Convicted swindler and consummate narcissist Bernard Madoff is serving a 150-year sentence at the Federal Correctional Institution in Butner, North Carolina for his $65 billion Ponzi scheme. He was interviewed by New York Magazine, and its terrific article states in pertinent part:
From the beginning, Madoff . . . had a chip on his shoulder, along with a certain contempt for the industry he’d chosen. “It was always a business where you had to have an edge, and the little guy never got a break. The institutions controlled everything,” he said in a voice surprisingly thick with emotion. “I realized from a very early stage that the market is a whole rigged job. There’s no chance that investors have in this market.”
. . .
At first, Madoff ground out a modest but steady income on the scraps of business tossed his way by Goldman Sachs and Bear Stearns, action that was too much trouble and too little profit for them. “I was perfectly happy to take the crumbs,” he said. Madoff was a market-maker, a middleman between those who wanted to buy and sell small quantities of mostly bonds—odd lots. “It was a riskless business,” he said. “You made the spread,” buying at one price and selling at a higher one, and in those days the spreads could be substantial, 50 or 75 cents or even a dollar a share. Madoff increased his profits by trading on the side.
. . .
Madoff wanted to grow his trading business, and a good way to do that was to expand his market-making business. But that meant going up against the New York Stock Exchange, the heart of the club. At the NYSE, a few firms controlled market-making, executing most large trades while getting rich on the spread. Madoff was one of the first to see that technology could match buyers and sellers more efficiently and cheaply than a human trader shouting orders amid a blizzard of paper on the floor of the exchange. By 1970, Madoff had hired his brother, Peter,
Citigroup ignored warning signs of Bernard L. Madoff’s Ponzi scheme, and a bank executive knew the con man’s stated trading strategy couldn’t generate the reported returns, the trustee liquidating Madoff’s firm said in a lawsuit.
The unidentified Citibank executive, who was responsible for making recommendations to clients on derivatives, “concluded” by June 2007 that returns reported by a Madoff feeder fund, Fairfield Sentry Ltd., couldn’t have come from the strategy, trustee Irving Picard said in a complaint unsealed yesterday. The executive reached his conclusion after meeting with analyst Harry Markopolos, a whistleblower who also alerted U.S. regulators to the fraud, Picard said.
The Citibank official later communicated with Markopolos orally and in writing, specifically discussing the fraud before the Ponzi scheme was exposed in December 2008, Picard alleged.
“Citi knew, and was on notice of, irregularities and problems concerning the trades reported by BLMIS, and strategically chose to ignore these concerns in order to continue to enrich themselves,” Picard said in the complaint, referring to Madoff’s firm, Bernard L. Madoff Investment Securities LLC.
Picard laid out in the complaint details of a lawsuit he filed under seal in December against New York-based Citigroup and other banks. He is demanding $425 million from Citigroup – money it received “in connection with” a loan to a Madoff feeder fund and a swap transaction with a Swiss hedge fund linked to a second feeder fund, Picard said.
We first got an inkling of Picard’s filing from this Bloomberg story in December.
Citigroup, Bank of America Sued by Madoff Trustee
Citigroup Inc.’s Citibank, Bank of America Corp.’s Merrill Lynch unit and five other banks were sued by the trustee liquidating Bernard Madoff’s firm to recover more than $1 billion for the con man’s defrauded customers.
The banks, which include Natixis SA, Fortis Prime Fund Solutions Bank (Ireland) Ltd., ABN Amro Bank NV, Nomura Bank International Plc. and Banco Bilbao Vizcaya Argentaria SA, received money through Madoff feeder funds when they knew, or should have known, that Madoff’s investments were a fraud, the trustee, Irving Picard, said yesterday in a statement.
Picard, who faces a two-year legal deadline that runs out Dec. 11, has filed hundreds of suits in the past month, seeking more than $34 billion from banks, feeder funds, investors and others alleged to have profited from Madoff’s decades-long Ponzi scheme, the biggest in…
Here’s the hypocrisy of the Financial Industry Regulatory Authority* (FINRA); it dumped a portfolio of Auction Rate Securities* (ARS) before the ARS market froze up in early 2008. People are asking legitimate questions and FINRA is refusing to answer. When FINRA wants its questions answered, it knows how to get the answers through its subpoena power. Why won’t FINRA fess up and be transparent about its dealings in the ARS market?
I recently caught up with my friend Larry Doyle and asked him whether there had been any progress in uncovering the events behind FINRA’s timely liquidation of its ARSs in 2007 since our last conversation. Here’s a transcript of our conversation about FINRA and FINRA’s ARS sales. Larry touches on a number of important topics including transparency, the incestuous relationship between Wall Street and Washington, the absurdity of self-regulation and twisted logic of granting a quasi-government entity government-style immunity, while allowing it to be free from the reach of the Freedom of Information Act.
FINRA’s Timely Auction-Rate Securites (ARS) Sales
Before we continue, please read my previous interview with Larry Doyle here. Excerpt:
"The ARS market operated smoothly until the credit markets seized up. First signs of trouble emerged in 2007 when the spreads started to blow out (widen significantly). Spreads widened because dealers realized the true nature of the risks and backed away from supporting the market. Selling intensified as investors were trying to get out in the late spring and summer of 2007. Investors stopped buying, though the dealers maintained an intermediary market for a while. Finally, sellers so overwhelmed buyers that Wall Street had to stop serving as an intermediary. This developed over a period of months, but was not shared with the clients. Wall Street was trying to lay these ARSs out on investors. When the market collapsed in February 2008, the “cash equivalency” disappeared."
Going into 2007, FINRA had $647 million dollars of ARSs. It was holding ARSs as the credit markets started to freeze in mid 2007. FINRA says it did nothing nefarious when it sold its ARSs. But that fails the smell test. It sold its ARS holdings before the markets collapsed. Meanwhile, investors got stuck with approximately $150 billion of ARSs.
One would have to be exceptionally naïve to think FINRA officials did not have material,
Sam Antar, former CFO of the criminal enterprise “Crazy Eddie,” gave a lively and educational lecture on white collar crime in Portland to health care fraud investigators yesterday on behalf of the United States Department of Justice. He spoke about Crazy Eddie, white collar criminals, and the investigators charged with bringing them to justice. In the beginning of the seminar, Sam asked the audience, “Can anyone guess why I’m here?” A man raised his hand and suggested “because you got caught.” That was apparently the first correct answer to that question in twelve years.
Here is what else Sam told heath care fraud investigators:
“All fraud is basically the same. All fraud is personal in nature. It’s done on a one to one basis. Your humanity, ethics, and sense of fairness are weaknesses that we – white collar criminals – seek to exploit. We have no morality. The more likable and friendly we are, the easier it is for us to commit our crimes. We build walls of false integrity. You never know who the real person is behind a criminal’s carefully choreographed wall of false integrity. Bernie Madoff had a wall of false integrity around him and the lawyers investigating him at the SEC were enamored by his status. That’s why they didn’t properly follow through on whistleblower Harry Markopolos’s tips about Madoff’s criminal activities.
“Punishment does very little to prevent crime. It’s not a great deterrent. Criminals don’t stop because they see other people getting caught. While Bernie Madoff committed his crimes for almost two decades, he saw many other criminal get caught. Did that stop him?
“When I cooperated with the government it was only to save my own skin. I only cooperated with the US Attorney’s Office, the FBI, the SEC, and lawyer representing victims of my crimes because I did not want to bend down to pick up a bar of soap and worry about who was going to be my boy friend.”
“Criminologists have identified three common elements to all white collar crime: incentive, opportunity, and rationalization. It’s known as the fraud triangle. In recent years, capability was added as a common element of white collar crime and the fraud triangle…
Here’s another great gem we just found in the big SEC document dump on Madoff [below]. It concerns the independent fraud investigator Harry Markopolos, who tried for years and years and years to blow the whistle but tno avail. How were his efforts viewed in the SEC? Basically, they dismissed him as an anti-Bush crank.
The SEC just made a MASSIVE document dump related to its failure to catch Madoff. Of course, it’s all embarrassing, so it’s on a Friday afternoon, when everyone’s too lazy to go through it. There are 536 documents in total. Joe Weisenthal
Jerry Brown, California’s Attorney General, is tying himself to just about every problem stemming from the financial crisis.
Overkill? Perhaps. But Brown is probably running for governor.
Today, Brown wrote at the Huffington Post about Beverly Hills financial adviser Stanley Chais, who pocketed some $270 million over the decades by feeding money to Bernie Madoff.
"Sadly, the rise of super-sized swindlers like Madoff and Chais was inevitable given the mindless deregulation-mania of the last decade — abetted and made possible by a complicit Congress, SEC, and inattentive White House," Brown writes.
