Madoff says he’s very very sorry
In breaking news, Bernard Madoff admits his crimes, and apologizes.
No, not this apology (starting at 00:40):
I’m watching on cable news, and the description of Madoff in court is that his affect was flat and bland as he read his words of contrition and frequently sipped water. This lack of emotion (except for the dry mouth, which could be a reflection of fear for himself rather than any real sense of shame) is entirely consistent with the sort of sociopathy I (and others) have speculated is part of Madoff’s character—although, paradoxically, sociopaths can appear remorseful in order to placate victims and the law, even when they are not.
Madoff doesn’t seem to be doing even that. What’s more, if he is so very contrite, and knew this day would come, and began the scheme in the 90s thinking it would be temporary (all of this was part of his confession), then why didn’t he stop and confess earlier, before more and more people and charities were drawn in?
Victims and others are quoted as saying they are certain Madoff had confederates in crime. And, although that is highly probable, I continue to maintain that to automatically assume it is impossible that Madoff acted alone is to underestimate the ability of a really smart con artist to pull off a con, especially when people trust him. If Madoff was able to con the SEC, I think it remains at least within the realm of possibility that he covered his tracks enough with the family members who worked in his office to fool even them. His blemish-free past certainly gave them reason to trust and respect not only his character but his business acumen (I have written elsewhere on how he might have accomplished cooking the books without their help—see the “Note” at the end of this post).
Whatever the Madoff family involvement, prosecutors and investigators will be on their own; Madoff’s plea was no bargain. There was no quid pro quo in exchange for lenience. Madoff appears to be remaining mum on what others may have done to help him.
What do we know about how the Madoff operation worked? There’s this:
…The money manager [of Madoff’s operation] told his employees to create false account documents and trade confirmations reflecting phony returns so as to transfer funds while giving the appearance of legitimate trades, and to generate false financial statements for regulators, prosecutors said. Those actions gave the appearance of a “legitimate investment advisory business,”…
The issue will be whether the government can establish that they knew what in the paper was in fact phony,” Christopher Steskal, a former federal prosecutor, said in a telephone interview. “If the facts show it, they will likely pursue those people. It seems improbable that he would do it alone.” …
His back-office staff had little or no experience and at Madoff’s direction misled clients about investments, prosecutors alleged in court papers.
“Certainly lower level employees are unlikely to be involved, but people with auditing function or authority to access accounts or make trades are more likely to have knowledge of the alleged fraud,” Steskal said.
[Prosecuters] said [Madoff] hired people with little or no relevant experience in the investment business, directing them to create bogus documents such as client account statements and fake trade slips. No one else has been charged in the case.
Prosecutors said that to further the fraud, Madoff concocted phony balance sheets, income statements, cash flow documents and internal control reports. They said he then sent those documents to would-be clients and regulators at the U.S. Securities and Exchange Commission
One person I would wager is innocent is a former Madoff auditor with this sad story:
The Federal Bureau of Investigation recently interviewed a longtime auditor of the Madoff firm…Jerome Horowitz, [who] said that he saw no indication of fraud at the Madoff firm during his time as the auditor, from the early 1960s until his retirement in 1995, said a person familiar with the matter…
Mr. Horowitz, who is 80 years old and has terminal cancer, lost his life savings in the fraud, according to his lawyer. “Mr. Horowitz thinks this is a tragedy and feels horrible not only for his own family members, which are victims, but for all victims,” said his lawyer, Latour Lafferty. “He has cooperated fully with the FBI and wanted to explain his role in working for Mr. Madoff before he dies.”
As for the all-important “where is the money?” question, I was thinking about that (I doubt I’m not the only one). Although Madoff had probably stashed a lot of it somewhere, a great deal of it is probably gone, given to clients over the years.
No, this was not done through the goodness of Madoff’s heart. But since he was regularly paying clients earnings of about 10%, and this practice went on for many years, and there were no actual investments to grow the money much (Madoff alleged today that he put it in a back account at Chase), you figure it out.
