Transacting business online hardly assures protection from the temptations and frailties of being human. Just ask the former chairman of the Nasdaq , Bernard Madoff of Madoff Investment Securities.
Madoff, 70, a pioneer of electronic trading and automated market making, is charged in an alleged $50 billion Ponzi scheme that spanned years.
Madoff was arrested by the FBI this week and appeared before U.S. Magistrate Judge Douglas Eaton in Manhattan Federal Court. There he was charged with one count of securities fraud and was released into his wife’s custody after she posted a $10 million bond.
Madoff’s firm has approximately $17 billion in assets under management and will surely be unable to repay investors. Half the investors were hedge funds; the rest were banks and high-net-worth individuals.
Madoff's scheme began to unravel the first week of December when some clients attempted to redeem $7 billion in assets and Madoff was struggling for liquidity to meet the payment, according to a Bloomberg report.
On December 9, Madoff told senior employees he wanted to pay bonuses in December rather than in the traditional month, February, saying he'd made a large profit through business operations. But when further pressed about the irregularity by the workers in the office, Madoff said he “wasn’t sure he could hold it together” and preferred to move the meeting to his apartment, according to the FBI complaint.
It was at his apartment that Madoff confessed that his advisory business was a “fraud” and he was “finished.” He further went on to say that ”it’s all one big lie” and that his business was “basically a giant Ponzi scheme.”
In this week’s complaint, an FBI agent wrote that yet another senior employee understood Madoff had paid investors for years out of principal from other investors -- in other words, robbing from Peter to pay Paul, the classic characterization of a Ponzi scheme.
In a statement to prosecutors, another senior employee said that Madoff ran his investment advisory business from a separate floor of his firm’s offices, where he kept his financial records “under lock and key.”
In his confession, Madoff had “no innocent explanation,” and went on to say he was personally “broke” and “insolvent.”
Electronic trading has been associated with the recent extreme volatility. But even though all trades on the Nasdaq -- involving more than 3 billion shares a day -- are executed through a computer and telecommunications system, the real issues affecting its assets are the result of human actions, not machines.
As the economy retrenches further, and more and more individuals become desperate, it becomes incumbent on all of us to continue to be vigilant in all aspects of our finances. Electronic banking, credit card fraud,
and, given this latest news, especially online brokers,
must be checked, checked, and re-checked on almost a daily basis.
To err is human; to forgive is expensive.
— Chris Poley has been a professional trader for over 20 years
Timing's everything, isn't? Even when you're alleged to be a financial genius, it's a drag when big loans to start to get called. There was an interesting report in today's L.A. Times about the impact on local Jewish charities and some foundations overseen by Steven Spielberg.
I'll bet other high-risk investment schemes get exposed as these harsh winds blow, but hopefully none on the scale of what Madoff did.
If my memory serves me correctly, your from south Florida. You certainly can relate to the Real Estate bubble and how even the people in the know can easily get in over there head. Then the games begin, unfortunately they usually take many innocent people with them. Best of luck to all Floridians.
I would think Madoff's ponzi like scheme if true, is pretty much like we all behaved in the last several years of the "boom." We all atttempted to "borrow" our way to bigger and better things, thinking all would work out well in the end.
Real Estate speculators and home owners borrowed from banks and mortgage companies, often putting more money in their pockets from the transaction than could reasonably be paid back without resorting to future borrowing from hoped for increases in equity growth.
Maldoff simply "borrowed" from his new investors, and paid back the old investors with the new "borrowed" money. Maldoff like us, believed markets only move in our favor, so thinking thus, felt safe he could always repay the money in full eventually, notwithstanding his investsment were not successful in the end.
Like the banks and mortage companies, he didn't warn his customers that he was over his head in debts that could not be paid back until it was too late.
Maybe the feds should bail out the Madoff's of the financial world too?
Incidents like madoff's serve as an alarm to reconsider investment strategies, as already pointed out. And exactly because the lust for money is a contigious human characteristic I expect to see more similar cannons breaking out in the coming time. Europe is already worrying about some of its greatest banking institutions.
Internet has reduced information assymetry and it definately improves informed decision taking, however most of the people follow the "leader" or the many and this is probably what significantly affects financial consequences of malpractices.
Ashish. I totally understand -- theoretically -- the need for folk not to balk from investing in order to keep the flow going; and I embrace that philosophy wholeheartedly. However, the reality is that I am personally not willing to take any risks. I can only think corporations are also in the same position.
When something like the Madoff scandal emerges, it only makes the negative thinking more entrenched.
I think this particular situation will do incredible damage to any tentative recovery among investors.
Ashish, I do appriciate all your comments whether you agree or disagree with me. That is what this forum is all about.
As far as harping on the negative, my attempt is to be objective. Although, I agree many of my blogs point out the dark underbelly of the Internet. However, they do exist, and can't be ignored. I don't own a pair of rose colored glasses, but that doesn't detract from my feelings about how remarkable I believe the Internet is.....
With that in mind, Any Gov't, education, financial, and Internet institutions are here to serve the good of man and society. If however, put in the wrong peoples' hands all become very dangerous. It is this awareness I wish to point out, not to promote or embellish it, just share an awareness.
Based on your critique I will make a concerted effort to at least give fair treatment to the benefits of the Internet. I will get off my soap box allow you to find out for yourself what lurks around the corner, I undrstand your an adult.
Finally, in regards to the boy that cried tiger. I have spent my adult life in the financial wolrd, this is one area that everyone should cry wolf and never take your eye off the prize (your own money). You can trust your broker, banker, investment counselor, they can even be your family member, but that doesn't mean they are incapable of making poor decisions and getting in trouble and covering up. Please diversfy your investments and the companies that hold your money and you'll be fine.
I hope to have many, many more head butting posts with you Ashish.....and even some constructive ones too.
Its quite clear-Crystal in fact that you don't like me or my post.I agree with everything you have said in your second and third postings here.Even Mary has a point when she says,the Internet is a haven for scammers of all Stars and Stripes.
But why is it that we always,always harp on the negative?
People are blaming Online Trading/Internet /Government/Banks for all the misinformed decisions that they make.Unless the Individual Takes responsibility for his own decisions he is not going to get anywhere!!! Is'nt that what America is all about? The Individual and Free-Enterprise always rocks and always works.You need regulation but what you also don't need is such endless amounts of red-tape that you end up being stifled in it as an Entrepreneur or an Investor.
This Regulation has to be ane ever-changing dynamic that keeps shifting according to the needs of the market and Investors.
Everything that you say here is said in the best of Intentions for the wider public and needs greater publicity.
But my worry is that people and investors will get so turned off Investments completely following all this brouhahaha that they will miss obvious gains even if they are staring you in the face!Which is what Mr Buffet is currently talking about.
Its like that joke about the Boy and the Tiger.A Boy in a Village hated being left alone when his parents went out into the fields to work.So everytime they went out,he would scream ,Tiger,Tiger,Tiger! And then all the Villagers would come and check out to see hes okay.Eventually though Villagers got fed up of listening to this Boys constant screams of attention.So when the Tiger really came,none of the villagers heeded his cries and pleas for help.
Insultant, You can do better than that, Ashish said the title was incorrect. It is you who believes the blog doesn't make sense. I'll keep my next blog to under four letter words for clarity.
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