5 ms·

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 reg

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.
  - Retric 8y ago
    Considering the amount of counterfeit goods sold on Amazon I suspect at least some of it was simply stolen. In such a case I would expect the items to be clawed back if possible. Though with the possibility of Amazon making the buyer whole. That also seems like the correct approach here where anyone running a feeder fund should be on the hook.
    - gdfasfklshg4 8y ago
      I don't think of a third party selling on Amazon as a big box retailer.
      - Retric 8y ago
        I consider Amazon as a big box retailer, and commingling means buying from Amazon was identical to buying third party. Though, I guess that changed over time and I now consider Amazon more a shady market stall.
sseveran 8y ago
Hedge funds are not regulated the way you think. Mostly the SEC requires the generation of a lot of paperwork and various filings. The SEC does conduct inspections of funds but mostly this is not that big a deal. Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. I will leave the reader to judge the competence of the SEC but if you are thinking that this was hard to see I would recommend Harry Markopolos's book 'No One Would Listen'. Ultimately as a potential investor this would have been easy to spot as at least suspect. The first couple of due diligence questions to ask are about custody arrangements and their auditor. Understanding that if you are not an accredited investor you are not allowed to invest in hedge funds also makes it obvious that a fund willing to take your money may be acting fraudulently. Finally it did result in people losing their retirement funds, for some people absolutely everything.
- gdfasfklshg4 8y ago
  > Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. > Ultimately as a potential investor this would have been easy to spot as at least suspect. You think that even after the SEC failed to spot the fraud investors with far less power should be able to? I don't quite follow your argument here. A little more clarification would be nice. > Finally it did result in people losing their retirement funds, for some people absolutely everything. Taking money that people have received 20 years ago off people will also result in some people losing everything. (I know that they say that the people they are extracting the money from are keeping the original investments but what if some of the money has been spent?)
  - sseveran 8y ago
    Sure. So simply asking who their auditor is and what the custody arrangements are will tell you a lot. Hedge Funds and other asset managers use a relatively small number of accountants to do their auditing. Madoff used a small family accountancy. https://en.wikipedia.org/wiki/David_G._Friehling https://en.wikipedia.org/wiki/David_G._Friehling This is not to excuse the SEC or let them off the hook. The SEC proved to be ultimately grossly incompetent at best, if not negligent or actually complicit. Investors should no more rely on the SEC to protect them than the hens should rely on the fox to protect the henhouse. This has been demonstrated repeatedly. https://www.barrons.com/articles/when-chinese-stock-fraud-was-rampant-1521659454 https://www.barrons.com/articles/when-chinese-stock-fraud-wa... https://www.wsj.com/articles/SB123577641445497313 https://www.wsj.com/articles/SB123577641445497313 Finally there is a statute of limitations when clawing back money that people received. I believe in Madoff's case it was two years. Additionally there were a number of lawsuits against a subset of investors that allegedly new about the scheme and profited from it. https://www.reuters.com/article/us-madoff-trustee-opinion/judge-trims-madoff-trustees-profit-clawback-suits-idUSBRE8401JF20120501 https://www.reuters.com/article/us-madoff-trustee-opinion/ju...

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.
- Retric 8y ago
  Considering the amount of counterfeit goods sold on Amazon I suspect at least some of it was simply stolen. In such a case I would expect the items to be clawed back if possible. Though with the possibility of Amazon making the buyer whole. That also seems like the correct approach here where anyone running a feeder fund should be on the hook.
  - gdfasfklshg4 8y ago
    I don't think of a third party selling on Amazon as a big box retailer.
    - Retric 8y ago
      I consider Amazon as a big box retailer, and commingling means buying from Amazon was identical to buying third party. Though, I guess that changed over time and I now consider Amazon more a shady market stall.

sseveran 8y ago

Hedge funds are not regulated the way you think. Mostly the SEC requires the generation of a lot of paperwork and various filings. The SEC does conduct inspections of funds but mostly this is not that big a deal. Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. I will leave the reader to judge the competence of the SEC but if you are thinking that this was hard to see I would recommend Harry Markopolos's book 'No One Would Listen'. Ultimately as a potential investor this would have been easy to spot as at least suspect. The first couple of due diligence questions to ask are about custody arrangements and their auditor. Understanding that if you are not an accredited investor you are not allowed to invest in hedge funds also makes it obvious that a fund willing to take your money may be acting fraudulently. Finally it did result in people losing their retirement funds, for some people absolutely everything.

gdfasfklshg4 8y ago
> Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. > Ultimately as a potential investor this would have been easy to spot as at least suspect. You think that even after the SEC failed to spot the fraud investors with far less power should be able to? I don't quite follow your argument here. A little more clarification would be nice. > Finally it did result in people losing their retirement funds, for some people absolutely everything. Taking money that people have received 20 years ago off people will also result in some people losing everything. (I know that they say that the people they are extracting the money from are keeping the original investments but what if some of the money has been spent?)
- sseveran 8y ago
  Sure. So simply asking who their auditor is and what the custody arrangements are will tell you a lot. Hedge Funds and other asset managers use a relatively small number of accountants to do their auditing. Madoff used a small family accountancy. https://en.wikipedia.org/wiki/David_G._Friehling https://en.wikipedia.org/wiki/David_G._Friehling This is not to excuse the SEC or let them off the hook. The SEC proved to be ultimately grossly incompetent at best, if not negligent or actually complicit. Investors should no more rely on the SEC to protect them than the hens should rely on the fox to protect the henhouse. This has been demonstrated repeatedly. https://www.barrons.com/articles/when-chinese-stock-fraud-was-rampant-1521659454 https://www.barrons.com/articles/when-chinese-stock-fraud-wa... https://www.wsj.com/articles/SB123577641445497313 https://www.wsj.com/articles/SB123577641445497313 Finally there is a statute of limitations when clawing back money that people received. I believe in Madoff's case it was two years. Additionally there were a number of lawsuits against a subset of investors that allegedly new about the scheme and profited from it. https://www.reuters.com/article/us-madoff-trustee-opinion/judge-trims-madoff-trustees-profit-clawback-suits-idUSBRE8401JF20120501 https://www.reuters.com/article/us-madoff-trustee-opinion/ju...