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Old 03-13-2009, 05:43 PM   #41
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If I understand correctly, there are a number of lucky Madoff investors. That is, the ones who invested early and took out the pretend gains before the scheme crashed. For example, there may be someone who got 12% per year for years, then cashed out.

I read that the government is going to ask (require?) that they give back the gains.
The receiver has a fiduciary duty to seek recovery of amounts paid out to earlier investors under a fraudulent conveyance and/or preference theory. If the rule established in the Bayou Securities case is followed, it is very likely that the (so far) "lucky" investors will be required to give up at least their "phantom" gains, and maybe some of their initial investment as well, for reallocation to those left holding the bag.
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Old 03-13-2009, 06:06 PM   #42
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The receiver has a fiduciary duty to seek recovery of amounts paid out to earlier investors under a fraudulent conveyance and/or preference theory. If the rule established in the Bayou Securities case is followed, it is very likely that the (so far) "lucky" investors will be required to give up at least their "phantom" gains, and maybe some of their initial investment as well, for reallocation to those left holding the bag.
Ouch! I'm glad I lost money ( and gained some) in a legit manner.
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Old 03-13-2009, 06:32 PM   #43
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Just to add insult to injury, imagine you got paid by Madoff, got hit with the "claw back" provision and then the IRS says "sorry charlie" when you try to get your taxes back on your "gain". Don't know this would happen, but it would not surprise me. In any case, I'll bet IRS would not give you any interest on your money and I'm sure they wouldn't pay up the first time you asked. YMMV
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Old 03-13-2009, 06:45 PM   #44
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Oh, puh-leeeease.... Is that supposed to be sarcastic? I was making a pretty obvious point about how Madoff and Enron got everyone to follow them unquestioningly. Nobody should take any offense at what I said on this board. If you read the Wall Street Journal you, too, would have read the same thing more or less said by them.
So your saying that you identify with a group of people who read the Wall Street Journal?

I am just kidding with you. Your post about group think philosophy makes perfect sense.
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Old 03-13-2009, 10:00 PM   #45
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Something I've missed in the Madoff coverage is speculation on where this money is. Did most of the money go to paying off the early investors, or is it sitting in an offshore account somewhere?
I don't think we'll ever know what happened to the money. The figure I recall being reported most frequently was $50B, but that was Madoff's figure. Obviously, alot of that was non-existant profit. Besides the investors that took withdrawals (which may be subject to clawback, btw) a lot of the money went back out to pay finder's fees to the co-conspirators feeder funds. How on earth could BM be the only one in custody?
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Old 03-13-2009, 11:40 PM   #46
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Wait a minute - let's do some math.

This was a ponzi scheme, he took in money and (when requested) paid out the money he took in so it appeared people were getting profits. So... money out plus account balance equals money in plus/minus any gains/losses minus whatever he skimmed off for himself.

So... if he skimmed of less than 40%, he was doing these people a favor compared to being invested in the market. I'm not so sure I'm feeling sorry for these people chasing a "for sure" 12% return.

And the people and organizations that put ALL their money in a single hedge fund - what were they thinking?!

I thought you had to fill out some form on net worth to be able to invest in a hedge fund? MAybe that form needs to add a line about diversification?

-ERD50
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Old 03-14-2009, 05:29 AM   #47
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And the people and organizations that put ALL their money in a single hedge fund - what were they thinking?!

I thought you had to fill out some form on net worth to be able to invest in a hedge fund? MAybe that form needs to add a line about diversification?
My thoughts, also.

Madoff Had Accomplices: His Victims

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Afterward, the TV cameras surrounded a woman named Sharon Lissauer. She had not been wealthy, she said, but she’s lost everything. She didn’t know what she was going to do. She was weeping. It was hard not to feel sad for her — indeed, for all the victims of Mr. Madoff’s evil-doing. But one also has to wonder: what were they thinking?
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And yet, just about anybody who actually took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs,” said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.
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I suppose you could argue that most of Mr. Madoff’s direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn’t have mattered. Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? Even if you think your money manager is “God”? Diversification has many virtues; one of them is that you won’t lose everything if one of your money managers turns out to be a crook.
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And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.
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Old 03-14-2009, 08:30 AM   #48
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You just beat me to it, but worth repeating IMHO. I didn't invest with Madoff and I feel bad that people lost everything with him, but my net worth is down drastically, should I be bailed out too?

