Showing posts with label ponzi scheme. Show all posts
Showing posts with label ponzi scheme. Show all posts

Saturday 18 December 2010

Game changer for Madoff victims: $7.3b recovered

Game changer for Madoff victims: $7.3b recovered
December 18, 2010 - 8:24AM

The widow of a Florida philanthropist who had been the single largest beneficiary of Bernard Madoff’s colossal Ponzi scheme has agreed to return $US7.2 billion ($7.3 billion) in bogus profits to the victims of the fraud.

The trustee recovering money for Madoff’s burned investors have filed court papers formalising the settlement with the estate of Jeffry Picower, a businessman who drowned after suffering a heart attack in the swimming pool of his Palm Beach, Florida, mansion in October last year.

‘‘We will return every penny received from almost 35 years of investing with Bernard Madoff,’’ Picower’s wife, Barbara, said in a written statement.

‘‘I believe the Madoff Ponzi scheme was deplorable and I am deeply saddened by the tragic impact it continues to have on the lives of its victims,’’ she said. ‘‘It is my hope that this settlement will ease that suffering.’’

US Attorney Preet Bharara called the settlement a ‘‘game changer’’ for Madoff’s victims.

A recovery of that size would mean that a sizable number could get at least half of their money back - a remarkable turnaround for people and institutions that thought two years ago they had lost everything.

‘‘Barbara Picower has done the right thing,’’ Bharara said.

Jeffry Picower, who was 67 when he died, was one of Madoff’s oldest clients. Over the decades, he withdrew about $US7 billion in bogus profits from his accounts with the schemer. That amounts to more than a third of the dollars that disappeared in the scandal.

That money was supposedly made on stock trades, but authorities said that in reality it was simply stolen from other investors.

Picower’s lawyers claimed he knew nothing about the scheme, but court-appointed trustee Irving Picard had argued in court papers he must have known the returns were ‘‘implausibly high’’ and based on fraud.

In her statement, Barbara Picower said she was ‘‘absolutely confident that my husband Jeffry was in no way complicit in Madoff’s fraud and want to underscore the fact that neither the trustee, nor the US attorney, has charged him with any illegal act’’.

Lawyers for Picower’s estate have been in negotiations with the trustee for some time.

After Picower drowned, his will revealed he had earmarked most of his fortune for charity, but his widow said in a statement that the family wished to return some of it to Madoff’s victims through ‘‘a fair and generous settlement’’.

A huge charitable foundation Picower had created with part of his fortune closed in 2009 after its assets were wiped out in the Madoff fraud.It had donated hundreds of millions of dollars to colleges, libraries and other nonprofit groups.

Thousands of people, banks and hedge funds that invested money with Madoff saw their savings wiped out when the fraud was revealed to be a hoax. Many, though, like Picower, had been drawing bogus profits from their Madoff accounts for years and wound up walking away from the scheme having taken out more money than they put in.

Picard has been involved in a two-year effort to claw back those false profits and return the stolen money to people who were net-losers in the scheme.

It is those people, who lost more than they withdrew, who could now be poised to recover half of their original investment.

The person said Picower’s estate would pay $US5 billion to settle the civil lawsuit brought by Picard and another $US2.2 billion to resolve a civil forfeiture claim by federal prosecutors investigating Madoff’s crimes. All the money will go to victims of the fraud.

Bharara called the total ‘‘a truly staggering sum that was really always other people’s money’’.

Madoff’s clients had thought, based on his fraudulent account statements, they collectively had more than $US60 billion invested in stocks through the money manager’s funds.

Investigators found, though, no investments had ever been made, and the $US20 billion in principal contributed by Madoff’s clients was simply being paid out bit by bit to other investors.

Bharara said roughly half of that lost money has been recovered.

