How Will the Markets React to the Madoff Scandal?

As the news is breaking about Bernard Madoff and the $50 billion ponzi scheme that has duped the likes of General Electric (GE) and Citigroup (C) as well as hedge fund of funds, affluent individuals and other institutions, it is with painful and somber reflection that we read the noble message carried on this titan's website:

The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.

A mere couple of months have passed since we first heard of the initially dramatic news of Tom Petters and his associates in the estimated ponzi scheme totalling more than $3.5 billion. The case against Madoff dwarfs this in comparison, but has been structured in largely the same way, buried in alternative investment instruments and within hedge fund accounts that have somehow slipped through the expertise of due diligence teams and risk analysts.

It will be intriguing to see the reaction in the markets. Madoff has generally been well known only by institutional clients and others familiar with the industry, but fraud on such a scale as this will alert every investor's attention through prime time coverage. In a year when hedge funds and other alternatives have suffered in a liquidity crisis, this latest scandal will only bring further attention and questions to managers who by their very nature provide limited transparency and look through into their holdings and operations. It is only a matter of time before the SEC takes another long hard look at the accredited investor rules and the current access levels open to these investment vehicles.

Comments

[notsosmart:]

the sec is useless.a phony cover govt. entity so that fraud can go on unchecked.LOL

2008 Dec 12 10:25 AM

[david verdad:]

This is drivel... go re-read and please explain what you have added here.

Too damn many soap box reporters clogging up a useful informational site.

2008 Dec 12 11:13 AM

[tom anthon...:]

where are the regulators /??? how can this be happening ?? like bank robbery in day light /??

2008 Dec 12 11:44 AM

[johnnysize:]

Invest little capital in large fully hedged transactions like stock forwards,

2008 Dec 12 01:16 PM

[investor88:]

It is not good news but the Dow reacted to the Maddox news and the failed auto bailout by ending higher. There is the verdict, the market ignoring negative news.

2008 Dec 13 09:47 AM

[WMBANZAI7:]

MADOFF THE WALL STREET FAKIR
(Rudolph the Red Nosed Reindeer)
WilliamBanzai7

You know Vesco and Boesky, and Keating and Milken,
Leeson and Mozer, and Ponzi and Wiggen,
But do you recall, the most famous securities fraudster of all?

Madoff the WALL STREET FAKIR
Had a GIANT PONZI SCHEME,
And if you ever saw it,
You could say it was Wall Street's own worst dream.

All of the other Wall Street fraudsters
Used to laugh and call him names;
They never believed poor Madoff
Made a legitimate Alpha trade,

Then one shady Wall Street trading eve,
Madoff spilt his own beans to the SEC
"Madoff oh your scheme's so bright,
Won't you go to jail tonight?"

Then how the Wall Street fraudsters loved him
As they shouted out with glee,
"Madoff the WALL STREET FAKIR,
You’ll go down in securities fraud infamy."

Q: Whats the difference between Bernie Madoff and the CEO of a bulge bracket Wall Street investment bank?

A: Madoff is not asking for a bailout.

2008 Dec 14 10:36 AM

[User 324970:]

Can't seem to figure out what a bid deal is: Cramer's advise on CNBC on a public scale probably wiped out the same amount (or more) of wealth as Madoff: what's the difference?

2008 Dec 23 04:01 PM