Tuesday, May 12, 2009

PBS Frontline: "The Madoff Affair"

On Tuesday May 11, PBS Frontline aired “The Madoff Affair”, about the Bernie Madoff Ponzi Scheme. The link is here.

The firm had operated on the 17-19th floor of the Lipstick Building in New York. On the 19th Floor was the “wholesale” business, rather conventional. On the 17th floor was the secret business, that took in whole families and worked with arcane paper statements each month. There were promissory notes with set rates of returns. On Dec. 11, 2008, three months into the Financial Crisis of 2008, investors were stunned by the news of his arrest.

One oddity was that Madoff discouraged some of his executives to get SEC licenses, even before the Ponzi operation started. Madoff himself did not have a license, and did not want his name listed on prospectuses.

Madoff engaged in other practices like “frontrunning” and “split strike conversion.”

Madoff did not tolerate questions from investors, who relied on informal social networks (especially in Palm Beach, FL). Madoff kept things quiet; “Madoff liked it that way.” A mathematician named Harry Markopolos from Boston tried to get the SEC to see that Madoff’s scheme could not be legitimate.

The film then goes into congressional investigations as to why the SEC could not catch Madoff (who was pretty much playing the “Catch Me If You Can” game).

Bernie Madoff was still making money in October 2008 when many other hedge funds were tanking (most of all AIG’s). Madoff said that the “investment banks were destroying the United States.”

Burt Ross, Madoff investor, says that the only reason Madoff got caught was that the recession was so bad that investors needed to withdraw money even from him. A company called Fairfield Greenwich could not keep him rolling. The Fairfield site is this and has interesting material on the Madoff affair, to say the least.

Finally, Madoff confessed to his sons (who ran the “legitimate” business on the 19th floor of the pink Lipstick Building), who arranged with an attorney to go to the FBI.

“This may be the only fraud in history where the government has extreme complicity.”

Madoff “feeders” now face lawsuits from the lack of doing due diligence.

The film says that Bernard L. Madoff will be sentenced “next month” but overlooked the opportunity to show in him jail now. Imagine how suddenly a borrowed life came crashing down, for good. He'll have karma to pay in his next incarnation. So could a lot of us, for so many different reasons.

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