November 2005 : The World's Largest Hedge Fund is a Fraud

[Whoha]

This is pretty interesting, the SEC was basically given Madoff on a silver platter back in 2005 and did nothing.

Red Flag # 6: At my best guess level of BM's assets under management of $30billion, or even at my low end estimate of $20 billion in assets under management,BM would have to be over 100% of the total OEX put option contract open interest in order to hedge his stock holdings as depicted in the third party hedgefunds marketing literature. In other words, there are not enough index option put contracts in existence to hedge the way BM says he is hedging! And there is no way the OTC market is bigger than the exchange listed market for plain vanillaS&P 100 index put options.

Red Flag # 17: Madoff does not allow outside performance audits. One London based hedge fund, fund of funds, representing Arab money, asked to send in a team of Big 4 accountants to conduct a performance audit during their planned due diligence. Theywere told "No, only Madoff s brother-in-law who owns his own accounting firm isallowed to audit performance for reasons of secrecy in order to keep Madoff sproprietary trading strategy secret so that nobody can copy it. Amazingly, this fund of funds then agreed to invest $200 million of their client's money anyway, because the low volatility of returns was so attractive!! Let's see, how many hedge funds have faked anaudited performance history?? Wood River is the latest that comes to mind as does the Manhattan Fund but the number of bogus hedge funds that have relied upon fake audits has got to number in the dozens.

It is 20 pages.

http://online.wsj.com/documents/Madoff_SECdocs_20081217.pdf

[Arrian]

The SEC didn't do its job. Obviously. And not just with Madoff.

-Arrian

[OneFootInTheGrave]

deregulation... so obvious yet so hard to act on when the times are good... noone wants to be a party breaker, as no matter how sound the decisions, they would immediately (and also later) be crucified for life as the person who started the depression (ie even if their nailing Maddoff just coincided with the start of the credit crunch for example) ... no matter how unreasonable that might be

[Zkribbler]

When Spitzer was NY AG he did a wonderful job nailing Wall Street evildoers whom the SEC were ignoring.

Too bad he was nailing someone else was well.

[DanS]

The SEC hasn't been doing its job on Madoff for a long, long time unfortunately. It's a testament to the SEC's lack of smart enforcement that normal market forces are exposing all of these frauds.

[snoopy369]

They should hire Steven Levitt to police the SEC

[Zkribbler]

... It's a testament to the SEC's lack of smart enforcement that normal market forces are exposing all of these frauds.

There's a old Wall Street proverb, something like:

"Bull markets create frauds. Bear markets expose them."

[MOBIUS]

Is this the guy who's been warning the SEC on and off for the last 8 years or so...?

I'm still in a state of utter disbelief that our respective govts ever allowed us to get in this huge mess in the first place. When you start looking at some of this stuff, even a 5 year old would realise the whole thing would go tits up eventually...

Needless to say, I am a whole lot more educated about finance these days. Or, as they say, DYOR!

Buy Gold!