AP

Friday 25 June 2010

UK State pension Ponzi scheme unravels with retirement at 70


By Ian Cowie  Last updated: June 24th, 2010

Mr Duncan Smith is the latest minister charged with tackling Britain's state-funded pension system.
Mr Duncan Smith is the latest minister charged with tackling Britain's state-funded pension system.
The great Ponzi scheme that lies behind our State pension is unravelling – as they all do eventually – because money being taken from new investors is insufficient to honour promises issued to earlier generations.
None of this should come as a surprise. It is many years since experts began pointing out that Britain’s State pension – like most of its public sector pensions – are unfunded promises which rely on NICs and taxes paid by workers this week to pay pensions to old people next week.
This financial model is so fundamentally unstable that it is illegal in the private sector. No private company or insurer would be allowed to carry on as a series of British governments have done. Hence my disrespectful but I hope helpful comparisons with the original wheeze of the American fraudster, Mr Ponzi.
ile none of this mess is the fault of the new Government, that does not mean we should uncritically accept its suggested solution to the problem. Least of all because so much of what Iain Duncan Smith, the Work and Pensions Secretary, is proposing looks identical to what the discredited previous Labour administration had announced.
For example, there is the plan for a new State pension into which all employees will begin to be auto-enrolled from 2012. You can see why socialists might say the answer to a reduction in voluntary savings is to make them compulsory. But why would Conservatives – who used to believe in individual freedom, responsibility and choice – arrive at the same conclusion?
More importantly, why should individual savers agree? Given the multiple disappointments for pension savers over the last 13 years, the new auto-enrolled pension looks horribly like a case of throwing good money after bad.
While it is true that employees who find their paypackets diminished by deductions they never asked to be made may subsequently ask to leave the scheme, the Government hopes it will get off the ground because of many people’s inertia. Just like the flakiest tick box marketing techniques that are now banned in the private sector by financial regulators. No insurer is now allowed to tell people: “You didn’t opt out, so we helped ourselves to your cash anyway.”
Longer lifespans mean we must save more and work longer or retire in poverty. You can opt out of saving but you cannot opt out of growing old. But that does not mean the Government should nationalise our savings, which is what its new auto-enrolled scheme amounts to.
A Conservative solution to the problem of inadequate saving would be to improve incentives for voluntary pension contributions. That need not involve extra costs in the form of tax breaks. For example, the Budgetproposals to give savers greater choice about how they spend pensions savings, by removing the compulsion to buy a guaranteed income for life in the form of annuitiies, will make pensions more flexible and attractive. Savers do not like being told what to do with their own money.
Pensions would be even more attractive if we knew we could get access to the money earlier in life when we needed it; perhaps to fund a business or buy a home. This flexibility already exists in America and there is no reason it could not be introduced here.
Instead, one of the last acts of the Labour government was to delay savers’ access to private sector pensions by five years; when it raised the minimum retirement age to 55. Now the new Coalition Government seems to be heading in the same direction with State pensions.
It is also an unfortunate reminder of the very first fraudster I met when working in the City more than 20 years ago. Peter Clowes, who was subsequently sent to jail, told me: “If only I had been given more time, I could have paid them all.” Now the Government seems to be in the same position with State pensions.

Saturday 10 October 2009

Would you put your pension on a politician's promise?



Would you put your pension on a politician's promise?
Britain’s state pensions are Ponzi schemes on a scale to make the fraudster Bernard Madoff blush.

By Ian Cowie
Published: 12:17PM BST 09 Oct 2009

Comments 1 | Comment on this article

"Told you so. Sorry to start so smugly, but there really is no other way to put it. This column has often warned about the risks of savers putting their faith in politicians’ promises. Now this week’s Pensions White Paper demonstrates just how dangerous that can be in cash terms.”

That’s what I said in this space on May 27 2006, the last time millions of people’s retirement plans took a knock when politicians moved the goalposts. Back then, it was the announcement that Labour planned to scrap the earnings-related benefits of the State Second Pension, just four years after S2P had replaced the State Earnings Related Pension Scheme (Serps). This week it was the Conservative proposal to make 5.4m people work longer before they can claim state pensions of any description.


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Millions to work a year longer under Tories So this would be a good moment to set out some sad but important facts. Britain’s state pensions are Ponzi schemes on a scale that would make the fraudster Bernard Madoff blush. This week’s National Insurance Contributions (NICs), deducted from workers’ salaries, are used to pay next week’s state pensions. That kind of accounting is called fraud in the private sector – as Mr Madoff can attest – and no insurance company would be allowed to carry on in this way.