Last week, Brown piled on to the rating agency bashing, launching an investigation into their role in fueling the financial crisis and subpoenaing Standard & Poor’s, Moody’s and Fitch to determine "whether the firms violated California law when they recklessly gave ‘stellar ratings to shaky assets.’"
In April, Brown Jr. today filed suit against three Wells Fargo affiliates to recover $1.5 billion for California investors who purchased auction-rate securities based on "false and deceptive" advice that these financial instruments were "as safe and liquid as cash."
Want more? Check out these press releases: there are suits against predatory lenders, health insurers acting badly, mortgage scam artists, and many more, almost one ever other day.
Bernard Madoff arrives at federal court in New York, Thursday, March 12, 2009.
Mary Altaffer / AP
A long-awaited report from the Inspector General at the Securities and Exchange Commission concludes the SEC received six "substantive" complaints between June 1992 and December 2008 that could have uncovered disgraced financier Bernie Madoff‘s Ponzi scheme as far back as 1992 if it had "properly examined or investigated" Madoff’s trading practices.
In a 450-page report, released Wednesday, the report outlines a series of fumbles, where SEC staff either failed to follow up on complaints, wrongly accepted Madoff’s confusing and inconsistent answers to questions or, in some cases, involved junior staff who didn’t understand options trading and Ponzi schemes.
"Despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed," the report said.
The report said at least six complaints raised questions about Madoff’s trading practices, with some even suggesting a Ponzi scheme was involved. They questioned "Madoff’s incredible and highly unusual fills for equity trades, his mispresentation of his options trading and his unusually consistent, non-volatile returns over several years," and how Madoff’s alleged strategy and purported returns could not be duplicated by anyone else and had "no correlation to the overall equity markets in over 10 years." One tipster even nudged the SEC that "it may be of interest to you that Mr. Madoff keeps two sets of records — the most interesting of which is always on his person."
Yet, SEC staff failed to adequately follow up or seek third-party verifications on the trades, the report said. In many cases, the report said, "an inexperienced examination team" was assigned the investigation, many of whom were not familiar with trading practices and simply accepted Madoff’s explanation that he used his "gut feel" to time the market based on "his observations of the trading room." According to the report, examiners stated "there was no training" and that "this was a trial by fire kind of job." It also stated that examination team was "composed entirely of attorneys, who … did not have much experience in equity and options trading’ but ‘rather, their experience was in general litigation.’" (See pictures of a Madoff family album.)
So remember how we wondered whether Frank DiPascali was getting enough from the feds for his cooperation in the investigation in Bernie Madoff’s scam?
Well, it turns out that part of his deal is having the feds overlook his history of taking illegal drugs, carrying an illegal firearm right up until the time of his arrest and reporting that he had no income during a year when he earned $4 billion.
According to documents released yesterday by federal prosecutors, DiPascali, the former CFO at Madoff’s investment firm, agreed to spill the beans about Madoff in part to guarantee the feds didn’t go after him on "use of controlled substances prior to 1992" and for possessing illegal firearms up until last Friday.
The 52-year-old Queens native, who is cooperating with prosecutors in the Madoff scandal, is also avoiding criminal prosecution for evading taxes, the documents show.
Indeed, DiPascali cheated Uncle Sam out of several million dollars between 2002 and 2007 through a number of shady schemes, including depositing his income into accounts under other names and filing false returns. In 2006, for example, DiPascali reported zero dollars in taxable income even though he actually earned $4 million that year. He also reported no income in 2002 and 2005.
Memo to regulators: be forewarned about frauds in the credit-default swap market. They’ll make Bernie Madoff’s $65 billion fraud "look like small-time."
That’s what Harry Markopolos — Madoff’s whistleblower ignored by federal investigators — is saying anyway.
New York Post: [Markopolos] says there are evildoers out there who will make the Ponzi scum "look like small-time." Markopolos gave a speech to 400 of the faithful at the Greek Orthodox Church in Southampton and predicted major scandals will soon be revealed about the unregulated, $600 trillion, credit-default swap market. "To put it in simple terms, it is like buying fire insurance policies from five different insurance companies on your neighbor’s house and then burning down the house," he said.
It’s not clear if there are frauds that he knows of, specifically, that he’s not disclosing publicly, or if it’s just his how the market works — in which case, he’s basically just parroting what a lot of people who hate "naked" CDS have been saying. Either way, we suggest Mary Schapiro or the CFTC pay him a call and get a clarification.
