Questions dogged Wall Street figure even before arrest Published: December 14, 2008
NEW YORK: For years, investors, rivals and regulators all wondered how Bernard Madoff worked his magic.
But after this prominent Wall Street figure was arrested and accused of perpetrating what the authorities portrayed as the biggest Ponzi scheme in financial history, questions began to be raised about whether Madoff acted alone and why his suspected con game was not uncovered sooner.
As investors around the world counted their losses in what Madoff himself described as a $50 billion fraud, U.S. authorities took control of what remained of his company and began to pore over its books.
As the reports of losses mounted, the $50 billion figure looked plausible. One hedge fund advisory firm alone, Fairfield Greenwich Group, said its clients had invested $7.5 billion with Madoff.
Some investors said they had questioned Madoff's investment prowess years ago, pointing to his unnaturally steady returns, his vague investment strategy and the obscure accounting firm that audited his books.
Robert Rosenkranz, principal of Acorn Partners, which helps wealthy clients choose money managers, said the steadiness of the returns that Madoff reported did not make sense, and the size of his auditor raised further concerns.
"Our due diligence, which got into both account statements of his customers, and the audited statements of Madoff Securities, which he filed with the SEC, made it seem highly likely that the account statements themselves were just pieces of paper that were generated in connection with some sort of fraudulent activity," Rosenkranz said.
But Fairfield Greenwich Group, whose clients had $7.5 billion invested with Madoff, said it was "shocked and appalled by this news."
"We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme," it said."
Another blow for Wall Street for sure just as people begin to appreciate the extend and the damages the financial tsunami triggered by the sub-prime meltdown sent powerful shock waves around the world, this giant US$50B Ponzi scheme by a fairly prominent though low profile money man unraveled!
The Wall Street will probably feel the effect on the coming Monday trading sessions as real money were lost here!!
Lessons for me from the 7e Way of Leaders perspectives are:
1. trust is a very powerful intangible thing in human relationship. When trust is built over many years of good behaviors, people are willing to part more and more of their money with you without question! I like to think that Mr. Madoff started with good intention and did performed admirably returning low but steady double-digit pay back rate for his investors;
2. when one becomes very successful for a long time, one must guard against the unwillingness to admit that things are not what it used to be and that things are going wrong. That maybe we are failing a little. That may be we need to let others know that we are failing and that the invincibility is dented early in the detection stage. If one has that mental preparation, one may have that courage to admit it and early damage control can be implemented. Alas, it is hard, very hard, for someone who had grown accustomed to be revered as 'God' to admit he or she is not!;
3. when the ugly truth finally emerged, we will realized that criticism by critical people, even unfriendly people, need to be taken seriously. By listening to differing views and by looking into these views objectively, we can learn much that we, as insiders, might missed. Obviously, the external watchdogs in this case will have a lot to answer on why the regulatory reviews that should had taken place did not happened!
I wish Mr. Madoff well as he did faced the consequence himself. He did not run away from this big failure. If only he had the courage to admit his failing a bit earlier... An ethical man would have the courage to face his own failing earlier!