15 ms·

Madoff’s Victims Are Close to Getting Their $19B Back

157 points by motiw 8y ago

Waterluvian 8y ago
Using square areas as a bar graph feels kind of frustrating. Doesn't feel intuitive? I know I'm being super nit picky.
- projectramo 8y ago
  I think they used it because, in that little space in the middle of the article, vertical space is more precious than horizontal space. So they traded off a little of one for a little of the other. Why does it feel less intuitive than regular bar graphs? I thought the criticism of bar graphs was exactly that people substitute area for height so the visuals are misleading.
  - Waterluvian 8y ago
    I think I have a harder time visualizing relative sizes on two axes than one. I never thought of your point before though.
  - tomp 8y ago
    It could be a horizontal bar graph, no?
    - projectramo 8y ago
      yes, good point.
  - TeMPOraL 8y ago
    > I thought the criticism of bar graphs was exactly that people substitute area for height so the visuals are misleading. The usual criticism is that it's harder to compare areas than lengths, so one should avoid mapping data to areas.
- probably_wrong 8y ago
  I think it's not just unintuitive but also slightly misleading, because you have to be aware that surface increases exponentially. The grey square, for instance, has 1.4 times the surface of the red one, but the difference looks smaller than that.
  - todd8 8y ago
    Graphics are so often intentionally manipulated to convey the authors intent. I don’t like graphs that show large differences until I realize that the origin of the graph is at say (0,1000) instead of (0,0); this can make a change from 1001 to 1010 seem huge. (One little edit to your comment, I think you meant quadratically instead of exponentially.)
  - aoeusnth1 8y ago
    s/exponentially/quadratically/g
- bertil 8y ago
  I like it when you express a different concept in each dimension (typically, likelihood and amount of a payoff) but in this case, it’s odd. You can have horizontal bars if you are tight for space.
montenegrohugo 8y ago
> His sons, who worked for him, are dead—one hanged himself and the other died of cancer. Well that's fucked. The guy stole 19B, but is now serving a 150 yr prison sentence and his family is dead. Was it worth it?
- nerdponx 8y ago
  For the kind of person who would steal all that money in the first place? It probably was worth it. How much do you think he really cares about his family?
  - PhasmaFelis 8y ago
    A lot of people make the mistake of thinking that all bad people are mustache-twirling stab-your-grandma-for-a-nickel types. There are evil bastards throughout history who loved their family and friends deeply. If you think this way, then you'll logically conclude that anyone who genuinely loves his family must be a decent guy who won't screw you over, and that's a very dangerous mistake.
- projectramo 8y ago
  His brother and niece (in compliance and legal) also worked there, if I recall. He did time. She was married to someone from the SEC the year before his arrest. Its all these weird coincidences that are so strange.
- paulpauper 8y ago
  the cancer death would have happened regardless
  - mlrtime 8y ago
    That is impossible to know. (Hypothetical) How do we know the stress did not accelerate to the point of no return (I'm not a doctor).
- belorn 8y ago
  Also in the same paragraph. > Madoff’s wife, Ruth, is living in a rented home in Connecticut. The government allowed her to keep $2.5 million after Madoff’s plea. That whole paragraph felt so odd when I read it. Very callous mentioning of people hanging themselves and others dieing to cancer, and that the state apparently allowed his wife to keep $2.5 million of the stolen money. The whole thing sounds insane from a justice perspective.
montenegrohugo 8y ago
Imagine you invest in a hedge fund, and get some amount of returns back. But then, years later, a lawyer comes and tells you to give him the profits because the fund was illegitimate (without you knowing this) and therefore they don't belong to you. This is exactly what is happening to all these people. Doesn't this feel unfair to anyone else?
- gdfasfklshg4 8y ago
  Deeply unfair. The lawyers don't seem to have had to prove that the investors knew that the fund was illegitimate at. My understanding is that the fund was regulated so the assumption should have been that it was legitimate. I would not be surprised if results in people losing their retirement funds.
  - ubernostrum 8y ago
    The analogy to stolen goods is useful. Generally, if you receive stolen goods, there are two possibilities: you knew they were stolen (read: a prosecutor can convince a jury you knew), in which case you lose the goods and get prosecuted. Or you didn't know they were stolen (read: prosecutors can't convince a jury you knew), in which case you merely lose the goods. This may seem unfair from the perspective of the unknowing recipient of stolen goods, but letting them keep the goods is equally unfair from the perspective of the original victim, and would feel like the law giving its blessing to the theft (it would also encourage schemes to knowingly but with plausible deniability receive stolen goods). So there's no solution that is guaranteed to appear fair from all perspectives. But the law generally sides with returning the goods to the original owner, effectively undoing the original theft. In this case, the "investors" who are being targeted by the suits are also getting to keep their own original capital; they're just being required to hand back the ill-gotten gains. So the remedy is effectively undoing the Ponzi scheme.
