I thank all those contributors, who are knowledgeable about financial controls. They confirm my belief that Madoff could not have acted alone. He had lots of help from many enablers.

Neo-neocon – I know that your background allows you great insight into the psychology of predators like Madoff, but perhaps you should do some studying of what makes up the psychology of the enablers. It is the enablers, helpers and those who “look the other way” that feed the predators like Madoff and make it possible for them to do their damage. We need to make it clear to all that it is morally wrong to “look the other way”. Bernie had lots of help from enablers, and they should be punished as well. It seems that the enablers in our society are gaining the upper hand. Perhaps those of us with moral convictions are the real wierdos!

I’m less confident than you that investors’ money would have been pulled out quickly at the first indications of trouble. Banks are easily accessible, and demand deposits are called that for a reason–you can withdraw them anytime you want. They also tend to be institutions that people don’t feel have much sentimentality for. Especially these days with all the mergers and changes. If it shows signs of weakness, money will fly out. I’m not so sure that holds as true for investments, especially when they’re with a well-known, respected money manager like Madoff. Other money managers shouldn’t cut him any slack, but I can’t help but wonder if they did, because of his reputation. Maybe we’ll find this out down the road as well.

I agree that it is every investor’s responsibility to know where they are putting their money — whether it be with an investment manage, a mutual fund, a bank, money market account, what they stand to gain and by what means, and, most especially, what they stand to lose — what is the risk. At the least, if they are paying someone to make these decisions for them, they are still responsible for checking out such person’s background, record, and so forth.

As for “cracks” having been found and ignored due to people’s “not wanting to believe their eyes,” I very seriously doubt it. Just over 6 mos. ago we saw the 2nd largest bank failure in U.S. history (Indymac) result simply from ruminations on the part of a U.S. Senator in a letter. If any cracks had been found, money would have drained out of Madoff faster than you can say electronic transfer!

The audit question is another mystery unto itself. Whether the audits were truly independent (was Madoff’s firm the entire source of business for the auditors?) and were audits complete with 3rd party confirmation tests? Were they based solely on Madoff generated documents? As an ex-auditor (in my distant past) I’m most curious to learn the answers.

But remember, ANY audit is only so good as the set of books and access to information afforded the auditors. I’m waiting for more answers concerning the SEC, but they, too, can investigate only to the extent that they have access (which of course would exceed any auditor’s). Frankly, I suspect that Madoff’s cozy ties to regulators (including his niece’s now-husband who was a compliance officer w/ SEC) might at least partially answer the question of how he pulled off what he did for so long, but there’s a LOT to answer for. I’m eager for the answers to many questions, but I’m not sure we’ll ever learn all the answers. But then again, maybe we will.

I’m still curious about what the third-party documents showed. If the “auditor” was relying only on Madoff-generated documents, then he wasn’t conducting a true audit, and could not legally have passed it off as such. If he did, he can probably figure on spending some time in the Big House, as well as never being let near a set of company books again. And what was the SEC doing while this was happening?

The only problem is, as it relates to Madoff, the “recipe” for investiment presented to investors was indeed quite simple. It called for sticking to blue chip stocks, combined with the use of calls and puts to hedge against market fluctuations. Calls and puts are fairly elementary options actions.

Further, more than once you accuse Madoff investors of greed and failure to due diligence. Where do you assume either? What makes you think investors did not ask pointed questions? In point of fact, Madoff had a team of people whose jobs were dedicated to answering questions and discussing (supposed) investments at any time an investor called. Much has been made of his personal unavailability, however, and that is interesting. Personally, I find it hard to believe that those who ran funds and banks which invested
hundreds of millions (much of which was investors’ money) — some more than $ 1 billion — did not have top ranking personnel meet with him personally before commiting such enormous amounts of money.

As far as people being stupid about money, if you re-read my post, you’ll note that I was referring to how the public might react to reading about it from writers of the left and right who might attempt to portray Madoff’s scam as a failure of capitalism. I wasn’t necessarily referring to Madoff’s investors.

How would I avoid getting singed where more “sophisticated” investors than I ended up with second-and third-degree burns? Here’s where I take one of Warren Buffet’s rules very seriously: never invest in something you don’t understand. If you don’t understand the product, don’t understand how the company is supposed to make money selling it, how its finances are structured, and so on, then you should probably not invest in it. The corollary to this is: beware of geeks bearing formulas. If you need a complex mathematical formula to show you how your investment is going to turn $1 into $2, it’s probably best to look elsewhere. If someone says he can get 12% ROI when everyone else is getting 4% or 5%, you better believe I’m going to ask some pointed questions, I don’t care how connected the guy is or how sterling his reputation is.

csimon , Agreed

But keep in mind if you recall there were time when Enron and other big business like Xerox and others they have hard time for there false claims/ Share values and US courts went through them.

As per Madoff business there is good case to be investigated first of all specially with that time 2000 when those other brought to court after investigations,

So what make people who looked to Enron and other business far from such Madoff business when in facts there is some noise regarding their business?

Anyway here the market and customers left behind with billions of dollars lost by a Lair.

Btw, Spain and many other just files court case against Madoff in US, let see what these case cane achieved and did Madoff loose his personal wealth due to his fraudulent behaviours.

There was an article in the NY Post (or WSJ, I frankly don’t remember) which reveals a decades-old SEC prosecution of Madoffs parents (!) for accounting fraud. The senior Madoffs were allowed to remain free in exchange for never again be involved in accounting. Wasn’t in the sixties when Madoff began his financial business in the first place?

Also, how was it that the SEC were able to catch his parents’ fraud and gain guilty verdicts so quickly, while today’s SEC will not?

By the way, in response to your thought about checking employees’ salaries: remember those 100 checks sitting in Madoff’s desk, signed and addressed? Those checks distributed nearly the entire balance remaining in Madoff’s accounts (rumored –and I stress RUMORED because only the Feds who have them know for sure — to be between $175 – $300 million). All 100 checks were made out to Madoff’s family, a few friends, and all the rest to employees.