The reason is that all Ponzi schemes collapse, sooner or later, when the inflow of money from new mugs proves insufficient to honour promises issued earlier and too many people ask to be paid. That is what is happening now with Britain’s state pensions.

Nobody should be surprised. As regular readers will know, this is the point in the article where I like to quote Nye Bevan – a founder of the welfare state – who disclosed more than 50 years ago: “The great secret about the National Insurance fund is that there ain’t no fund.”

To be fair to politicians of all parties, the chart on this page shows why state pension ages must rise – even if the scheme had been properly funded. Figures from the Office for National Statistics (ONS) demonstrate that men and women are living for more than a decade longer than they did when the current retirement ages came into effect with the National Insurance Act 1946.

Looking even further back, you can see that average life expectancy has nearly doubled since Edward VII was born and the ONS stats series started in 1841. Only in the wacky world of life assurance and pensions could this remarkable improvement be regarded as a problem.

From a historical perspective, this week’s Tory proposal could even be seen as “going back to the future” because, when the Basic State Pension was introduced in 1908, the retirement age was set at 70.

Here and now, I would suggest that anybody aged under 30 today would be rash to expect to receive any state pension before they reach 70 years of age. Certainly, the proposed increase to 66 will not be the last time this carrot is shifted a little further away from the donkey’s nose.

Nor do we have to look too far into the future to see this happening. For example, from next April the NICs deducted from our salaries will cease to buy increased S2P benefits, as flagged up in this space three years ago. Thank heavens about 600,000 people contracted out of Serps and S2P to have their NICs paid into private pensions, ignoring all the actuaries’ warnings since then that we should opt back into the state scheme.

Any of us aged over 50 now can take a quarter of these contracted out pensions as tax-free cash any time we please – but it is important to beware that this threshold will be raised to 55 next April.

When I opted out of Serps more than 20 years ago, I did so on the basis that I would rather build up a pot of private property than rely on an ill-defined share of an unfunded scheme. That remains as true now as it was then.

Put another way, which would you rather have: a tax-free lump sum today or a politician’s promise tomorrow?

Pensions are not the only way
More than 2m people are thought to be older than 50 now but younger than 55 next April. We face a ticklish question that affects all our pension savings, whether they are in private sector plans, Serps or S2P. If we fail to draw tax-free cash before April 6, 2010, these funds will be locked up until we reach 55 years age – always assuming the politicians don’t move the goalposts again.

That postponement could prove very awkward if, for example, you lost your job in the meantime. And, let’s face it, there can’t be many people who are absolutely certain what they will be doing three or four years hence. So it is tantalising to know that a substantial sum of tax-free cash is available now, when you might not need it, but won’t be available in future, when you might.

The good news is that this week’s increase in individual savings account (Isa) allowances for people aged over 50 has the unintended consequence of helping us to avoid this potential cash flow crisis. The maximum was raised on October 6 to £10,200 per tax year, per person – strictly speaking, anyone who will be aged over 50 in April next year.

So a married couple who are both the right age and have not used their current Isa allowance could place up to £40,800 in the Isa tax shelter between now and April 6 2010, when the next fiscal year starts.

This provides some valuable wriggle room for people who might want to draw benefits from their pension savings while they still can, even if they have no immediate need of the cash. The improved Isa limits mean they can continue to keep the money invested in real assets – such as shares, bonds and unit or investment trusts – in the hope of preserving its purchasing power for when they actually need it.

Better still, unlike pensions, there is no need to pay tax on income received from Isas; nor any need to declare Isas in your tax returns. It also goes to show that pensions are not the only way to provide for retirement.

http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6274049/Would-you-put-your-pension-on-a-politicians-promise.html

Saturday 24 January 2009

Millionaire widow becomes cleaner after losing fortune in Madoff's alleged Ponzi scheme



Millionaire widow becomes cleaner after losing fortune in Madoff's alleged Ponzi scheme

A millionaire widow who lost her fortune to Bernard Madoff's alleged $50 billion Ponzi scheme has turned to cleaning and care work to make ends meet.

