Warning : file_put_contents() [ function.file-put-contents ]: Only 0 of 10001 bytes written, possibly out of free disk space in /home/malkuth/domains/things.hobby-site.com/public_html/investments/html/main/main.php on line 51
The Madoff investment scandal is the Ponzi scheme that former NASDAQ chairman Bernard Madoff confessed to in 2008. He founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest. Alerted by his sons, federal authorities arrested Madoff on December 11, 2008. On March 12, 2009, Madoff pled guilty to 11 felonies and admitted to operating what has been called the largest investor fraud ever committed by an individual. On June 29, 2009, he was sentenced to 150 years in prison with restitution of $170 billion. According to the original federal charges, Madoff said that his firm had "liabilities of approximately US$50 billion". Prosecutors estimated the size of the fraud to be $64.8 billion, based on the amounts in the accounts of Madoff's 4,800 clients as of November 30, 2008. Ignoring opportunity costs and taxes paid on fictitious profits, less than half of Madoff's direct investors lost money.
Investigators have determined others were involved in the scheme. The U.S. Securities and Exchange Commission (SEC) has also come under fire for not investigating Madoff more thoroughly; questions about his firm had been raised as early as 1999. Madoff's business, in the process of liquidation, was one of the top market makers on Wall Street and in 2008, the sixth-largest.
Madoff's personal and business asset freeze has created a chain reaction throughout the world's business and philanthropic community, closing many, including the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation.
Background
Madoff started his firm in 1960 as a penny stock trader with $5,000 (about $35,000 in 2008 dollars), earned from working as a lifeguard and sprinkler installer. His fledgling business began to grow with the assistance of his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families. Initially, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate its quotes. After a trial run, the technology that the firm helped develop became the NASDAQ. At one point, Madoff Securities was the largest buying-and-selling "market maker" at the NASDAQ.
He was active in the National Association of Securities Dealers (NASD), a self-regulatory securities industry organization, serving as the Chairman of the Board of Directors and on the Board of Governors.
In 1992, The Wall Street Journal described him:
..."one of the masters of the off-exchange "third market" and the bane of the New York Stock Exchange. He has built a highly profitable securities firm, Bernard L. Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board. The $740 million average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the New York exchange's. Mr. Madoff's firm can execute trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers' orders, profiting from the spread between bid and asked prices that most stocks trade for."
Several family members worked for him. His younger brother, Peter, was Senior Managing Director and Chief Compliance Officer, and Peter's daughter, Shana, was the compliance attorney. Madoff’s sons, Mark and Andrew, worked in the trading section, along with Charles Weiner, Madoff’s nephew. Andrew Madoff had invested his own money in his father's fund, but Mark stopped in about 2001.
Federal investigators believe the fraud in the investment management division and advisory division may have begun in the 1970s. However, Madoff himself stated his fraudulent activities began in the 1990s.
In the 1980s, Madoff's market-maker division traded up to 5% of the total volume made on the New York Stock Exchange. Madoff was "the first prominent practitioner" who paid a broker to execute a customer's order through his brokerage, called a "legal kickback", which gave Madoff the reputation of being the largest dealer in NYSE-listed stocks in the U.S., trading about 15% of transaction volume. Academics have questioned the ethics of these payments. Madoff has argued that these payments did not alter the price that the customer received. He viewed the payments as a normal business practice: "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated."
By 2000, Madoff Securities, one of the top traders of US securities, held approximately $300 million in assets. The business occupied three floors of the Lipstick Building, with the investment management division, referred to as the "hedge fund", employing a staff of approximately 24. Madoff ran a branch office in London, separate from Madoff Securities, which employed 28, handling investments for his family of approximately £80 million. Two remote cameras installed in the London office permitted Madoff to monitor events from New York.
Modus operandi
In 1992, Bernard Madoff explained his purported strategy to The Wall Street Journal . He said the returns were really nothing special, given that the Standard & Poors 500-stock index generated an average annual return of 16.3% between November 1982 and November 1992. "I would be surprised if anybody thought that matching the S&P over 10 years was anything outstanding." The majority of money managers actually trailed the S&P 500 during the 1980s. The Journal concluded Madoff's use of futures and options helped cushion the returns against the market's ups and downs. Madoff said he made up for the cost of the hedges, which could have caused him to trail the stock market's returns, with stock-picking and market timing.
Purported strategy
In March 2009, Madoff admitted that since the mid- 1990's he stopped trading and his returns had been fabricated. Madoff's sales pitch, an investment strategy consisted of purchasing blue-chip stocks and taking options contracts on them, sometimes called a split-strike conversion or a collar. "Typically, a position will consist of the ownership of 30–35 S&P 100 stocks, most correlated to that index, the sale of out-of-the-money 'calls' on the index and the purchase of out-of-the-money 'puts' on the index. The sale of the 'calls' is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the 'calls'. The 'puts', funded in large part by the sales of the 'calls', limit the portfolio's downside."
