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Market Intelligence

How Madoff “Made Off” with So Much Money

Seaver Wang | April 29, 2011

Guess what? Its going to happen again, and again, and again. Politicians who want more regulation are just going to make things more difficult on law-abiding businesses. There is a reason they are called criminals. Its because they DON’T follow the rules!

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
Warren Buffett

If only Bernie Madoff listened to Warren. He operated the largest Ponzi scheme in history, costing investors up to $50 billion.

Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. Its the easiest con game and anyone can do it. Sadly, it doesn’t take a master-mind financier to execute it which is why it’ll happen again and again. I’m sure there are people doing it right now or you may even know someone who is doing it right now. Do you know a guy who has asked for a few bucks to tie him over and he always pays you back and even with some interest? Now they have established a track record and you know he’s “good for it”. Finally, he’ll ask for more money and you might get paid interest so why not…..until he doesn’t pay you back and stops taking your phone calls. Same thing. Ponzi schemes don’t have to be on a large scale. Bernie Madoff just achieved it on a large scale and got away with it because he was well respected.

As for the SEC? They are good at making up the rules, not enforcing them. With so many firms in the country there is no way they can monitor all of them, but they are still at fault for one primary reason. A man named Harry Markopolos, an investment industry executive, wrote the SEC a detailed report on why Madoff was a fraud. He repeatedly warned the SEC over an eight year period and no action was taken. 

Here is a link to a copy of Markopolos’ report to the SEC which shows in great detail a number of red flags.

http://www.lgesquire.com/LG_MarkopolosMemoToSEC.pdf

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