    - gdfasfklshg4 8y ago
      If you buy the stolen goods from a big box retailer that is routinely regulated then this analogy might be useful. As it is it does not apply very well to this situation.
75dvtwin 8y ago
They way the money is being recovered, seems, from suing the investors whose money did not get stolen, and taking the early profits from them. That also included funds that invested into Madoff's scheme (knowingly or unknowingly that it was illegitimate at the time). "... Picard filed hundreds of lawsuits to “claw back” phony profits from a wide range of customers, including individuals, families and estates that invested with Madoff for years. The trustee also went after offshore “feeder funds” that collected cash from their own customers and funneled it to Madoff to tap his unusually consistent returns. …" is anybody else reading this differently? Because this was a Ponzi scheme, this seems to be the only way to 'make fair' so to speak. Are there other ways? This seems to be unfair to the investors who did not know the scheme was illegitimate. They lost opportunity to invest into somewhere else, it is not like any other investment was unprofitable at the time.
- Nursie 8y ago
  They did lose that opportunity. Shame for them, but in the end what happened here was a massive criminal action and it seems unlikely it can be repaired in such a way that everyone is recompensed, including for potential other uses of the money.
- dd36 8y ago
  Then they should do better due diligence. Their profits were literally stolen money.
- selimthegrim 8y ago
  Jeffry Picower, your number is being called.
- bertil 8y ago
  I was shocked reading it — truly horrified: I once hesitated to invest in what proved suspicious companies, and I definitely thought about the possibility of getting out. Experiencing claw-back after that because others were not as considerate… Wow. However, the article names people who definitely should have known better: people who know what are reasonable returns, but also what you need and can do to get unreasonable ones. People who absolutely could have decided this was fishy. There is a principle in banking around your level of expertise: you can’t invest too much if you are not knowledgeable enough. It’s a little unfair to the young aspiring investors, but it allows to put strict requirements on large institutions without hurting people who legitimately couldn’t have known. That decision does introduce a precedent and a new level of responsibility: if it is too good to be true, you are liable for it all. This might also introduce interesting trickle-down decisions: you could be on the hook for alerting authorities if you come across one of those because you have to check, and if you found something uninspiring, you can’t claim deniability. It’s uncomfortable at first, but as long as that responsibility is carried by reasonably large investors only, it makes sense. Whether it might have negative consequences (typically, gatekeeping the best opportunities) is debatable.
rb808 8y ago
I wish I could get all my money back from investments that went bad. These guys were really lucky.
- whatshisface 8y ago
  If the investment went bad due to crime you might have a chance of getting the courts on your side. That's what they're there for, after all.
jondubois 8y ago
It shows that the crooks which have participated in Bernie Madoff's scam have been getting richer. It seems that crime pays if you can find someone else to take the fall.
pjc50 8y ago
So this has some interesting implications: the SEC has started going after the most fraudulent ICOs, and will no doubt start working their way backwards. Cryptocurrencies provide a permanent record of all transactions, and exchanges are obliged by KYC to map that to real people. This means that people who've already profited from crypto bubbles (and maybe even spent the money) might find themselves the target of recovery actions.
- Tor3 8y ago
  I can't see how that compares at all. A bubble is just that, a bubble. It may break. What Madoff did was a Ponzi scheme.
  - Kye 8y ago
    Some of them probably did this knowing they were bogus. Those would be the targets of anti-fraud actions.
  - mannykannot 8y ago
    A bubble is, in some ways, a self-organizing Ponzi scheme, in that the apparent growth has essentially nothing behind it but the inflow of new funds. Promoting something you know to be a bubble may be morally equivalent to running a Ponzi scheme, but you have to make some specific and clear-cut misrepresentations for it to be a crime. I would not be completely surprised if it turns out that some ICOs crossed the line, though ordinary take-the-money-and-run fraud seems more likely.
  - m-i-l 8y ago
    If I were to describe a scheme that disproportionately rewards early adopters[0] and requires a constant addition of new adopters just to sustain the price[1] - would an ordinary reasonable person[2] think "the future of money" or "traditional pyramid scheme"? And then if I were to describe a second scheme extending the first scheme where the main attraction is the supposedly constant pressure for buying into that scheme in order to participate in other new schemes launched with that scheme[3] - would an ordinary reasonable person think "new financial paradigm" or "traditional ponzi scheme"? And then if I was to describe those new schemes based on the second scheme based on the first scheme... [0] Both via difficulty adjustments every 2 weeks (mostly increasing) and rewards halving every 4 years [1] To counteract the deflationary nature of new coin generation [2] https://en.wikipedia.org/wiki/Reasonable_person https://en.wikipedia.org/wiki/Reasonable_person [3] i.e. buying into the "platform" in order to "invest" in tokens for subschemes issued with the "platform" (no one advertised that the subschemes would eventually have to dump their "shares" of the platform afterwards)