- Example of a Madoff Investment Securities LLC monthly statement
In his 1992, "Avellino and Bienes" interview with The Wall Street Journal , Madoff discussed his supposed methods: In the 1970s, he had placed invested funds in "convertible arbitrage positions in large-cap stocks, with promised investment returns of 18% to 20%", and in 1982, he began using futures contracts on the stock index, and then placed put options on futures during the 1987 stock market crash. A few analysts performing due diligence had been unable to replicate the Madoff fund's past returns using historic price data for U.S. stocks and options on the indexes. Barron's raised the possibility that Madoff's returns were most likely due to front running his firm's brokerage clients.
Mitchell Zuckoff, professor of journalism at Boston University and author of Ponzi's Scheme: The True Story of a Financial Legend, says that "the 5% payout rule", a federal law requiring private foundations to pay out 5% of their funds each year, allowed Madoff's Ponzi scheme to go undetected for a long period since he managed money mainly for charities. Zuckoff notes, "For every $1 billion in foundation investment, Madoff was effectively on the hook for about $50 million in withdrawals a year. If he was not making real investments, at that rate the principal would last 20 years. By targeting charities, Madoff could avoid the threat of sudden or unexpected withdrawals.
Sales methods
Rather than offer high returns to all comers, Madoff offered modest but steady returns to an exclusive clientele. The investment method was marketed as "too complicated for outsiders to understand". He was secretive about the firm’s business, and kept his financial statements closely guarded. The New York Post 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". The New York Times reported that Madoff courted many prominent Jewish executives and organizations; according to the Associated Press, they "trusted because he is Jewish". One of the most prominent promoters was J. Ezra Merkin, whose fund Ascot Partners steered $1.8 billion towards Madoff's firm. A scheme that targets members of a particular religious or ethnic community is a type of affinity fraud, and a Newsweek article identified Madoff's scheme as "an affinity Ponzi".
Madoff was a "master marketer", and his fund was considered exclusive, giving the appearance of a "velvet rope". He generally refused to meet directly with investors, which gave him an "Oz" aura and increased the allure of the investment. Some Madoff investors were wary of removing their money from his fund, in case they could not get back in
Warning : file_put_contents() [ function.file-put-contents ]: Only 0 of 13616 bytes written, possibly out of free disk space in /home/malkuth/domains/things.hobby-site.com/public_html/investments/html/includes/simplepie.inc on line 8252
Warning : ./html/images/9d3efa737869a41b4ae8e93da17b888a.spc is not writeable in /home/malkuth/domains/things.hobby-site.com/public_html/investments/html/includes/simplepie.inc on line 1771
Starting and running an investment club - ASX investment club manual
The investment clubs section of the ASX website describes what an investment club is, and goes through some of the reasons for starting one. We explain how to set up an investment ...
Introduction to Investment Clubs | Investmentclubhelp.com
Here at Investment Club Help, we offer a comprehensive guide on how to start an investment club or stock club with lots of easy-to-follow information on investing club goals ...
Investment Clubs
See the CNN feature about the Mutual Friends Investment Club Read more about the Mutual ... Investment Clubs: The learning advantage. A traditional investment club like the Mutual ...
How to Organize an Investment Club | eHow.com
How to Organize an Investment Club. If you're interested in investing in the stock market but don't know where to begin, start with an investment club. These clubs allow interested ...
ICLUBcentral - Investment Club Learning Center
The Club Hub: Investment Club Learning Center How to Start and Run an Investment Club. Learn how to start and run a successful investment club from Doug Gerlach, America's Investment ...
How to Start a Club
There are many steps involved in getting an investment club up and running, but fret not -- most of them are relatively straightforward. We've summarized many of them below and we ...
How to Start an Investment Club | eHow.com
How to Start an Investment Club. Starting an investment club is a fun, easy way to learn about investing. It is risky and exciting as you and co-members either increase or decrease ...
Starting an Investment Club
Starting an Investment Club -- Publication about starting an investment club and helpful hints on how to organize your club.
How to Start an Investment Club - wikiHow
wikiHow article about How to Start an Investment Club. ... If you're interested in investing but don't want to go at it alone, you can join an investment club or even start one of ...
Investment Clubs - How To Start An Investment Club - Real Estate ...
Investing in the stock market can be risky, but profitable. An investment club is a popular activity for many new investors. It is a way for a group of people to pool their money ...