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Linus Wilson
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Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He received his doctor of philosophy in financial economics from the University of Oxford in England in 2007. He has conducted extensive research into the Troubled Asset Relief Program (TARP). He... More
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Oxriver Capital
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Academic Research
  • At Least One Madoff Book is as Good as Advertised 1 comment
    Sep 9, 2009 12:24 AM | about stocks: JPM, SAN, BK, OPY

    Bernie Madoff’s investors thought they had $65 billion in one of the best performing hedge funds on Wall Street.  It turns out they had been victims to one of the biggest Ponzi schemes in history.  Since Mr. Madoff confessed his crimes on December 11, 2008, a rash of Madoff books have come on the market.  I was able to try out two.  I read Erin Arvedlund’s Too Good to Be True: The Rise and Fall of Bernie Madoff, and I listened to the audio book version of Catastrophe: The Story of Bernard L. Madoff, The Man Who Swindled the World by Gerald and Deborah Strober.

    Only one book was as good as advertised.  Ms. Arvedlund’s Too Good to Be True is worth the time and money.  She gives a detailed account of the life and crimes of Mr. Madoff.  Mr. Madoff’s legitimate and highly successful brokerage business sat on top of his illegitimate investment advisory business.  The former Barron’s, New York Times, and Wall Street Journal reporter takes the reader through the web of his relationships with feeder funds and the Securities and Exchange Commission (SEC). 

    Ms. Arvedlund was one of Madoff’s few doubters when she wrote a 2001 article in Barron’s that questioned the plausibility of Mr. Madoff’s investment strategy.  This 2001 article was very much in the tradition of Barron’s namesake Clarence Barron who helped unmask Charles Ponzi’s supposed foreign exchange arbitrage as a fraud.  Mr. Ponzi was so brazen before he was exposed in his 1920’s swindle that any scheme that uses the money of new investors to pay old investors bears his name.

    Catastrophe: The Story of Bernard L. Madoff, The Man Who Swindled the World by Gerald and Deborah Strober leaves a lot to be desired.  It feels like it was slapped together with minimal research.  The authors seem to know little about Mr. Madoff’s past or the firm that he ran.  What it does convey well is the human cost of the fraud in interviews with many of the Madoff victims.

    Mr. Madoff is serving out a 150 years in prison, but there is much we don’t know. Will another member of Mr. Madoff’s family ever face criminal prosecution?  How many accomplices did he have?  Will the advisors, who channeled billions of dollars to Mr. Madoff, have to pay restitution to his victims?  Some victims booked fake profits by pulling their funds out earlier than others. Will the later investors claw back profits from investors that got out with interest?  According to the SEC, Madoff held as much as $5.5 billion in 2008 in a Chase checking account.  My paper entitled “Estimating JP Morgan Chase’s Profits from the Madoff Deposits” finds that JP Morgan Chase (NYSE:JPM) could have generated a $483 million in after-tax profits from the Madoff victims’ deposits.  What, if any, culpability does JP Morgan Chase have for being the primary checking account for his fraud or its investments in Mr. Madoff?  With many books on the Madoff fraud hitting the shelves, there is much we still don’t know.

    Disclosure:  I only hold long positions in broad-based mutual funds.

    Themes: Madoff, hedge funds, SEC Stocks: JPM, SAN, BK, OPY
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  • pgb
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    Enough with Madoff. I see Amazon has a Madoff COLORING book! When will it end?
    17 Mar 2010, 11:15 PM Reply Like
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