black_13 8y ago
What about Joe Cassano?
nimbius 8y ago
On June 29, 2009, Judge Chin sentenced Madoff to the maximum sentence of 150 years in federal prison. I vaguely remember the economic collapse of 2008, partly because at the time I was just getting out of a rough patch in my life and I'd bought a starter home. Granted, it was a mobile home, but it was 50,000 i'd made sure I could pay off at the bank and start building some equity. Then out of nowhere I lost my job, the machine shop I worked at closed, and after about 3 months I was effectively homeless. People like me dont have "hedge fund" investment money. I had to give my dog away because i couldnt afford to feed it and sell my car for a deposit on a studio apartment. I guess Bernies bones will bleach for those hundred some odd years of biblical retribution, but for me I never saw any justice. As far as I can tell, nobody, not one person responsible for crashing the economy and taking everything from me, was arrested or jailed. Im just supposed to imagine that the economy "got better" and everything is OK now. Madoff just seems like 'millionaires getting a few million back' to me.
- helios893 8y ago
  Thank you for sharing this with us.
- rplnt 8y ago
  I see what you mean and I agree, but those buying overpriced homes with too good to be true mortgages should bear no responsibility? Especially in a country like US where people don't like to be limited/controlled (read protected) by laws.
  - dlisboa 8y ago
    Most people don't have the financial wisdom to judge "too good to be true" on a macroeconomics basis. Specially not before the bubble burst, when even most experts regular people had access to thought there was nothing wrong with it. Someone offered them a great deal and they took it, simple as that. If a bank offers me a loan with very low interests should I consider the state of the whole economy and the impact of my loan on the country in 10 years before I take it? Compounding to that the fact that these people weren't even benefited by the whole scam. They lost their houses, their savings, everything. If they knew what was at stake they might bear some responsibility, but they didn't.
scandox 8y ago
Is it possible to argue that Bernie Madoff did a lot less direct fiscal harm than many (most?) legitimate investment companies that were unwound at that time? I suggested this at the time and got a lot of flak (from family members).
- bertil 8y ago
  The judicial process focuses on how “purely” what you did was harmful, rather than the overall impact. Otherwise, no one could scale any project: you’d do too much harm right away. What kills the most people around the world are more likely treatments for common, dangerous disease, cures that have known secondary effects (most likely chemotherapy). Pharmacists who develop those know that and test them against the (considerable) harm that would happen without it; those with a seemingly positive balance are approved, not those that are the least toxic. Same thing: the bank that does the most terrible decisions is probably the one with the most customers, not the one built with nothing but criminal intent. Otherwise: you are probably right, but it’s not relevant to judge banks overall. If you find clusters of bad behaviour (even in large banks) you probably want to focus on those, but not blame the whole institution right away: people, companies still need banks, and you wouldn’t find an honest banker if your criteria is “no harm at all”.
- snarf21 8y ago
  I think it is possible and also very true. IMO, the reason this is treated different is two fold. One, it gives everyone a fall guy and is intended to be a deterrent for any other individual to try to do the same thing in the future. Two, the large investment companies and companies that rated their vehicles have lots of culpable people but it was all systemic. Which of the 1000 people involved should go to jail? I know it would have caused major problems but we should have let them fail. We are in an even worse position now with companies that are even much too big to fail and they've been trained that the government will bail them out if mistakes are made.
- rb808 8y ago
  Agreed, if you were an investor in Citi, Merrill Lynch, Bear Stearns you would have lost nearly everything. Madoff customers did much better.
numlocked 8y ago
The article doesn’t mention a really important dynamic here — a LOT of the madoff IOUs were purchased by hedge funds for pennies on the dollar, from Madoff investors who needed liquidity for e.g. retirement and couldn’t wait decades to get their money back. Dunno if there still is, but there was an active and liquid market for Madoff receipts for a while. A fund could tell an individual who was wiped out by Madoff “we’ll pay you $0.20 on the dollar for your claim against Madoff”, and then collect the $0.80+ that’s been recovered over the past 10 years. I don’t have an estimate of what % of the recovered dollars are going to the original investors...but it’s not 100%. A lot of the claims have been traded.
- bertil 8y ago
