It may be impossible to overstate how extensive Bernard Madoff's apparently fraudulent investing seems to be. The 70-year-old investor, who admitted that he had essentially been running a "giant Ponzi scehme" (moving clients' money around to pay clients) while clients thought they were just investing with an unbelievably reliable hedge fund, said he believed the fraud to be around $50 billion. Bloomberg News has a good summary of how Madoff, a Brooklyn boy made good, unraveled (he was under a lot of stress, according to the criminal complaint, before his confession) and here are few quotes that just scrape the iceberg of the insanity:
- “There are people who were very, very well off a few days ago who are now virtually destitute,” said Brad Friedman, a lawyer with the Milberg firm in Manhattan. “They have nothing left but their apartments or homes — which they are going to have to sell to get money to live on.” (NY TImes)
- New York Mets owners Fred Wilpon and Saul Katz...may have lost as much as $500 million in the scheme. (NY Post)
- One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Mr. Madoff. (NY Times)
- During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,'" says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what." (Wall Street Journal)
- Either way, as long as Bernard Madoff delivered big returns, investors didn't ask questions. "I hate computers, and I never tried to figure out what he was doing because the bookkeeping all added up," said Joyce Greenberg, a philanthropist and retired financial adviser in Texas. (Daily News)
- "Palm Beach became a lot poorer in the last 48 hours," said a member at the Trump International Golf Club, where Madoff played regularly and where his brother Peter is a member... Sources say Jerome Fisher, the founder of the Nine West women's shoe empire, was said to have lost $150 million, and Carl Shapiro, who founded the Kay Windsor garment company, reportedly lost $400 million. (NY Post)
- Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says. (Wall Street Journal)
Bottom line: No one was really paying attention while they made money, in spite of red flags. Back in 1999, Harry Markopoulos, working at a rival firm, said, "Madoff Securities is the world's largest Ponzi Scheme," and even, the WSJ reports, "pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal." But the SEC closed their investigation in 2007.
And the WSJ's Jason Zweig has a column on how Madoff made people look dumb: "The accounts managed by Bernard L. Madoff Investment Securities LLC reported gains of roughly 1% a month like clockwork, with nary a loss, for two decades. Why did that freakishly smooth return not set off alarms among current and prospective investors? Of all people, sophisticated investors like Mr. Madoff's clients should know that if something sounds too good to be true, then it's not. But they believed it anyway. Why?"