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Madoff Scheme Tightens Noose on Fund of Funds
Posted Dec 22, 2008 01:31pm EST by Henry Blodget in Investing, Newsmakers, RecessionFrom ClusterStock, Dec. 22, 2008:
Bernie Madoff's biggest sales operation, Fairfield Greenwich Group, made more than $500 million over the past five years channeling investors to Madoff, the NYT says. We continue to believe the firm's days are numbered, and we would be surprised if it made it through January.
We also expect that client lawsuits will end up clawing back a good portion of that $500 million. Why? Because the results that attracted the assets and earned performance fees were fictitious.
Since Madoff revealed his Ponzi scheme, FGG has adopted the familiar "shocked and appalled" defense and also announced that FGG its partners had their own money with Madoff. This exposure, it turns out, was only $60 million. This, in turn, was:
- Less than 1% of the $7.3 billion of client money the firm had with Madoff
- About 10% of the fees the firm earned off of Madoff over the past five years
- Only 20% of the profit the firm made last year
The confidence and trust the firm's partners placed in Madoff when investing other people's money, therefore, does not appear to have applied to their own. FGG also appears to have done less due diligence on Madoff than it claims:
NYT: As it raised money all over the world, Fairfield also made detailed pledges about how it would monitor and track Mr. Madoff’s investments, the documents show...
Fairfield promised its investors that money could not be moved from its accounts with Bernard L. Madoff Investment Securities without two signatures. It said that it would independently calculate the value of the funds it invested at Mr. Madoff’s firm at least once a week. It promised to reconcile statements from individual trades with Mr. Madoff’s custodial records.
It is not clear what Fairfield did to make good on those pledges.
And then there was FGG's apparent unwillingness to discuss how Madoff actually generated his returns — even to prospective buyers of the firm. This reticence suggests either that FGG didn't understand how Madoff's strategy supposedly worked (bad) or knew that it couldn't be explained (worse).
NYT: In early 2008, several private equity and investment firms were approached by Fairfield about purchasing a share of the company. A partner of one that considered buying a stake that he estimated was between one-third and one-half of Fairfield — the firm was valuing itself somewhere between $1 billion and $1.5 billion — said that he was scared off about 20 minutes into his initial meeting with a team of Fairfield managers.
“They were just incredibly squishy and vague even during the warm-up,” said the prospective buyer, who spoke on condition of anonymity because of a non-disclosure agreement with Fairfield. “I asked them to tell me about the manager of the fund Sentry feeds into, and I was told, ‘We don’t really talk about him.’ ”
See Also:Fairfield Greenwich Group Deathwatch
Fairfield Greenwich: Our Research Processes Are Unbelievably Rigorous
65 Comments
- Monday December 22, 2008 02:01PM EST
Take all moneys etc from FGG and CEO's. Make them live in a 2 room apt with NO car after they get out of prison
- Monday December 22, 2008 02:01PM EST
The fund managers and their associated companies should be held personnaly responsible for all monies collected from investors. I mean that their personal monies and assets be garnished to repay invetors along with a penalty of five times the monies invested. If they go down the tubes...so what they cared less for their victims. A lesson learned for future fund managers. We have to trust these managers, that's what we pay them for. These guys need to pay big time. Not to be let off the hook as not a threat to society... these white collar criminals are a bigger threat to society than theives and murders...they ruin peoples lives, millions of peoples lives!!!
- Monday December 22, 2008 02:04PM EST
Wouldn't surprise me to find out that FGG was involved in this mess. Even if they weren't, it sounds like they didn't do their homework when it came to Madoff. I think the only ones that will profit from this, other than Madoff himself, will be the lawyers.
Yahoo! Finance User - Monday December 22, 2008 02:07PM EST
I'd like to tighten the noose around all the overpaid, useless, Wall St and Bank CEOs. Then lower the bodies slowly so their necks don't break. And watch them squirm.
Yahoo! Finance User - Monday December 22, 2008 02:09PM EST
bunch of crooks all over the financial world in the US!
Yahoo! Finance User - Monday December 22, 2008 02:09PM EST
I can not believe a crook like Henry Blodgett is reporting on Bernie Madoff. Ironic?
- Monday December 22, 2008 02:20PM EST
I think the timing for Madoff's confession is absolutely perfect. If only there was some "friend-of-the-wealthy" out there about to hand out criminal pardons. Oh wait a minute...
- Monday December 22, 2008 02:21PM EST
http://video.google.com/videoplay?docid=1954933468700958565&hl=es
- Monday December 22, 2008 02:21PM EST
I am amazed how naive some investors are. With my pultry little 401K (less than 100K) I smelled a rat last year and pulled all my money out of these funds. But some people invested hundreds of millions of dollars - without thinking twice. My guess is that this is just the tip of the iceberg. Many people who live off of their funds - trustfunders, retirees, etc - will soon be broke and looking for work - just as unemployment reaches 9%. I guess their plan of living off us working people - who they hold in such contempt - isn't working out quite the way they planned.
Yahoo! Finance User - Monday December 22, 2008 02:26PM EST
What about the Tremont fund? They shot the moon with the whole portfolio into Madoff. Over $3 billion. Any difference with Fairfield, other than the amount?
- Monday December 22, 2008 02:26PM EST
The fellow from Nashville was a "ice company" trust fund kid when he went to New York. He was incapable of making the Greenwich Fund work as an honest business. I would suspect that he was in cahoots with Madoff because of his own ineptitude.. I think his last name was Noel.
Yahoo! Finance User - Monday December 22, 2008 02:27PM EST
We were all laughing at the corruption of third world countries. Comparing with our Bank CEO and people like Madoff, they are really peanut size.
- Monday December 22, 2008 02:33PM EST
Will Made-off get his bonus!!!! I heard his severance is in the bag!!!!
- Monday December 22, 2008 02:40PM EST
Is it just me or is this thing getting way more attention then the Citigroup ponzi scheme? How come you don't here reports about what one of the largest banks in the U.S. was doing to hide it's bad assets to shell companies? I feel sorry for anyone who has their money in a Citibank. They have reported almost nothing about this on the news. Everyone is focusing on Madoff when Citigroup is suppose to be a reputable bank. Why don't they have their charter revoked?
- Monday December 22, 2008 02:40PM EST
Wall Vegas,let the chips fall.Ante up & play poker vegas.
- Monday December 22, 2008 02:41PM EST
Henry Blodgett should disclose he's a crook every time he shows up on this Tech Ticker. Why can't Yahoo find an honest person to report the news?
- Monday December 22, 2008 02:43PM EST
Why have they not frozen every single asset Madoff and his family own ? Why is he out on bail ? Who cares if he is confined to his home , put him where he belongs , and let the scumbag spend the rest of his miserable life there.
Yahoo! Finance User - Monday December 22, 2008 02:45PM EST
I'd rather bet my $$$ on football than invest with the crooks on wall street... the risk and juice is alot less
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- Monday December 22, 2008 01:59PM EST
Having been hit by massive wriiten down and bad debts,The US Banks are all in trouble no doubt about it wwith the help of cental bank things has just stablized and the brink of worse recession has on retreat...But with another hit had come recently,The Madoff affair a $ 50 billion Dollar Ponzi.....Once again Banks are hit,Fund are hit,wealthy Indiviual Investor are all hit too, charity fund are all hit too you name the hit was so bad and damage the confidece of the Investor, the Christmas tuns bad to the Stock Market and to the Pocket of All Investor....Sad....Many factor to be blame.....First of all, the SEC and Chairman Christopper Cox,he neclect his duties to safeguard the scheme....There is a report llong time ago to SEC about the Madoff...The trouble is SEC ignored such reports.......Sad....The best option we need to change the law and the punishment must be 20 years minimum inside the prison....If no such deterent in the future I doubts it will happen again.Remove the crooks from Sec and Change most of the staff........Replace it with honest men and women.... reform no change and the law .....A hard law or draconian law will be applied for all fund manager and investment manager...and the punishment must be very severe......If that happen a future Market is reliable and corruption will be eliminated........