Friday, 12 December 2008

Massive hedge fund fraud

From the Beeb:

The former chairman of the Nasdaq stock market has been arrested and charged with securities fraud, in what may be one of the biggest fraud cases yet.
Bernard Madoff ran a hedge fund which ran up $50bn (£33.5bn) of fraudulent losses and which he called "one big lie", prosecutors allege.

Wow. Even more interesting is the bit about how he made the thing work -

According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn of money under management - was a fraud and had been insolvent for years, losing at least $50bn.
He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

For 'Ponzi', read 'pyramid'. That's all this was - a pyramid scheme - yet he had $17bn under management. Wow again.

6 comments:

Jackpot said...

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The Great Simpleton said...

What's more intersting is that hedge funds have always claimed they can be aggressive and take higher risks because their investors are wealthy and know what they are doing - "grown ups" is what I heard one fund manager call them.

In which case you would have expected a high level of due diligence.

I heard on the radio that even Nicola Horlick had some of her funds invested.

Tom P said...

Yes you're quite about Nicola Horlick, which says a lot in itself. If you can't rely on a professional fund manager to tell a genuine investment vehicle from a pyramid scheme then something really is rotten in the system.

Nick Drew said...

My sentiments exactly, Tom

what's an individual investor to do ? - implications for NuLab policy as well as us capitalists

Tom P said...

This has to be an outlier (surely?!), but it does raise quite a few questions dunnit. I notice Bramdean has tried to blame the regulatory regime.

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