Pyramid schemes have hit Wall Street, and not just a small ponzi either. Bernard Madoff has allegedly admitted to conning over 50 billion dollars as a broker.
One Big Lie
Mr Madoff had a hedge fund that paid high amounts to early investors by using funds received from new investors. Many big timers have been conned. Including, "the main owner of the New York Mets baseball team, Fred Wilpon, and former American football team owner Norman Braman... French bank BNP Paribas, Japan's Nomura Holdings and Zurich's Neue Privat Bank." (BBC) Losses are huge. A London Stock Exchange investing company has been hit hard. "Bramdean Alternatives, a UK-based asset management company run by Nicola Horlick, saw its share value drop by over 35% after it revealed that nearly 10% of its holding was exposed to the New York broker." 7.5 billion was invested by Fairfield Greenwich Group customers.
The Jewish Circuit
"The New York Post has reported that Madoff, "worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach, and through his position on the boards of directors of several prominent Jewish institutions, he was entrusted with entire family fortunes." (Wikipedia)
"Unlike the WASP clubs, to join, you have to have made major charitable contributions. You also have to have made your fortune in clean ways. There are no garbage magnates, no slumlords. You have to be a person of character. And there was no one more revered and honored than Bernard Madoff." (NY Post)
Goodbye Hedge Funds
Speculators say that because of Madoff, hedge funds will go extinct. Hedge funds are performance based investments, where the investor gets as much as 20% of the profits. Hedge funds aren't regulated as closely due to the private nature of investments - they can invest in a wider variety of activities. It allows a select few investors to get around regulations on short selling and other highly regulated activities.
Warning Unheeded
As early as last year
Aksia urged its clients not to invest under Bernard Madoff. "Red flags" such as the name of the three-person
auditor,
Friehling & Horowitz. "The auditor signed off on Madoff’s annual financial statement through Oct. 31, 2006." (
Bloomberg) Friehling & Horowitz operate out of a New York city office park, a 13-by-18 foot location.
Madoff's clients were paid small consistent positive monthly returns.
Feeder fund accounts had a high degree of secrecy.
"If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m." (BBC)
Bernard Madoff was born in 1938. He is married to Ruth Madoff. He started his first company in 1960 with an initial $5,000 investment he earned from being a lifeguard.
Sources:
http://www.bloomberg.com/apps/news?pid=20601087&sid=afr_KQndJUUs&refer=home
http://news.bbc.co.uk/go/rss/-/2/hi/business/7781086.stm
http://en.wikipedia.org/wiki/Bernard_L._Madoff
http://www.nypost.com/seven/12132008/news/columnists/jewish_circuits_faith_is_shaken_143953.htm