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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] 50 Billion dollar ponzi scheme will affect everyone
  • Date: Fri, 12 Dec 2008 11:18:10 -0800 (PST)

This was only uncovered because of the failing economy. It has been all the
talk since before daylight on busioness television and on trader's websites.
When very wealthy, politically connected people (mostly in NY and
Florida-retired) lose this much money , all at once, everything in the
finacial world is affected. They could gamble with what they have left to
try to make it back. The new fed funds could be distributed in such a way to
make these people whole. The rich and powerful take care of themselves and
their friends, first. These 'losers' (i mean that only in the sense that
they have lost money, not a character designation) are the 'very' rich....

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DECEMBER 12, 2008 Top Broker Accused of $50 Billion Fraud

Sons Turned In Madoff After He Allegedly Told Them His Investment-Advisory
Business for the Wealthy Was 'Giant Ponzi Scheme'Article

Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force
in Wall Street trading for nearly 50 years, was arrested by federal agents
Thursday, a day after his sons turned him in for running what they said their
father called "a giant Ponzi scheme."




The Securities and Exchange Commission, in a civil complaint, said it was an
ongoing $50 billion swindle, and asked a judge to seize the firm and its
assets. "Our complaint alleges a stunning fraud that appears to be of epic
proportions," said Andrew M. Calamari, associate director of enforcement in
the SEC's New York office.

In a separate criminal complaint, Federal Bureau of Investigation agent
Theodore Cacioppi said Mr. Madoff's investment advisory business had
"deceived investors by operating a securities business in which he traded and
lost investor money, and then paid certain investors purported returns on
investment with the principal received from other, different investors, which
resulted in losses of approximately billions of dollars."

Dan Horwitz, a lawyer for Mr. Madoff, declined to elaborate on the
allegations. "Bernard Madoff is a longstanding leader in the
financial-services industry with an unblemished record," Mr. Horwitz said in
an interview. "He is a person of integrity. He intends to fight to get
through this unfortunate event."

The 70-year-old Mr. Madoff is the founder and primary owner of Bernard L.
Madoff Investment Securities LLC. The firm is primarily known for its
business in market-making, or serving as the middleman between buyers and
sellers of shares. But Mr. Madoff also oversaw an investment-advisory
business that managed money for high-net-worth individuals, hedge funds and
other institutions.

According to the complaints, Mr. Madoff ran the investment advisory as a
secretive business, independent from the firm's proprietary trading and
market-making operations. The SEC complaint said that the alleged fraud was
run through this arm of Mr. Madoff's company.

The FBI complaint quotes two senior Madoff employees as saying Mr. Madoff ran
the investment arm on a separate floor of the firm's offices. The two
employees said Mr. Madoff kept the financial statements from the firm under
lock and key and was "cryptic" about the firm's investment business.

The complaint did not name the two senior employees. But according to people
familiar with the matter, they are Mr. Madoff's sons, Andrew and Mark. Mark
Madoff is the firm's senior managing director and chief compliance officer.
Andrew Madoff is its director of trading.

A call to the sons' attorney was not returned.

Both complaints say Mr. Madoff told his sons he believed losses from his
fraud exceeded $50 billion. That figure couldn't be confirmed. But such a
loss is plausible, had money been flowing in and out for years: At the
beginning of 2008, according to the SEC filing, his operation had more than
$17 billion under management.

Such a scheme would dwarf past Ponzi schemes. It would also be nearly five
times larger than the accounting fraud that drove telecom company WorldCom
into bankruptcy proceedings in 2002.

The criminal complaint said that when Mr. Cacioppi and another agent went to
Mr. Madoff's apartment Thursday, Mr. Madoff told them: "There is no innocent
explanation." Mr. Madoff told the agents that "he paid investors with money
that wasn't there," adding that he was "broke" and had decided "it could not
go on." He said he expected to go to jail.

View Full Image

Associated Press
Investors inquiring about their money, and others, gather Friday in the lobby
of where Bernard L. Madoff Investment Securities has its offices.
After his arrest, federal prosecutors in Manhattan charged Mr. Madoff with
criminal securities fraud.

Mr. Madoff didn't enter a plea during a court hearing Thursday evening. He
was released after agreeing to post a $10 million bond secured by his
Manhattan apartment. A preliminary hearing was scheduled for Jan. 12. He
declined to comment after the hearing.

Under 'Great Stress'
Earlier this month, the criminal complaint says, Mr. Madoff told one of his
sons that "clients had requested approximately $7 billion in redemptions,
that he was struggling to obtain the liquidity necessary to meet those
obligations." On Tuesday, the complaint alleges, Mr. Madoff added that he
wanted to pay bonuses to employees this month, which was earlier than usual.

The next day, the sons met with Mr. Madoff at his office to ask about the
bonus situation because he had appeared to be under "great stress" in prior
weeks, they told the FBI. Mr. Madoff refused to answer their questions and
arranged to meet them at his Manhattan apartment, the complaint says.