For example, a person investing a million dollars with Madoff would get back $100,000 earnings a year on the investment. At least, he/she would think it was earnings; in actuality it wasn’t. In ten years at that sort of payment level, the principal would be gone. I’m not suggesting Madoff paid clients back from their own money, of course; it was from the pool of monies, but the point is still the same.
Unless there were a lot of people who got into the game recently and hadn’t had much time yet to receive their supposed earnings from Madoff, or unless there were a lot of people who rolled their earnings back into their principal invested with Madoff investments, the hefty payments to clients had to continue to keep the charade going. This would have substantially depleted the Madoff monies over the years.
To what extent? We haven’t a clue. But Madoff does.
Payouts? I’m reminded of a cartoon character counting out the “split” of the proceeds of a heist:
Here’s one for you and one for me.
Here’s two for you and one, two for me.
Here’s three for you and one two three for me….
Etc.
(Or was it the Marx brothers or some other comedy group?)
The really sad part of this is that I see discussion of possible “claw backs” i.e. innocent investors who received phony investment income from Madoff would be sued to force them to disgorge these “illegal” gains even though they paid taxes on them and the money may have been spent long ago.
Something doesn’t sit well with me and the news coverage of this guy. The mantra i kept hearing today was “The most hated man in America”….As they follow his SUV to court. Just comes off as more capitalism bashing that reigns supreme in news today.
And this guy screwed 5000 people and hes public enemy number one? Most any democrat senator has this guy beat by miles and miles in that category.
SteveH: I was thinking something similar. He fits in way too well with the current administration mantra of how despicable the rich are. And this is true even though most of his victims were relatively rich, and some of them very rich.
I do absolutely detest the man, however, as much as I am fascinated by his psychology. I think this is because he is such an exploiter and such a liar, but even more especially because his is a relatively simple story compared to the supposed villains of the larger story, be they political or financial. Who can we blame? We’re not sure—possibly because there are so many of them. So Bernie gives a nice sharp focus to our rage.
If Madoff didn’t exist (and he most definitely does), this administration would be tempted to invent him.
He did donate $372K to politicians,89% Dem.over 18 yrs.and spent590K on lobbyists.This does raise the question of whether it was only SEC incompetence or whether a few phone calls from some of our politicians had some effect.
I recently found a website, The Market Ticker.
I’ve been reading it for the last week and it’s an amazing site. It really is. There’s a lot going on over there. Some of it requires registration.
(I only wish I had found it a year ago. I would have escaped from the market with most of my gains intact.)
Anyway, here was a quote from a few days ago:
He is not a villain, it seems. It was not his intent to harm anybody, he was just inable to honestly assess consequences of his deeds. He deceived himself just as effectively as everybody else, and this ability to deceive everybody was the only joy of his very lone life. There are people who steal without purpose – kleptomans; they can not be called thiefs, and there are con-men and pathological liars who do it simply because they can, and it makes them happy. Mania of some sort.
It is quite possible that he even has not enrich himself a bit by his fraud, and even his closest family were completely unaware of it; he enjoyed a lot by having a secret life of his own, of which no living soul has a glimpse. This was his only aim and only reward. A psychopath? Of course. Only a psychopath can be so meticuluosly careful to cover one’s tracks with no avail except pride in being so superhumanly prudent.
In thinking about where the money went remember also the fees paid to the hedge funds, such as Fairfield, that raised money for him. I don’t know Fairfields fees, but if they wee the standard 2%/20% and they had $7bn invested returning 10% p.a. the they would have received $280mm a year.
I was conned by a man who said he loved me and he stole a lot of money from me too. He enjoyed making fun of me all along. I know that he enjoys hurting me now as he still has some financial control. I will not talk to him but he is still able to hurt me. Madoff will enjoy hurting people from prison. He is not capable of remorse.