This is a riveting read if you've been following the Madoff news. All 19 pages of it.
It is a memorandum to the SEC written by Harry Markopolos in 2005.
While it does make me question some of my thoughts in Madoff's (COMPLETE) Madness, I'm still not convinced this was only a Ponzi scheme.
If Bernie Madoff was willing to do a Ponzi scheme, why would he not do other things which would make him much more money at the same time? Like front running or worse? I mean, he was controlling large sums. He had to be doing something with all that money. And do you really think he was just running a split-strike conversion strategy while lying about his crappy returns? Or was he running a more nefarious strategy with huge returns while the market was good?
Gary Weiss sees several possibilities:
1. Madoff commenced the scam in the hope that it could be terminated at some point and his investors made whole without their knowing anything had happened. Sort of like the bank teller who steals and then tries to put it back.
2. Madoff was a sociopath, who knew precisely what he was doing at all times and felt that he could get away with it indefinitely, and had that mindset from day one.
3. Madoff commenced in the hope that he could make his investors whole, but after a while realized that it was easy money and that he could get away with it indefinitely.
I agree, and I think there are many more possibilities as well. I think we are only seeing the tip of the iceberg right now. I wonder how deep it goes.
As Justin Fox says:
The distinction between the brokerage and the money management business is one that most everybody I've been hearing from about the now-famous video of me and Madoff and his employee Josh Stampfli misses. All that talk in the video about how Madoff makes money and what his dealings with the SEC are like relates to his brokerage business, which was a pillar of the Nasdaq system and was, as far as anybody knows at this point, on the up and up. I didn't have the faintest idea that the man also ran a $50 billion sort-of hedge fund in his spare time. If I had known that, I like to think I would have been suspicious. You don't see Lloyd Blankfein or John Mack or Chuck Schwab running $50 billion hedge funds out of their hip pockets, do you?
Here's the video of Justin, Josh and Bernie: