Friday, June 8, 2012

They Earn Their Money the Old-Fashioned Way -- They Cheat. Dept.: Bernie Madoff

I mentioned earlier, that after the 2008 Financial Crisis, I devoted myself to reading business books in an attempt to wise up. I've since studied the efficient market hypothesis, passive indexing, portfolio allocation, 401 (k) plans, IRAs, value investing, arbitrage, diversification, collectibles, commodities, etc.

I opened a Roth IRA at Fidelity in 2011, and put in the max for the last two years, about $6K worth of cribbed savings. Last week I received via snail mail a jaw-dropping statement for my tax-free interest for the month of May, 2012. The grand total? One thin dime. Clearly, I haven't learned enough about sound investing strategies.

What I have learned along the way, is that the big boys often earn their fortunes "the old-fashioned way" -- they cheat. They steal, use inside information, and at the very least, "game the system."

There's scores of hindsight exposes about scandalous cheaters. From John Law's (1671-1729) Mississippi Bubble to Kenneth Lay's (1942-2006) Enron fiasco, it seems con men are jockeying to soak us gullible investors.

A recent eye-opener for me was Bernard Madoff (b. 1938). He was the dad-blamed former non-executive chairman of the NASDAQ stock market for chrissakes, and when finally exposed, the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S. history.

Madoff didn't mess with implementing any of those complex financial strategies I mentioned above. He didn't allocate, arbitrage, or diversify. No sir, he just cheated his clients out of their money. Savvy investment analysts like Harry Markopolis and Edward O. Thorp saw the end-result coming, but somehow the SEC didn't. Madoff's returns were just too good, month after month, to be possible. Those charged with recovering the missing money believe Madoff's investment operation may never have been legitimate. The amount missing from client accounts, including fabricated gains, was almost $65 billion. Below are two in-depth books on the scandal.

As for me, I might just stick with original comic book art for my fortune. Even I can make more than a dime a month with $6K.

The Madoff Chronicles: Inside the Secret World of Bernie and Ruth by Brian Ross

"After the news broke of Bernie Madoff's arrest on December 11, 2008, the facts were hard to grasp. Madoff claimed to have stolen fifty billion dollars; the sum seemed impossibly large. But of course it wasn't impossible. And that was only the beginning of the story.

As chief investigative correspondent for ABC News, Brian Ross has been on the front lines of the Madoff scandal since the beginning. Throughout the course of his investigation, he and his team have achieved unequaled access to the investigators working to unravel Madoff's fraud, and have succeeded in cultivating sources deep within the walls of Bernard L. Madoff Investment Securities that no other journalist has reached. Ross was even able to obtain a copy of the contents of Madoff's "little black book."

The result is an unparalleled, fly-on-the-wall view of a life of corrupted luxury and outrageous lies.
Ross chronicles the lavish lifestyle that Bernie and his high-school sweetheart, Ruth, enjoyed as the result of his ill-gotten gains and the bone-deep deceit that shocked the world with its sheer audacity. He details the layers of Madoff's scheme--from money men across the country who made millions convincing clients to entrust their wealth to Madoff, to the fabricated stock trades and false quarterly statements that fooled his victims, many of whom lost their savings, their homes, some of them even their lives, in the wake of Madoff's betrayal.

This is a true-crime drama of Shakespearean proportions, built upon the up-close investigative skills of one of our most respected journalists. The Madoff Chronicles is a vivid and chilling look behind the gilded doors of the greatest financial fraud in history."

No One Would Listen: A True Financial Thriller by Harry Markopolos

"Harry Markopolos and his team of financial sleuths discuss first-hand how they cracked the Madoff Ponzi scheme.
No One Would Listen is the exclusive story of the Harry Markopolos-lead investigation into Bernie Madoff and his $65 billion Ponzi scheme. While a lot has been written about Madoff's scam, few actually know how Markopolos and his team-affectionately called "The Fox Hounds" by Markopolos himself, uncovered what Madoff was doing years before this financial disaster reached its pinnacle. Unfortunately, no one listened, until the damage of the world's largest financial fraud ever was irreversible.

Since that time, Markopolos openly has testified and questioned the enforcement and fraud investigation capabilities of the Securities and Exchange Commission (SEC), shared a sliver of this page-turning story with 60 Minutes, and become perhaps the world's most visible and insightful whistleblower on fraud and conflicts of interest in financial markets.

Throughout the book, Markopolos and his Fox Hounds tell their first-hand story of investigating Madoff-with the help of bestselling author David Fisher. They explain how they discovered the fraud, and then how they provided credible and detailed evidence to major newspapers and the Securities and Exchange Commission (SEC) many times between 2000 and 2008, only to have his warnings ignored repeatedly by the SEC.

Provides a firsthand account of how Markopolos uncovered Madoff's scam years before it actually fell apart

Discusses how the SEC missed the red flags raised by Markopolos
Describes how Madoff was enabled by investors and fiduciaries alike
The only book to tell the story of Madoff's scam and the SEC's failings by those who saw both first hand

Despite repeated written and verbal warnings to the SEC by Harry Markopolos, Bernie Madoff was allowed to continue his operations.

No One Would Listen paints a vivid portrait of Markopolos and his determined team of financial sleuths, and what impact they will have on financial markets and financial regulation for decades to come."

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