Bernie Madoff -- A Cynic's Take: Frauds within Frauds

Over the weekend, a colleague of mine explained the Bernie Madoff fraud to me in the following plausible way:

While many dopey investors in Madoff's funds thought he was actually running a "split strike option" strategy (and most of those people had no idea what that meant), most of the smart investors didn't. They just thought he was using the trading order flow from his securities firm to run a lucrative insider-trading operation, and they were happy to get a piece of it.

To that way of thinking, the "split strike" thing was seen by wise-guys as just a clumsy cover, but one that they were cool with. And that, while goofy, makes more sense to me than believing that so many smart investors bought that Madoff was running a strategy that most knew couldn't work the way he claimed it had.

So, imagine how pissed those wise-guy investors were when they found out that Madoff wasn't running the fraud that they thought he was. Instead, he was running a different fraud. Woo-hoo, hell hath no fury like a cynic out-cynic-ed.

Comments

[dobuy]

It seems that the old adage of "takes one to know one" didnt exactly work out for some of these guys, as many investors who thought they were savy, got outsmarted....
I for one dont feel sorry for any of the investors who "thought" they were getting in on a different scam, and for the few really "clueless" people, the entry criteria for his fund makes me believe that you'd have to be brought in by someone in the know, and how can you feel sorry for someone that would refer their own friends, family or clients to such a fund. I'm just glad it wasn't some type of regulated and/or protected fund/institution, otherwise we'd see the hit to the US taxpayers going up yet again!

2008 Dec 15 05:12 AM

[kurt walter]

Enjoy prison, Madoff.

2008 Dec 15 08:35 PM

[jonbob]

Touche! I think that is an apt way to describe the scheme. They wanted to cheat the system with enough distance to limit risk. They were prefect victims for the con.

The dominoe effect set itself up when the con man became trapped in his own game. He could not show losses or the marks would realize that he was not really cheating with insider information and the cheat was his only hold on the clients who wanted to profit from his cheating.

GAWD! If that theory can be proven, then all his clients should get zero! Hedge funds suck!

2008 Dec 15 10:57 PM