The upcoming issue of Vanity Fair portrays the lives of Bernard Madoff’s sons and asks "Did The Sons Know?" Mark and Andrew Madoff feel betrayed by their father, David Margolick writes for Vanity Fair. Page Six today highlights some of the juicier details:
Blame mom as an enabler. Andrew and Mark Madoff aren’t speaking with their mother Ruth Madoff. They don’t suspect that she was involved with the scheme, but they believe her tendency to side with Bernie regardless of the the circumstances enabled his crimes.
Avoding using the Madoff name. Andrew Madoff and his fiance Catherine Hooper (pictured with a fish, above) use her name when making restaurant reservation. Andrew’s estranged wife, Deborah, orders groceries from FreshDirect using her maiden name.
Excessive self-pity. * Jeff Wilpon, whose family owns the Mets and lost hundreds of millions in Madoff’s scheme, remains friendly with Mark Madoff. But that is being strained by Mark’s "excessive self-pity. "
Strained relations. Hooper gave Andrew a birthday card in April that said, "Hope you have a fun day doing all the things people in prison wish they could do." When Andrew told her that his real wish was to have his parents back, she shot back, "Yeah, they were a really nice idea."
When Andrew complained to an African American friend that he is unemployed, broke, and "just trying to stay out of jail — my name is mud," his friend replied: "Well, now you’re just like every black man in America."
There’s more at Page Six, including the shunning of the Madoff grandchildren by classmates at the New York City private school, Dalton. If this sampling is any indication, we really can’t wait to read Margolick’s full piece in Vanity Fair.
Reuters reveals that the article says Mark Madoff scrutinizes every story and blog on the scandal. Andew, on the other hand, appears to have detached himself emotionally. He calls the situations "a father-son betrayal of biblical proportions." Cue the violins!
So far in May, base metals and Oil decoupled markedly (chart attached below). While the Oil price kept rising and moved closer to 50$, base metals fell off a cliff and descended below March lows.
We believe that Oil is the errant outlier, helped by deep but temporary supply outages in Canada and Nigeria and all-time record speculative flows, and is more likely to catch down to other commodities going forward rather than the other way ...
It's time again for our weekly gasoline update based on data from the Energy Information Administration (EIA). The price of Regular and Premium are up six cents each from last week. According to GasBuddy.com, California has the highest average price for Regular at $2.80 and San Francisco is averaging $2.97. Mississippi has the cheapest at $2.04. The WTIC end of day spot price closed at 48.11, a decline of 0.77 from last week.
How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.
By Jacob Wolinsky. Originally published at ValueWalk.
On Monday, German conglomerate Bayer AG finalized its $62 billion takeover offer for American agrochemical company Monsanto (MON). The acquisition would create the largest agrochemical company in the world. Here is what the sell-side is saying.
Monsanto- Bayer – deals, deals, deals
At $122/share for Monsanto and no disposals the deal would require BASF to issue equity (Bayer issuing ~25% of the deal value) and would imply a deal ROIC in FY5 of 8.5%, 40bps below their WACC of 8.9% and below the buyback equivalent ROIC of 8.8%. The deal, however, would imply €4.55/share in FCF accretion in FY5 enabling BASF to delever to 0.5x net debt/EBITDA in the same time frame. If they levered back to 1.5x in FY15, we estimate EPS would reach €10.20/share.
The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday May 20 through Sunday May 22, 2016:
Report Yahoo Bid Expected to Bid Only $2B-$3B for Core Business
The Rumor: Verizon Communications Inc. (NYSE: VZ) and others are expected to bid around $2 billion to $3 billion for Yahoo Inc.'s (NASDAQ: YHOO) core Internet business, according to sources as reported by the Wall Street Journal on Friday. That's about 50% of the previous estimates of $5 billion to $8 billion.
Last week Quicken Loans founder Dan Gilbert, with backi...
Do you remember when you were growing up and all your friends were allowed Atari game consoles but you weren’t?
Well, I do and the things seemed as foreign to me as Venus. Mostly because the little time I managed to spend on the gaming consoles when my friends weren’t hogging them I found it all a bit silly. I never “got” computer games, and to this day still have poor comprehension of things like Angry Birds.
I suspect that many people around the world view Bitcoin in the same way as I view Angry Birds: with mild amusement and a general lack of understanding as to what the hell all the fuss is about.
I was thinking of this since a buddy of mine recently started ...
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After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.
Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,
The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now.
And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now.
Phil writes back,
I was expecting them to start throwing poop at each other &n...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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