Madoff investors: Not so innocent after all

Posted Jan 27th 2009 2:40PM by Zac Bissonnette
Filed under: Scandals

It was always something of a mystery how Bernie Madoff was earning the strong returns he reported to investors. One of the most common theories was that Madoff was, in his capacity as a hedge fund manager, market maker and brokerage operator, front-running the orders of brokerage clients. A piece in Barron's had even suggested that possibility.

Bloomberg reports that Madoff Enablers Winked at Suspected Front-Running. The notion that Madoff was making his money by frontrunning clients' orders did not seem to bother people -- as long as he wasn't ripping off them.

But here's what I don't understand: If people believed that Madoff was taking advantage of his brokerage clients, how can they muster up such righteous indignation on learning that he was ripping them off? DId they think that they were special and somehow immune to his perfidy?

What these investors who thought he was frontrunning client orders should have understood was this: Integrity and character are generally not compartmentalized, and if someone you trust is ripping off other people, you probably shouldn't trust them.

This is one of the reasons that I would never invest in a company with a reputation for exploiting its consumers: If a company's management is evil enough to market a product that causes cancer, why would you put something relatively benign like securities fraud past them?

Trusting your hard-earned money with someone who doesn't behave ethically is like leaving your wife to marry your secretary -- a woman who messes around with married men. Don't be shocked if your ex ends up with the last laugh.

Tags: Bernard Madoff, BernardMadoff

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Reader Comments (Page 1 of 1)

1-27-2009 @ 3:50PM

paul s said...

People with money think they ARE special. They are not like THOSE people. That is why they were so susceptible. Maybe you should work in a private club before you actually join one. If you ever make or inherit any REAL money, you will learn what not to do once you have it.

1-27-2009 @ 4:12PM

BHarrison said...

LMAO . . . Hmmm . . . when you apply what the 'principles" stated in this article to all of our FIs and corporations who wre involved with the "derivatives", then it is an idictment of ALL of the CEOs and upper managment, and the corporations, in general . . . from AIG through the "Z's". They ALL REALLY KNEW EXACTLY what was going on . . . they were just caught up in making horrrific salaries, bonuses and other compensations from the BLATANT FRAUDS that they were committing.

This article is a blatant "indictment" of ALL who were involved in the CDCs, the CDSs, the CDOs, the CMOs, and all of the derivatives, etc. The article is solidly TRUE . . . and yet those CORRUPT CEOs and other upper managment personnel are STILL running the corporations during the recovery . . . As said in the article: Why would anyone invet in ANY of these CORRUPT corporations . . . or corrupt markets/funds, especially duing a period of substantially declining economic conditions caused by these FRAUDS?

There really isn't anyway around the TRUTHS involved in all of this, is there?

1-27-2009 @ 4:26PM

BHarrison said...

"Greedy, greedy, makes a hungry dog" . . . that was in the book that I read to my 5 y/o son many years ago.

So, perhaps some of these people put themselves at risks in all of this; esp. those who invested more than 5% or 10% of their assets, right?

1-27-2009 @ 6:14PM

iphonerulez said...

I gotta say one thing about Madoff. He's got one damn nice smile. I almost want to turn my money over to him even now. If he has a warm, firm handshake, I'm sold. Please, please triple my money in a year. Yes, I'll be happy to do that.

A black or hispanic thug on the street give themselves away with an angry scowl and a hardass attitude and you know they're gonna rip you off for your ten bucks and your iPod. This guy Madoff looks so damn sweet with his angelic smile, you just want to give him your life savings. Now that's talent even a crowbar and a .38 special can't beat. White guys are so lucky to be trusted with people's money. It makes it so much easier for them to steal effing huge sums of money without punishment.

Madoff's cool. He's the devil in disguise.