You might not have heard about this one -- as it broke late in the day. It also seems to be largely ignored in the media, lost among all the auto bailout and Blagejovich scandal stories. One of Wall Street's most famous traders was arrested today, in the midst of a collapsing Ponzi scheme which the New York Times is reporting as a multibillion-dollar fraud scheme — perhaps the largest in Wall Street’s history. Bernard Madoff started his own brokerage almost 50 years ago, with $5,000. Today, he is accused of defrauding investors of as much as $50 billion.
You might not have heard of Madoff, but "on Wall Street, his name is legendary". His brokerage house employed hundreds of people. He may have had the longest winning streak on Wall St., generating yearly returns in excess of 11% for his investors. No one knew it was a house of cards.
The scheme came apart, and Madoff was arrested, as he was trying to distribute the remaining assets of his once huge fund -- now down to a few hundred million dollars at most. The feds say they acted to recover as much of investors' assets as possible. It would seem that almost all of it is already gone -- whatever there was, has probably been lost in the massive equity collapse of the past few months in the markets.
This story actually hits awfully close to home. My girlfriend is a single mother -- a public school special education teacher. Her father made a fair amount of money in real estate in New York, before he retired. Madoff approached his company and encouraged him to invest, along with members of his family. My girlfriend's father may have had some stars in his eyes, but saw no reason to think there was anything crooked in the works, as Madoff was already becoming well-known on the Street.
In the end, he had a pretty good-sized fortune tied up in Madoff's accounts. His sister invested everything she had. The kids were taught all the right lessons -- to save, rather than borrow -- to pay off their cards every month, to get fixed APR mortgages, etc. They were also tought to invest for the future. They have all invested money with this guy. Now, the kids have each lost tens of thousands of dollars. The father lost more than each of them combined -- I don't want to say just how much, but I hope to earn that much in my lifetime.
It does get me to wondering though. There's a lot of folks getting bailed out lately. To be precise, there are some very prominent firms and companies being bailed out. Still, there is nothing offered for the homeowners who are losing their homes. Nor any relief for the credit card debtors, who've seen their interest rates triple -- even as the banks lower their credit limits in a cynical ploy to gain overlimit fees from cardholders who were not over the limit previously. Will there be relief for them?
Will there be relief for the countless investors who have lost so much investing with what they thought was one of the most trustworthy brokerages? There was a bailout for the big Wall St. banks. What about investors who've been defrauded?
Just wondering...
"According to his lawyers, Mr. Madoff was released on a $10 million bond. "Bernie Madoff is a longstanding leader in the financial services industry," said Daniel Horwitz, one of his lawyers. "He will fight to get through this unfortunate set of events.""
What about his investors?
According to the court documents (the SEC's complaint in the U.S. District court for the Southern District of New York),
the case came to light on Wednesday when Mr. Madoff told two senior employees at the firm that his money-management unit was "all just one big lie" and "basically, a giant Ponzi scheme."
By this account, Mr. Madoff said that he intended to surrender to authorities in about a week but first wanted to distribute approximately $200 million to $300 million to "certain selected employees, family and friends."
I guess Madoff wanted to -- sort of -- help out some of his investors -- or, at least, his favorite ones.
Will the gov't. step up and really help the victims? They've moved to freeze overseas accounts. Who's going to get that money? What if it's woefully inadequate? It must be, or Madoff would still be at his game.
Will there be relief for the people who've lost so much, victims of a perfect storm of old-fashioned fraud and 21st Century market failure?