  This article then makes those trades more valuable, which gives an incentive to pursue fraud. It’s an interesting effect against the legal strategy to wear down claimants.
- IfOnlyYouKnew 8y ago
  That's sort-of how it's supposed to work? The price at the time was the market-determined value considering the uncertainty of recovery. As you mention, there were multiple hedge funds, so they would have been competing to buy up these coupons, making me suspect the price at the time reflected the best knowledge of the fund's situation and the law available at the time. It sure seems unjust post-hoc. But I can't really think of any improvements. The rate of recovery is somewhat extraordinary, as demonstrated by the appearance of it in the press. And it would not have happened without giving organisations with deep pockets the incentives to try to effect it.
  - numlocked 8y ago
    Yeah, I sort of agree. But two things: 1. The article shares a bunch of anecdotes about individual investors receiving their money back, which is surely true, but not necessarily representative of what’s happening overall. 2. Unfortunately it probably wasn’t priced strictly by “odds of recovery” (and also I suspect there was information asymmetry there) but also based on liquidity needs. Large institutions can wait for cash. Retail investors can’t necessarily. Yes, yes time value of money blah blah. Still seems asymmetric.
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- JohnWilcox 8y ago
  If you looked at who exactly those "rich people" are, you would see that it has more to do with who they are in a system controlled by their own.
sandworm101 8y ago
Be careful about the "victim" label. Lots of Madoff's clients had very quiet discussions with lawyers. "I had 5 million in invested with Madoff, now it is gone". "No. You gave him 2 million 20 year ago. He told you that had grown to 5 million. He also paid you 2.5 million over those 20 years." "So I only lost the original 2 million?" "No. You were paid that 2 million back, plus an additional 500$ stolen from other people. That 500k was stolen money. You received and spent stolen money. If the FBI or IRS calls SAY NOTHING before talking to me again."
gumby 8y ago
Nice use of a Sankey diagram in that article!
AndyMcConachie 8y ago
Something that has always puzzled me is why anyone would invest without SIPC insurance? Either they didn't understand what SIPC is or they wanted to avoid some kind of SEC scrutiny.
- runako 8y ago
  From https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects "The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash."
onemoresoop 8y ago
Anyone who wants to see Madoff now sweeping the floors in Federal Correctional Institution Butner Medium there's a photo out there [0] [0] https://blog.hyip.com/wp-content/uploads/2016/05/Bernie-Scheme-2.2-4.jpg https://blog.hyip.com/wp-content/uploads/2016/05/Bernie-Sche...
- andrepd 8y ago
  Where are the bankers, the regulators, the politicians, the businessmen, the CEOs, who cost trillions of dollars, millions of jobs, hundreds of thousands of lives throughout the world after 2008?
  - gtycomb 8y ago
    Whenever I read an article like this one, this question is the one that remains.
    - bjl 8y ago
      You realise those people didn't break the law, right? You can't just throw someone in prison because you don't like what they did, their actions actually have to be illegal.
      - onemoresoop 8y ago
        Yes and that's what is frustrating with the law, it does no justice. If you're rich and have a good lawyer you get off merely wrist slapped.
e98cuenc 8y ago
Victim here. Note that Picard's efforts only help direct investors, or investors in feeder funds that reached an agreemnt with him. The DoJ separate fund help infirect investors, but after the first refund of 25% of the principal invested, they decided to do not refund customers of feeder funds (or at least of some feeder funds) arguing that we may recover something through Picard. Some of you commented on the follyness of investing in something that sounds too good to be true. At the time, I had diversified my portfolio in 8 funds. Kingate (the Madoff's feeder fund were I invested) had the lowest average return of all the funds. I ran a correlation test of these funds, and they all had an R of 0.7 - 0.95, except for Kingate, it had a correlation of ~0 with all the other funds across the years. I also compared with the major stock indexes, and it was completely uncorrelated. Its volatility was also super low. I plotted the average returns over a 3 month period for as many years as I had data, and it was a straight line at 9.8% annual return. It was my first investment and I thought it was fantastic: uncorrelated, stable, a bit low on the returns side compared to the other funds. Hindsight is 20/20, I guess. I had null previous experience and I just didn't knew how ridiculous these results were, and that this fund had SCAM sprayed all over it. I was advised by "professionals", which turned out to be nothing more than sellers in fancy suits.
- andrepd 8y ago
  I was advised by "professionals", which turned out to be nothing more than sellers in fancy suits. I wonder how many of those persons faced criminal repercussions for their wilfully damaging behaviour. I suspect I know the answer...
  - mannykannot 8y ago
    At least one professional who put clients' funds in Madoff's scam committed suicide when he learned of what had happened.
    - latchkey 8y ago
      https://en.wikipedia.org/wiki/Madoff_investment_scandal#Suicides https://en.wikipedia.org/wiki/Madoff_investment_scandal#Suic...

