Venture

Robert Trigaux

Ponzi schemer Bernard Madoff's Florida trail

12

December

Wake up and good morning. Not again. Another day, another Wall Street fraud? Another Ponzi scheme? We're just on the front end -- but this could be a big fraud -- that Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his own sons turned him in for running, says the Wall Street Journal front page story, what they said their father called "a giant Ponzi scheme" -- in which existing investors are paid with fresh funds of new investors.

The last time Floridians got obsessed with Ponzi scheme allegations, Orlando boy-band-producer-turned-fraudster Lou Pearlman was in the news. Now Lou is in jail.

Bernardmadoff The allegations and ripples already stretch from New York to Palm Beach to the Tampa Bay area. The Securities and Exchange Commission's civil complaint (here are the highlights) alleges it was an ongoing $50-billion swindle -- billion with a B, making it perhaps the biggest Ponzi fraud ever, says a Bloomberg News story. The SEC asked a judge to seize the New York firm -- Bernard L. Madoff Investment Securities -- and its assets. Stated Andrew M. Calamari, associate director of enforcement in the SEC's New York office:

"Our complaint alleges a stunning fraud that appears to be of epic proportions."

In a world of epic fraud, that's a pretty big statement. Here's a bigger one: "The story of Bernard Madoff, if the charges of fraud are true, is the single biggest financial story of the year. It is bigger than WorldCom, bigger than Boesky and bigger than Tyco," states commentator Doug Kass at TheStreet.com. Here's more from Kass:

"It attacks at the core of investor confidence -- because, if true, and this could happen ... Investors might think that almost anything imaginable could happen to the money they have entrusted to their fiduciaries. And it helps to explain why Treasury bill returns are basically at zero," he says, referring to the rush by investors to buy safe Treasury bills -- despite their offering a zero-rate of return.

Today's Wall Street Journal story (read it here for those with subscription) describes some of the initial shock of Madoff's investors, including Susan Leavitt of "Tampa Bay." She said she had several million dollars of inherited money invested in the firm and added $500,000 earlier this year. A stay-at-home mother with two children, the 46-year-old Leavitt says she is considering going back to work, and added: "That was my nest egg for the children, and my future. I'll never see much back, I'm sure."

Leavitt said she recently discussed her investment with a friend who told her he was suspicious about the firm's ability to generate such profits amid the economic crisis. "I thought, 'He's probably just jealous,' " said Leavitt. "We've been with [Mr. Madoff] for 15 years, and it's grown every year at 10 percent."

Coverage of Madoff, who denies wrongdoing, is already ramping up in Palm Beach where Madoff owned a home and where, apparently, he convinced plenty of locals to invest with him.

“At one point, he was the favored broker of Palm Beach,” said a Palm Beach Country Club member who, reports the Palm Beach Post, asked that her name not be used. “Every big guy was his client. I’ve received dozens of calls about this today. There are a lot of people who lost a whole of money with this guy. But no one will admit to it in public.”

Madoff’s wife, Ruth, is listed as the official and sole owner of the couple’s Palm Beach mansion on North Lake Way. The Madoffs bought the place in 1967 for $79,000, according to country records. It’s now appraised at $9.3-million, the Post reports.

The Madoff firm had about $17.1-billion in assets under management as of Nov. 17, according to NASD records. At least 50 percent of its clients were hedge funds, and others included banks and wealthy individuals, according to the records.

Madoff faces as much as 20 years in prison and a $5-million fine if convicted. His New York-based firm was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50-million shares a day, exchange data show. It specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Best headline so far: He Madoff with how much?

(Photo of Madoff from madoff.com)

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:23pm]

    

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