Mr. Madoff "wasn't sure he would be able to hold it together" if they
continued to discuss the issue at the office, the complaint quotes one of the
sons as saying. At the apartment, Mr. Madoff confessed that his business was
a fraud and that he was "finished." He said he had "absolutely nothing," that
"it's all just one big lie," and that it was "basically, a giant Ponzi
scheme." He told them the firm was insolvent, according to the complaint.

Mr. Madoff told them he planned to surrender to authorities, but first, he
wanted to pay certain employees portions of the $200 million to $300 million
dollars that was left.

According to a person familiar with the firm, the sons brought the matter to
the attention of their attorney, who notified federal officials Wednesday
night.

Since its inception almost a half-century ago, the Madoff firm has been a
family affair. Mr. Madoff started his company with $5,000 he saved from a
lifeguarding at Rockaway Beach in Queens and a job installing underground
sprinkler systems, according to a 2000 report in a trade magazine, "Wall
Street + Technology."

Mr. Madoff's brother, Peter Madoff, joined the firm around 1970 and is the
senior managing director. Peter Madoff did not return calls for comment.

The two sons, Andrew and Mark, have worked for the securities firm since
graduating from college 20 or so years ago. Neither is involved in the
asset-management business that their father runs, according to a person
familiar with the situation.

"All of his family members grew up with this being our lives. When it is a
family operated business you don't go home at night and shut everything off.
So you take things home with you, which is how all of us grew up," Mark
Madoff told "Wall Street + Technology."

According to a 1986 report in a monthly financial magazine, Financial World,
titled "The Highest Paid People on Wall Street," Mr. Madoff owned three homes
and kept a yacht moored in the Bahamas. The report said he earned $6 million
in 1985. Property records show at one point he owned a home in Montauk, N.Y.,
and paid more than a $1 million in annual taxes. He has made major donations
to Democratic candidates and organizations.

Mr. Madoff's asset-management business appealed to investors for its
remarkably steady returns for investing in the stock market. His investors
consistently enjoyed small monthly gains, usually between zero and 2%. Mr.
Madoff told investors his strategy was to trade in and out of large-cap
stocks and buy options on those shares to help smooth the ups and downs. When
he failed to see opportunities in the market, he would shift to U.S.
Treasurys, according to fund marketing documents and people familiar with his
strategy.

Inside Wall Street's Madoff Scandal
3:55
Another large-scale scandal rocks Wall Street as Bernard Madoff, a Wall
Street titan and investment advisor was arrested for an alleged $50 billion
dollar fraud against investors, WSJ's Kelsey Hubbard and Amir Efrati discuss.
Widespread Skepticism
Mr. Madoff's Fairfield Sentry Ltd., a hedge fund run by Madoff Investment
Services to invest in shares in the S&P 100, claimed to be up 5.6% through
the end of November, a period when the Standard & Poor's 500-stock index was
down 37.65%. In October, Fairfield Sentry was said to be down 0.06%, a month
when the S&P 500 lost 16.8%. Since its inception in December 1990, the fund
averaged a 10.5% annual return, according to fund documents.

Such returns sparked widespread skepticism for years on Wall Street. News
stories raised questions about his approach. A number of traders suggested
his firm could be buying shares for its own account just before it filled
orders for customers, an illegal act called front-running.

In 2001, Mr. Madoff told Barron's that charges of front-running were
"ridiculous."

An executive in the securities industry, Harry Markopolos, contacted the
SEC's Boston office in May 1999, urging regulators to investigate Mr. Madoff.
Mr. Markopolos continued to pursue his accusations over the past nine years,
he said in an interview on Thursday, and according to documents he sent to
the SEC that were reviewed by The Wall Street Journal.

"Bernie Madoff's returns aren't real and if they are real, then they would
almost certainly have been generated by front-running customer order flow
from the broker-dealer arm of Madoff Investment Securities LLC," Mr.
Markopolos wrote to the SEC in November 2005.

The SEC declined to comment on the matter.

Mr. Madoff's investors described their shock and panic on Thursday. Susan
Leavitt of Tampa Bay, Fla., said she had several million dollars of inherited
money invested in the firm and added $500,000 earlier this year. A
stay-at-home mother with two children, the 46-year-old Ms. Leavitt says she
is considering going back to work. "That was my nest egg for the children,
and my future. I'll never see much back, I'm sure," she said.

Ms. Leavitt said she recently discussed her investment with a friend who told
her he was suspicious about the firm's ability to generate such profits amid
the economic crisis. "I thought, 'He's probably just jealous,' " said Ms.
Leavitt. "We've been with [Mr. Madoff] for 15 years, and it's grown every
year at 10%."

U.S. District Judge Louis Stanton, who is overseeing the SEC's case against
Mr. Madoff and his firm, on Thursday appointed Lee Richards, a Manhattan
lawyer, as the firm's receiver in order to preserve its assets and accounts
outside the U.S. The judge also ordered Mr. Madoff and his firm not to move
assets. At a hearing set for Friday, the judge will consider the SEC's
request to grant powers to the receiver over the entire firm, and a complete
asset freeze.








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