157 points by motiw 8y ago

Waterluvian 8y ago

Using square areas as a bar graph feels kind of frustrating. Doesn't feel intuitive? I know I'm being super nit picky.

projectramo 8y ago
I think they used it because, in that little space in the middle of the article, vertical space is more precious than horizontal space. So they traded off a little of one for a little of the other. Why does it feel less intuitive than regular bar graphs? I thought the criticism of bar graphs was exactly that people substitute area for height so the visuals are misleading.
- Waterluvian 8y ago
  I think I have a harder time visualizing relative sizes on two axes than one. I never thought of your point before though.
- tomp 8y ago
  It could be a horizontal bar graph, no?
  - projectramo 8y ago
    yes, good point.
- TeMPOraL 8y ago
  > I thought the criticism of bar graphs was exactly that people substitute area for height so the visuals are misleading. The usual criticism is that it's harder to compare areas than lengths, so one should avoid mapping data to areas.
probably_wrong 8y ago
I think it's not just unintuitive but also slightly misleading, because you have to be aware that surface increases exponentially. The grey square, for instance, has 1.4 times the surface of the red one, but the difference looks smaller than that.
- todd8 8y ago
  Graphics are so often intentionally manipulated to convey the authors intent. I don’t like graphs that show large differences until I realize that the origin of the graph is at say (0,1000) instead of (0,0); this can make a change from 1001 to 1010 seem huge. (One little edit to your comment, I think you meant quadratically instead of exponentially.)
- aoeusnth1 8y ago
  s/exponentially/quadratically/g
bertil 8y ago
I like it when you express a different concept in each dimension (typically, likelihood and amount of a payoff) but in this case, it’s odd. You can have horizontal bars if you are tight for space.

montenegrohugo 8y ago

> His sons, who worked for him, are dead—one hanged himself and the other died of cancer. Well that's fucked. The guy stole 19B, but is now serving a 150 yr prison sentence and his family is dead. Was it worth it?

nerdponx 8y ago
For the kind of person who would steal all that money in the first place? It probably was worth it. How much do you think he really cares about his family?
- PhasmaFelis 8y ago
  A lot of people make the mistake of thinking that all bad people are mustache-twirling stab-your-grandma-for-a-nickel types. There are evil bastards throughout history who loved their family and friends deeply. If you think this way, then you'll logically conclude that anyone who genuinely loves his family must be a decent guy who won't screw you over, and that's a very dangerous mistake.
projectramo 8y ago
His brother and niece (in compliance and legal) also worked there, if I recall. He did time. She was married to someone from the SEC the year before his arrest. Its all these weird coincidences that are so strange.
paulpauper 8y ago
the cancer death would have happened regardless
- mlrtime 8y ago
  That is impossible to know. (Hypothetical) How do we know the stress did not accelerate to the point of no return (I'm not a doctor).
belorn 8y ago
Also in the same paragraph. > Madoff’s wife, Ruth, is living in a rented home in Connecticut. The government allowed her to keep $2.5 million after Madoff’s plea. That whole paragraph felt so odd when I read it. Very callous mentioning of people hanging themselves and others dieing to cancer, and that the state apparently allowed his wife to keep $2.5 million of the stolen money. The whole thing sounds insane from a justice perspective.

montenegrohugo 8y ago

Imagine you invest in a hedge fund, and get some amount of returns back. But then, years later, a lawyer comes and tells you to give him the profits because the fund was illegitimate (without you knowing this) and therefore they don't belong to you. This is exactly what is happening to all these people. Doesn't this feel unfair to anyone else?

gdfasfklshg4 8y ago
Deeply unfair. The lawyers don't seem to have had to prove that the investors knew that the fund was illegitimate at. My understanding is that the fund was regulated so the assumption should have been that it was legitimate. I would not be surprised if results in people losing their retirement funds.
- ubernostrum 8y ago
  The analogy to stolen goods is useful. Generally, if you receive stolen goods, there are two possibilities: you knew they were stolen (read: a prosecutor can convince a jury you knew), in which case you lose the goods and get prosecuted. Or you didn't know they were stolen (read: prosecutors can't convince a jury you knew), in which case you merely lose the goods. This may seem unfair from the perspective of the unknowing recipient of stolen goods, but letting them keep the goods is equally unfair from the perspective of the original victim, and would feel like the law giving its blessing to the theft (it would also encourage schemes to knowingly but with plausible deniability receive stolen goods). So there's no solution that is guaranteed to appear fair from all perspectives. But the law generally sides with returning the goods to the original owner, effectively undoing the original theft. In this case, the "investors" who are being targeted by the suits are also getting to keep their own original capital; they're just being required to hand back the ill-gotten gains. So the remedy is effectively undoing the Ponzi scheme.
  - gdfasfklshg4 8y ago
    If you buy the stolen goods from a big box retailer that is routinely regulated then this analogy might be useful. As it is it does not apply very well to this situation.

