Madoff Case: The World's Biggest Ever Heist

I still can't quite get my head around the enormity of the numbers in the Madoff case. For one thing,

Madoff's investment advisory business served between 11 and 25 clients and had a total of about $17.1 billion in assets under management.

Now that's what I call high net worth individuals! And then you read the indictment, and you think you know what to expect, until:

On Dec. 10, 2008, Madoff informed the Senior Employees, in substance, that his investment advisory business was a fraud. Madoff stated that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme. Madoff stated that the business was insolvent, and that it had been for years. Madoff also stated that he estimated the losses from this fraud to be at least approximately $50 billion.

Yep, $50 billion. In other words, that $17.1 billion is only the beginning: presumably Madoff's clients had invested much more than that, and Madoff was sending statements to them, on the one hand, while reporting different numbers to the SEC, on the other -- none of which were true.

If the total losses are really $50 billion, that means that the average loss to Madoff's clients is a minimum of $2 billion, and perhaps as much as $4.5 billion. After all, in a Ponzi scheme, everybody comes out fine, except the last people out: the 11 to 25 clients still with Madoff to this day.

The one thing this does do is get me a little bit more comfortable with Jeffrey Epstein's business plan of managing billionaires' money. Clearly there are actually quite a lot of people with a few billion dollars to invest and who feel perfectly comfortable entrusting it to individuals like Madoff and Epstein. Who knew?

Right now, there are a handful people whose world has suddenly been turned upside-down: who have, overnight, suddenly lost billions of dollars of dynastic wealth to a Wall Street con man. I'm sure that their names will appear sooner or later. But there really is no precedent that I can think of: when has one man ever managed to steal $50 billion dollars? If the $100 million Harry Winston heist in Paris was the "steal of the century", what's this?

Comments

[Smarty_Pants]

And yet this pales in comparison to Hank Paulson's $700 Billion heist for his Wall Street cronies.

This Madoff guy was a minor leager by comparison.

2008 Dec 12 09:16 AM

[chinooking]

not even close to the biggest ,,W and his buddie's just stole half the wealth of the world

2008 Dec 12 09:43 AM

[notsosmart]

a piker compared to this administration.

2008 Dec 12 10:28 AM

[Owen]

If I understood the newsfeed correctly, most of those 25 clients are hedge funds, each, in turn, with hundreds of their own clients.

Regarding the $50 billion figure, I believe that's the total loss to investors, not the gain to the alleged fraud perpetrators. Remember, some index mutual funds run by honest, hard working managers lost far more than $50 billion in the last few months, without any fraud taking place. The actual amount of "theft" in Madoff's case is probably a small fraction of that number.

2008 Dec 12 11:09 AM

[derryl]

All this Madoff scandal does is remove attention from the fact that the entire investment banking derivatives industry, which inflated real capital with 30X leveraging, is a gigantic Ponzi scheme where the 'wealth' was purely numerical and could never be cashed in for real money.

Leveraging is the creation of new fractional reserve money as DEBT, and when the debt you used to inflate the values is called in, everyone discovers all you have left is the original non-debt capital that was invested, the "reserve" part of fractional reserve.

$30 trillion of investment bank 'wealth' has only $1 trillion of non-debt money behind it. So whoever cashed out early got their share of the $1 trillion. Everybody else is holding empty bags with big numbers written on them.

2008 Dec 12 11:41 AM

[Big Al45]

Are you sure that Madoff's investors have lost the $50B?

There is still $350B in unspent TARP money. Maybe Paulson will decide to give Madoff a capital injection to "save the financial system"

Although Madoff was a Democratic supporter, so maybe not.

2008 Dec 12 11:43 AM

[falstaff]

Derryl - couldn't agree more...while some leverage creates growth, let's say up to 3 to 1, anything above that is gambling and is a Ponzi scheme. Incoming cash flow in good times pays the outflow but only works under the expectation (requirement) of continuing good times...as soon as there are bad times, then the scheme crumbles...you could say Citi, and the rest of the TARP companies are also a Ponzi, why single out Madoff

2008 Dec 12 11:51 AM

[infp]

The Madoff case raises the question; was Madoff's actions really very different from that of the financial institutions we are in the process of rescuing with TARP money? Furthermore, if the derivative market on Wall Street was one big Ponzi scheme, why can't the government recover money from these institutions going back 5 years or more? The real crime in all this seems to be that the people who made fortunes in the derivatives market are allowed to keep all their ill-gotten gains while taxpayers bailout their bankrupt companies.

