (several times a year) about "security" dos and don'ts.)     Could it happen?  Sure it could.  But, everyday,  there are lots of people and lots of money working to keep it from happening.    


I sometimes worry about all the nuclear power plants within 100 miles of my home.... but then I find something else to worry about. 

[Tiny]

I should probably watch the netflix show.

I don't know much about Madoff.

When I talk/think about my retirement investments - it's always "Fidelity" and a "Fund" - I don't have a person's name attached to any of this. Same thing with my 401K - it's Schwab and funds and I can use their software to answer questions or learn about how to invest my money - OR - I can schedule time with a Schwab person will who discuss this stuff with me.

I don't have "My Guy, X. That's who I invest with."

I know very little about Madoff - other than he claimed to be investing money but was really running a ponzi scheme and lots of people lost their savings/investments.

[minnesotapaintlady]

Jan 13, 2023 12:37:54 GMT -5 Tiny said:

Jan 13, 2023 12:19:28 GMT -5 minnesotapaintlady said:

Yeah, I'm not sure "pretty safe" is enough when we're talking my entire life's savings.

Not so much a Bernie Madoff scenario, but what about a major cyber hack or Ransomware?  Even if it doesn't result in funds being stolen it could easily result in the site being inaccessible for a long stretch of time.  My company was dead in the water for 6 weeks! 

You are talking "zombie apocalypse"   Fidelity, Vanguard, Schwab --  if one of them has a major cyber hack or Ransomware - millions of people and businesses (and pension funds)  will have problems.   In theory, Fidelity, Vanguard, Schwab take precautions (have a huge number of people working in the areas that keep their servers/systems/data safe.  They have back up plans.  They have company wide education for their employees (several times a year) about "security" dos and don'ts.)     Could it happen?  Sure it could.  But, everyday,  there are lots of people and lots of money working to keep it from happening.    


I sometimes worry about all the nuclear power plants within 100 miles of my home.... but then I find something else to worry about. 

Well, I don't know if I'd call it Zombie Apocalypse level unless the accounts were truly drained, but if you had all your funds at one place, even a short-term disruption in service could be bad.  Cyber attacks that bring down systems are not that uncommon (and increasing) and history is littered with events that nobody believed ever would happen until they did.  

Just saying, even if the chance is small, why not mitigate that risk? 

[Tiny]

Jan 13, 2023 13:08:39 GMT -5 minnesotapaintlady said:

Jan 13, 2023 12:37:54 GMT -5 Tiny said:

You are talking "zombie apocalypse"   Fidelity, Vanguard, Schwab --  if one of them has a major cyber hack or Ransomware - millions of people and businesses (and pension funds)  will have problems.   In theory, Fidelity, Vanguard, Schwab take precautions (have a huge number of people working in the areas that keep their servers/systems/data safe.  They have back up plans.  They have company wide education for their employees (several times a year) about "security" dos and don'ts.)     Could it happen?  Sure it could.  But, everyday,  there are lots of people and lots of money working to keep it from happening.    


I sometimes worry about all the nuclear power plants within 100 miles of my home.... but then I find something else to worry about. 

Well, I don't know if I'd call it Zombie Apocalypse level unless the accounts were truly drained, but if you had all your funds at one place, even a short-term disruption in service could be bad.  Cyber attacks that bring down systems are not that uncommon (and increasing) and history is littered with events that nobody believed ever would happen until they did.  

Just saying, even if the chance is small, why not mitigate that risk? 

Having only one banking relationship is like a "pipe dream" for me.  I've got more financial institution relationships than Carter has Little Liver Pills - or it feels like that.   

My "plan" was to set up my retirement "income" in a couple of tiers:   EF money and 1 year of expenses (income) at the local bank level (checking and savings of some sort) and then 2 years worth of expenses else were (and probably not really easy to get to - so CDs or t-bills or I-bonds or HYSA or something like that. )   and then the rest of my retirement savings working hard at either Fidelity or Schwab (cause I already have relationships with both - but would just consolidate).    Would 'replenish' my yearly expenses every year from the Invested money.  I think I should have this set up so that I could go 2 or 3 years without pulling money from Investments... I need to work on what that would look like.  

In theory as long as my "money" wasn't stolen or "lost forever" -  a financial institution could go dark for weeks (or months) while they sort out their hacking issues and I would be ok.   

Is this what you are talking about - or the overall fear that all the money at a financial institution is just gone never to be replaced?     

(setting up money the FDIC insured might be a way to get around the fear.  If the US government fails - we've all got bigger troubles...) 

[minnesotapaintlady]

Jan 13, 2023 17:03:47 GMT -5 Tiny said:

Jan 13, 2023 13:08:39 GMT -5 minnesotapaintlady said:

Well, I don't know if I'd call it Zombie Apocalypse level unless the accounts were truly drained, but if you had all your funds at one place, even a short-term disruption in service could be bad.  Cyber attacks that bring down systems are not that uncommon (and increasing) and history is littered with events that nobody believed ever would happen until they did.  

Just saying, even if the chance is small, why not mitigate that risk? 

Having only one banking relationship is like a "pipe dream" for me.  I've got more financial institution relationships than Carter has Little Liver Pills - or it feels like that.   

My "plan" was to set up my retirement "income" in a couple of tiers:   EF money and 1 year of expenses (income) at the local bank level (checking and savings of some sort) and then 2 years worth of expenses else were (and probably not really easy to get to - so CDs or t-bills or I-bonds or HYSA or something like that. )   and then the rest of my retirement savings working hard at either Fidelity or Schwab (cause I already have relationships with both - but would just consolidate).    Would 'replenish' my yearly expenses every year from the Invested money.  I think I should have this set up so that I could go 2 or 3 years without pulling money from Investments... I need to work on what that would look like.  

In theory as long as my "money" wasn't stolen or "lost forever" -  a financial institution could go dark for weeks (or months) while they sort out their hacking issues and I would be ok.   

Is this what you are talking about - or the overall fear that all the money at a financial institution is just gone never to be replaced?     

(setting up money the FDIC insured might be a way to get around the fear.  If the US government fails - we've all got bigger troubles...) 

I'm talking about having everything at one place.  I've been considering consolidating everything with Fidelity. Checking, taxable, retirement, bill pay, credit card... There would still be the kids ESA's and 529's, but those should be gone in 10 years.  I guess there would be the Treasury Direct account too. 

Right now I have accounts with Fidelity, Vanguard, Prudential and Schwab in addition to the local credit union and Wells Fargo.  Fidelity could replace them all and I'd have one statement.  One login.  One account for the kids to deal with when I die.

[Deleted]

I'm down to three: most of my investments at UBS, a "sandbox" where I do independent trading at Fidelity (about 25% of my investments) and checking, HSA and Donor-Advised Fund at Fidelity. The 529s are at Edward Jones. I made sure every time I left a company my 401(k) went with me as a tax-free rollover. So, the risk is spread a little but it's manageable.