75dvtwin 8y ago

They way the money is being recovered, seems, from suing the investors whose money did not get stolen, and taking the early profits from them. That also included funds that invested into Madoff's scheme (knowingly or unknowingly that it was illegitimate at the time). "... Picard filed hundreds of lawsuits to “claw back” phony profits from a wide range of customers, including individuals, families and estates that invested with Madoff for years. The trustee also went after offshore “feeder funds” that collected cash from their own customers and funneled it to Madoff to tap his unusually consistent returns. …" is anybody else reading this differently? Because this was a Ponzi scheme, this seems to be the only way to 'make fair' so to speak. Are there other ways? This seems to be unfair to the investors who did not know the scheme was illegitimate. They lost opportunity to invest into somewhere else, it is not like any other investment was unprofitable at the time.

Nursie 8y ago
They did lose that opportunity. Shame for them, but in the end what happened here was a massive criminal action and it seems unlikely it can be repaired in such a way that everyone is recompensed, including for potential other uses of the money.
dd36 8y ago
Then they should do better due diligence. Their profits were literally stolen money.
selimthegrim 8y ago
Jeffry Picower, your number is being called.
bertil 8y ago
I was shocked reading it — truly horrified: I once hesitated to invest in what proved suspicious companies, and I definitely thought about the possibility of getting out. Experiencing claw-back after that because others were not as considerate… Wow. However, the article names people who definitely should have known better: people who know what are reasonable returns, but also what you need and can do to get unreasonable ones. People who absolutely could have decided this was fishy. There is a principle in banking around your level of expertise: you can’t invest too much if you are not knowledgeable enough. It’s a little unfair to the young aspiring investors, but it allows to put strict requirements on large institutions without hurting people who legitimately couldn’t have known. That decision does introduce a precedent and a new level of responsibility: if it is too good to be true, you are liable for it all. This might also introduce interesting trickle-down decisions: you could be on the hook for alerting authorities if you come across one of those because you have to check, and if you found something uninspiring, you can’t claim deniability. It’s uncomfortable at first, but as long as that responsibility is carried by reasonably large investors only, it makes sense. Whether it might have negative consequences (typically, gatekeeping the best opportunities) is debatable.

rb808 8y ago

I wish I could get all my money back from investments that went bad. These guys were really lucky.

whatshisface 8y ago
If the investment went bad due to crime you might have a chance of getting the courts on your side. That's what they're there for, after all.

jondubois 8y ago

It shows that the crooks which have participated in Bernie Madoff's scam have been getting richer. It seems that crime pays if you can find someone else to take the fall.

pjc50 8y ago

So this has some interesting implications: the SEC has started going after the most fraudulent ICOs, and will no doubt start working their way backwards. Cryptocurrencies provide a permanent record of all transactions, and exchanges are obliged by KYC to map that to real people. This means that people who've already profited from crypto bubbles (and maybe even spent the money) might find themselves the target of recovery actions.

Tor3 8y ago
I can't see how that compares at all. A bubble is just that, a bubble. It may break. What Madoff did was a Ponzi scheme.
- Kye 8y ago
  Some of them probably did this knowing they were bogus. Those would be the targets of anti-fraud actions.
- mannykannot 8y ago
  A bubble is, in some ways, a self-organizing Ponzi scheme, in that the apparent growth has essentially nothing behind it but the inflow of new funds. Promoting something you know to be a bubble may be morally equivalent to running a Ponzi scheme, but you have to make some specific and clear-cut misrepresentations for it to be a crime. I would not be completely surprised if it turns out that some ICOs crossed the line, though ordinary take-the-money-and-run fraud seems more likely.
- m-i-l 8y ago
  If I were to describe a scheme that disproportionately rewards early adopters[0] and requires a constant addition of new adopters just to sustain the price[1] - would an ordinary reasonable person[2] think "the future of money" or "traditional pyramid scheme"? And then if I were to describe a second scheme extending the first scheme where the main attraction is the supposedly constant pressure for buying into that scheme in order to participate in other new schemes launched with that scheme[3] - would an ordinary reasonable person think "new financial paradigm" or "traditional ponzi scheme"? And then if I was to describe those new schemes based on the second scheme based on the first scheme... [0] Both via difficulty adjustments every 2 weeks (mostly increasing) and rewards halving every 4 years [1] To counteract the deflationary nature of new coin generation [2] https://en.wikipedia.org/wiki/Reasonable_person https://en.wikipedia.org/wiki/Reasonable_person [3] i.e. buying into the "platform" in order to "invest" in tokens for subschemes issued with the "platform" (no one advertised that the subschemes would eventually have to dump their "shares" of the platform afterwards)

black_13 8y ago

What about Joe Cassano?