2008 Dec 12 12:08 PM

[debtacid]

No, I'm sure the IRS still holds the record for the biggest heist. Or how about Congress for all the Social Security money stolen? This is the kind of culture you end up with when a few at the top are allowed to print money for nothing and loan money that doesn't exist. Eventually, everyone builds their own little version of the scam.

2008 Dec 12 12:21 PM

[closedbooks]

The above comments say it all.

2008 Dec 12 01:30 PM

[notsosmart]

amen-case closed & have a good holiday.

2008 Dec 12 01:46 PM

[.crazylegs..]

This was a flat out PONZI scheme. I know of a number of individual investors who in aggregate lost close to $1 billion - and these are smart guys. Madoff was like a religion to these guys because of the consistent returns over many years. They just had no idea it was all a fraud. Devastating, just devastating. The true losses are somewhere in between the $17b and the often quoted $50b number, but they are very real and are in no way a fraction of those numbers. To say that this guy is a minor leaguer, or that the TARP is worse, or the bush administration is worse is just plain stupid and you should be ashamed of those words.

2008 Dec 12 01:58 PM

[bosun.j]

No need to repeat the above comments. GTG! Grand Theft Government!

2008 Dec 12 02:09 PM

[easan]

the forward-looking question is: what other firms / people will be hit by this loss. Some likely candidates: banks who leveraged his investments; SPIC; feeder hedge funds which will now have to cover redemption requests and consequently dump more stocks and commodities.

2008 Dec 12 02:16 PM

[Richard Raia]

Bernie " Mad-off " with the money....real shame..!!

2008 Dec 13 09:57 AM

[Andy B.]

What can we learn from all this? Don't trust others with your hard-earned money and that especially includes the U S government. These people are the biggest thieves and leeches in our society, not just Madoff. Technology allows us to do our own trading with online accounts such as Scottrade, etc., so you have no excuse if you get ripped off. If you have so much money that you can't handle it yourself, then you have too much. If a person or a group allows another person or group to hold that much money without auditing them even once in all those years, then they deserve what they got.

If our country ever collapses from all these politicians ripping us off, it will be like in the French Revolution, these people will be hunted down and executed by the angry mobs. Remember that lawyer several years ago who ripped his client off, hiding behind the tree and dodging bullets his client was trying to pump into him and caught on camera? Picture Paulson, Dodd or Reid or all the other thieves in our government in that scenario.

2008 Dec 13 01:27 PM

[Ames Tiedeman]

Forget Hedge Funds. Do not send any of them your money. Stick with well grounded Mutual Funds like Fidelity or 20th Century or others. Back to basics. Do not be a fool and send your millions to a one man shop. Go with firms like Fidelity who cannot steal your money!!!! The track records of the many mutual fund companies are better than that of Hedge Funds anyway. Hell, buy your kids Coca Cola, JNJ, PG, and take the stock certificates and put them in your safe deposit box if you want. Do not mess around with these Hedge Funds and 1 man shops on the street! And stop following all the advise of the ETF crowd. If you have $10 million put 500k in 20 well run, good old fashioned mutual funds! Then enjoy life and look at your returns in 10 or 20 years...

2008 Dec 13 05:40 PM

[PBB]

No doubt this site is going to become very popular! Tell me it isn't for real!
www.bernard-madoff-sca...

2008 Dec 16 09:39 AM

[Anonymous99]

There are VERY few losers in this scheme. You know, most of the investors are in on the game. They will be leaving the country in a year or so and going to the middle east where they will build hotels, casinos and shopping malls with stores that make Harrod's of London look like Walmart. They have stolen the gold and now they are taking off to steal from the Arabs. Little do they know that gold will not be the new form of money in United States. They will not be able to buy from us, so they will have to eat the gold that they stole from the American people.

2009 Feb 05 09:51 PM