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And yet, just about anybody who actually took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs,” said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.

I suppose you could argue that most of Mr. Madoff’s direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn’t have mattered. Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? Even if you think your money manager is “God”? Diversification has many virtues; one of them is that you won’t lose everything if one of your money managers turns out to be a crook.

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.
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Old 03-14-2009, 01:14 PM   #49
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You just beat me to it, but worth repeating IMHO. I didn't invest with Madoff and I feel bad that people lost everything with him, but my net worth is down drastically, should I be bailed out too?
I have no problem with seizing Madoff's assets wherever we find them and distributing them proportionally to those victimized. I support that much.

But if any taxpayer money goes to bail out Madoff victims or to bail out public pension plans, well.... as my signature currently says, I want to know so my 401K can get in line...
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Old 03-15-2009, 09:07 AM   #50
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I have no problem with seizing Madoff's assets wherever we find them and distributing them proportionally to those victimized. I support that much.

But if any taxpayer money goes to bail out Madoff victims or to bail out public pension plans, well.... as my signature currently says, I want to know so my 401K can get in line...
Absolutely agreed on the first point. Interesting dilemna for those who paid taxes on phantom gains though, should they be able to deduct that in some form now?

And absolutely agreed on bailouts. I am generally against these bailouts, can't think of one I truly support so far...but they aren't asking me. Believe me I've written my Congressmen several times.
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Old 03-24-2009, 11:41 AM   #51
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the plot thickens....
$75 million in Madoff assets uncovered - U.S. business- msnbc.com
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Old 06-23-2009, 09:46 AM   #52
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This really gets me going...what nerve!

Madoff Seeks 12-Year Sentence For Ponzi Scheme Fraud
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Old 06-23-2009, 10:57 AM   #53
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This really gets me going...what nerve!

Madoff Seeks 12-Year Sentence For Ponzi Scheme Fraud

I would be that 12 years is almost a life sentence for him....

But I would think that he should be getting a bit more... I would say in the 40 year range... but that is just a WAG
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Old 06-23-2009, 01:36 PM   #54
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Wait a minute - let's do some math.

This was a ponzi scheme, he took in money and (when requested) paid out the money he took in so it appeared people were getting profits. So... money out plus account balance equals money in plus/minus any gains/losses minus whatever he skimmed off for himself.

So... if he skimmed of less than 40%, he was doing these people a favor compared to being invested in the market. I'm not so sure I'm feeling sorry for these people chasing a "for sure" 12% return.
I've wondered "where's the money?". We know that some went to all the investors who made withdrawals, but how much was that?

So I did some math, too. Here's my approach:

I assumed:
- the inititial deposts totaled $10 million, 30 years ago
- since then, he reported 12% annual returns
- annual withdrawals averaged 12% of the annual balances
- after 30 years, the paper balances were $50 billion.


To make those assumptions work out, I needed to have the deposits go up by 27.5% per year. That is, the deposits were $10 million, $12.75 million, $16.26 million, .... with the last year's deposts totaling $11.5 billion.

Given all that, the inflation-adjusted deposits totaled $62 billion over the 30 years. The withdrawals totaled $35 billion. This gives a net to Madoff of $26 billion, which is also the loss to the victims, ignoring any gains they could have earned on real investments in excess of inflation. (Wlso less any real assets they can recover at the end). I'm using an inflation rate of 3% to do the adjustments.

I was surprised how little the withdrawal rate matters. For example, if the withdrawal rate were 0%, the deposits would have had to grow at 23.3%, and Madoff would have taken $27 billion. A withdrawal rate of 24% requires a deposit growth rate of 30% and Madoff's take would have been $25 billion.

If this model is anywhere near accurate, Madoff's profits on this were bigger than I had expected before I did the math. Now I am wondering where all the money went.

Of course the individuals who got in early and got all their money out early went to their graves knowing that their investments with Madoff had been very good. Those that got in late and didn't take anything out lost everything they invested.
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