nimbius 8y ago

On June 29, 2009, Judge Chin sentenced Madoff to the maximum sentence of 150 years in federal prison. I vaguely remember the economic collapse of 2008, partly because at the time I was just getting out of a rough patch in my life and I'd bought a starter home. Granted, it was a mobile home, but it was 50,000 i'd made sure I could pay off at the bank and start building some equity. Then out of nowhere I lost my job, the machine shop I worked at closed, and after about 3 months I was effectively homeless. People like me dont have "hedge fund" investment money. I had to give my dog away because i couldnt afford to feed it and sell my car for a deposit on a studio apartment. I guess Bernies bones will bleach for those hundred some odd years of biblical retribution, but for me I never saw any justice. As far as I can tell, nobody, not one person responsible for crashing the economy and taking everything from me, was arrested or jailed. Im just supposed to imagine that the economy "got better" and everything is OK now. Madoff just seems like 'millionaires getting a few million back' to me.

helios893 8y ago
Thank you for sharing this with us.
rplnt 8y ago
I see what you mean and I agree, but those buying overpriced homes with too good to be true mortgages should bear no responsibility? Especially in a country like US where people don't like to be limited/controlled (read protected) by laws.
- dlisboa 8y ago
  Most people don't have the financial wisdom to judge "too good to be true" on a macroeconomics basis. Specially not before the bubble burst, when even most experts regular people had access to thought there was nothing wrong with it. Someone offered them a great deal and they took it, simple as that. If a bank offers me a loan with very low interests should I consider the state of the whole economy and the impact of my loan on the country in 10 years before I take it? Compounding to that the fact that these people weren't even benefited by the whole scam. They lost their houses, their savings, everything. If they knew what was at stake they might bear some responsibility, but they didn't.

scandox 8y ago

Is it possible to argue that Bernie Madoff did a lot less direct fiscal harm than many (most?) legitimate investment companies that were unwound at that time? I suggested this at the time and got a lot of flak (from family members).

bertil 8y ago
The judicial process focuses on how “purely” what you did was harmful, rather than the overall impact. Otherwise, no one could scale any project: you’d do too much harm right away. What kills the most people around the world are more likely treatments for common, dangerous disease, cures that have known secondary effects (most likely chemotherapy). Pharmacists who develop those know that and test them against the (considerable) harm that would happen without it; those with a seemingly positive balance are approved, not those that are the least toxic. Same thing: the bank that does the most terrible decisions is probably the one with the most customers, not the one built with nothing but criminal intent. Otherwise: you are probably right, but it’s not relevant to judge banks overall. If you find clusters of bad behaviour (even in large banks) you probably want to focus on those, but not blame the whole institution right away: people, companies still need banks, and you wouldn’t find an honest banker if your criteria is “no harm at all”.
snarf21 8y ago
I think it is possible and also very true. IMO, the reason this is treated different is two fold. One, it gives everyone a fall guy and is intended to be a deterrent for any other individual to try to do the same thing in the future. Two, the large investment companies and companies that rated their vehicles have lots of culpable people but it was all systemic. Which of the 1000 people involved should go to jail? I know it would have caused major problems but we should have let them fail. We are in an even worse position now with companies that are even much too big to fail and they've been trained that the government will bail them out if mistakes are made.
rb808 8y ago
Agreed, if you were an investor in Citi, Merrill Lynch, Bear Stearns you would have lost nearly everything. Madoff customers did much better.

numlocked 8y ago

The article doesn’t mention a really important dynamic here — a LOT of the madoff IOUs were purchased by hedge funds for pennies on the dollar, from Madoff investors who needed liquidity for e.g. retirement and couldn’t wait decades to get their money back. Dunno if there still is, but there was an active and liquid market for Madoff receipts for a while. A fund could tell an individual who was wiped out by Madoff “we’ll pay you $0.20 on the dollar for your claim against Madoff”, and then collect the $0.80+ that’s been recovered over the past 10 years. I don’t have an estimate of what % of the recovered dollars are going to the original investors...but it’s not 100%. A lot of the claims have been traded.

