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____________________________________The NASP Institute June 10, 2009


... that he has been running 'giant ponzi' scheme that has cost clients over $50 billion; ... Madoff confesses Ponzi Scheme to FBI ... – PowerPoint PPT presentation

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Title: ____________________________________The NASP Institute June 10, 2009

OPTIONS IF THINGS GO WRONG Track 202, 345 p.m.
410 p.m. Marvin Barge Chief Executive
Officer Barge Consulting, LLC
What happened with Madoff?
Madoff Firm Affiliations
  • Bernard L. Madoff Investment Securities LLC
  • broker-dealer market maker
  • investment adviser to wealthy clients/banks
  • hedge fund manager, later an RIA (at SECs
  • Cohmad Securities Corp.
  • broker-dealer owned by Madoff and Maurice Cohn
    used for feeding Madoff hedge fund

Madoffs Cultivated Reputation
  • Very elusive to individual investors creating an
    air of exclusivity/denied due diligence
  • Credible background (i.e., NASDAQ Chairman)
  • Noted for exceptional attention to detail
  • Historically reported extremely consistent
    returns/gains in any economic environment
  • Referrals from very wealthy investors via word of
  • Investors assumed that since Madoff was being so
    highly recommended that he must be reputable.

Markopolos sends Red-Flags to the SEC/Lax
regulatory oversight
  • 2000, 2001, 2005, 2007, 2008 Harry Markopolos
    submits letters and evidence to SEC laying out
    the Madoff fraud
  • January, 2006 SEC investigated Madoff firm, but
    found only minor violations
  • The SEC and FINRA had been in the Madoff firm 8
    times in 16 years

Madoff Confession/Arrest
  • December 10, 2008 Madoff confesses to his 2
    sons that he has been running giant ponzi
    scheme that has cost clients over 50 billion
  • December 11, 2008 Madoff arrested by FBI.

Regulators Listen to Markopolos
  • December 18, 2008 Markopolos again shares
    documents with SEC re red-flags (2005 letter to

Madoff confesses Ponzi Scheme to FBI
  • In early December 2008, Madoff told senior
    employees that he was struggling to find
    liquidity for client requested redemptions.
  • Madoff tells FBI that firm he was broke and the
    firm insolvent for years.
  • Investors had been paid for years out of other
    investors principal.
  • Madoff its all just one big lie

Madoff Family - The ties that bind
  • Federal investigators have found no evidence so
    far that members of Madoffs family helped him
    carry out the largest financial fraud in history.
  • YET!
  • Andrew Madoff held a senior position in the firm.
    Andrew and his brother Mark ran the BD.

Then SEC Chairman Cox has the SECs Inspector
General look into staff contacts with Madoff
Madoffs victims
  • Name Loss
  • Fairfield Greenwich Advisors 7.5 billion
  • (investment management firm)
  • Banco Santander 2.87 billion
  • (Spanish bank)
  • Access International Advisors 1.5 billion
  • Carl Shapiro 500 million
  • (apparel entrepreneur)
  • Jewish Community Foundation of LA 18 million
  • Steven Speilberg still unknown
  • United Assc of Plumbers Pipefitters still
  • (15 years of investing with Madoff)

  • If it seems too good to be true, it usually is.
  • (All investments have positive and negative
    performance. Markopolos stated that he figured
    out Madoffs fraud in about 15 minutes.)
  • Do your homework.
  • (Due diligence was lax or non-existent. Many
    investors had over concentrated in one manager.)
  • 3. Ask questions re Conflicts.
  • (Does the adviser self custody? What is the
    independence of the auditor? Family
  • Account Reviews.
  • (Valuation of securities? Reconciliation with
    independent documents? )

February 4, 2009 Markopolos Testifies Told
lawmakers that turf battles between the Boston
and New York offices of the SEC were at the heart
of the agency's bungling of the case.
Markopolos Testifies
  • Based on his submissions to the SEC, the fraud
    should have been stopped in 2000, at 3- billion.
  • The SEC lacks the financial expertise and is
    incapable of understanding the complex financial
    instruments of the 21st Century.
  • Ed Manion in the Boston Regional Office was his
    champion and urged him to continue his
  • The SEC is captive to the industry it regulates
    and is unwilling to pursue the big cases.

New SEC Chairwoman
  • Schapiro vows to make SEC a tougher regulator
    (February 7, 2009)
  • The new chief vowed to make the beleaguered
    regulator a tougher and faster cop on Wall
    Street, saying her staff will act like their
    "hair is on fire".
  • Amid an avalanche of criticism against the agency
    for failing to detect Madoff's fraud in spite of
    apparently credible allegations brought to its
    attention for nearly a decade.
  • She said "a strong and reinvigorated SEC will be
    on the beat like never before to catch
  • Announced steps to expedite enforcement cases by
    removing some procedural hurdles faced by

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