bertil 8y ago
This article then makes those trades more valuable, which gives an incentive to pursue fraud. It’s an interesting effect against the legal strategy to wear down claimants.
IfOnlyYouKnew 8y ago
That's sort-of how it's supposed to work? The price at the time was the market-determined value considering the uncertainty of recovery. As you mention, there were multiple hedge funds, so they would have been competing to buy up these coupons, making me suspect the price at the time reflected the best knowledge of the fund's situation and the law available at the time. It sure seems unjust post-hoc. But I can't really think of any improvements. The rate of recovery is somewhat extraordinary, as demonstrated by the appearance of it in the press. And it would not have happened without giving organisations with deep pockets the incentives to try to effect it.
- numlocked 8y ago
  Yeah, I sort of agree. But two things: 1. The article shares a bunch of anecdotes about individual investors receiving their money back, which is surely true, but not necessarily representative of what’s happening overall. 2. Unfortunately it probably wasn’t priced strictly by “odds of recovery” (and also I suspect there was information asymmetry there) but also based on liquidity needs. Large institutions can wait for cash. Retail investors can’t necessarily. Yes, yes time value of money blah blah. Still seems asymmetric.

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JohnWilcox 8y ago
If you looked at who exactly those "rich people" are, you would see that it has more to do with who they are in a system controlled by their own.

sandworm101 8y ago

Be careful about the "victim" label. Lots of Madoff's clients had very quiet discussions with lawyers. "I had 5 million in invested with Madoff, now it is gone". "No. You gave him 2 million 20 year ago. He told you that had grown to 5 million. He also paid you 2.5 million over those 20 years." "So I only lost the original 2 million?" "No. You were paid that 2 million back, plus an additional 500$ stolen from other people. That 500k was stolen money. You received and spent stolen money. If the FBI or IRS calls SAY NOTHING before talking to me again."

gumby 8y ago

Nice use of a Sankey diagram in that article!

AndyMcConachie 8y ago

Something that has always puzzled me is why anyone would invest without SIPC insurance? Either they didn't understand what SIPC is or they wanted to avoid some kind of SEC scrutiny.

runako 8y ago
From https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects "The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash."

onemoresoop 8y ago

Anyone who wants to see Madoff now sweeping the floors in Federal Correctional Institution Butner Medium there's a photo out there [0] [0] https://blog.hyip.com/wp-content/uploads/2016/05/Bernie-Scheme-2.2-4.jpg https://blog.hyip.com/wp-content/uploads/2016/05/Bernie-Sche...

andrepd 8y ago
Where are the bankers, the regulators, the politicians, the businessmen, the CEOs, who cost trillions of dollars, millions of jobs, hundreds of thousands of lives throughout the world after 2008?
- gtycomb 8y ago
  Whenever I read an article like this one, this question is the one that remains.
  - bjl 8y ago
    You realise those people didn't break the law, right? You can't just throw someone in prison because you don't like what they did, their actions actually have to be illegal.
    - onemoresoop 8y ago
      Yes and that's what is frustrating with the law, it does no justice. If you're rich and have a good lawyer you get off merely wrist slapped.

e98cuenc 8y ago

Victim here. Note that Picard's efforts only help direct investors, or investors in feeder funds that reached an agreemnt with him. The DoJ separate fund help infirect investors, but after the first refund of 25% of the principal invested, they decided to do not refund customers of feeder funds (or at least of some feeder funds) arguing that we may recover something through Picard. Some of you commented on the follyness of investing in something that sounds too good to be true. At the time, I had diversified my portfolio in 8 funds. Kingate (the Madoff's feeder fund were I invested) had the lowest average return of all the funds. I ran a correlation test of these funds, and they all had an R of 0.7 - 0.95, except for Kingate, it had a correlation of ~0 with all the other funds across the years. I also compared with the major stock indexes, and it was completely uncorrelated. Its volatility was also super low. I plotted the average returns over a 3 month period for as many years as I had data, and it was a straight line at 9.8% annual return. It was my first investment and I thought it was fantastic: uncorrelated, stable, a bit low on the returns side compared to the other funds. Hindsight is 20/20, I guess. I had null previous experience and I just didn't knew how ridiculous these results were, and that this fund had SCAM sprayed all over it. I was advised by "professionals", which turned out to be nothing more than sellers in fancy suits.

andrepd 8y ago
I was advised by "professionals", which turned out to be nothing more than sellers in fancy suits. I wonder how many of those persons faced criminal repercussions for their wilfully damaging behaviour. I suspect I know the answer...
- mannykannot 8y ago
  At least one professional who put clients' funds in Madoff's scam committed suicide when he learned of what had happened.
  - latchkey 8y ago
    https://en.wikipedia.org/wiki/Madoff_investment_scandal#Suicides https://en.wikipedia.org/wiki/Madoff_investment_scandal#Suic...