By Catherine Elsworth in Los Angeles Last Updated: 5:09PM GMT 23 Jan 2009

But after Mr Madoff's alleged confession that the scheme was 'all just one big lie', a revelation that shook the investment world, Mrs Ebel realised she had nothing Photo: GETTY
Maureen Ebel, 60, of West Chester, Pennsylvania, thought she had $7.3 million invested with the New York financier when he was arrested last month and charged with running a massive hedge fun scam, possibly the largest financial fraud in history.
But after Mr Madoff's alleged confession that the scheme was "all just one big lie", a revelation that shook the investment world, Mrs Ebel realised she had nothing.
She went from an annual income from her investments of 400,000 dollars to worrying about how to pay her next bill and picking up coins in the street.
In less than a week following Madoff's arrest, Mrs Ebel found a job caring for a 93-year-old woman, cleaning her home and ironing.
"This is my fate," the retired nurse, whose doctor husband died in 2000 aged 53, told the Philadelphia Inquirer. "I was married, had a fabulous marriage to a man I loved and worshipped, a physician. We travelled. We had a very fine life. And he's dead. He died, and every penny I had in the world has gone."
Mrs Ebel, one of hundreds if not thousands of investors who together lost tens of billions of dollars in the scheme, has raised some cash by selling off jewellery and a painting and returned thousands of dollars worth of items recently bought on credit cards.
She is now desperately trying to offload her two-bedroom holiday home near West Palm Beach, Florida, and Lexus SUV while calculating that to afford her mortgage, she must return to nursing and take in a lodger.
Mrs Ebel's uncle Leonard, 80, introduced her to Madoff's fund after her husband's death.
"At that time, when he got me into Madoff, he had been a Madoff investor for 25 years," she told the Philadelphia Inquirer. "And now he's a Madoff investor and broke after 30 years."
She initially invested 4.5 million dollars and received detailed monthly statements and a cheque four times a year. She has registered with the FBI as a victim of Madoff's scheme.
Now when she visits Florida she says she feels "like an alien".
"Everyone is going riding their horses and playing tennis, playing golf," Mrs Ebel said. "If there's a nickel on the street, I'm picking it up."
Comment:
This story illustrates the importance of acquiring investment knowledge early in life. These riches to rags stories provide many learning points too.

Sunday 14 December 2008

Fees, Even Returns and Auditor All Raised Flags



BUSINESS
DECEMBER 13, 2008
Fees, Even Returns and Auditor All Raised Flags
Interactive Graphics
By GREGORY ZUCKERMAN
Bernard L. Madoff is alleged to have pulled off one of the biggest frauds in Wall Street history. But there were multiple red flags along the way, including a series of accusations leveled against Mr. Madoff's operation. Now some are asking why regulators and investors didn't pick up on the alleged scheme long ago.
Image from Madoff.com
Bernard Madoff
"There's no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags," says Jim Vos, who runs Aksia LLC, a firm that advises investors and came away worried after examining Mr. Madoff's operation.
On Thursday, Mr. Madoff was arrested for what federal agents described as a massive Ponzi scheme, which could leave investors with billions in losses. A spokesman for Mr. Madoff said: "Bernie Madoff is a longstanding leader in the financial services industry and we are cooperating fully with the government and regulators investigations into this unfortunate set of events."
The first tip-off for some was the steady returns generated by the firm in every kind of market. Mr. Madoff would buy a basket of stocks resembling an S&P index while simultaneously selling options that pay off for the buyer if these stocks soar, while also buying options that pay off if the index tumbles. The supposed goal was to have smooth, steady returns.
Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.
"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.
Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.

In a statement late Friday, the SEC said "staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action." The SEC said it reopened the investigation Thursday. It's not clear what the focus of the 2007 investigation was, or why it was closed. A person familiar with the matter said it related to issues raised by Mr. Markopolos.
Also striking some as odd: Mr. Madoff operated as a broker dealer with an asset management division. Why not simply act as a hedge fund and pocket big gains, rather than profit from trading commissions as the firm seemed to be doing, they asked.
Joe Aaron, for long a hedge fund professional, found that structure suspicious and in 2003 warned a colleague to steer clear of the fund. "Why would a good businessman work his magic for pennies on the dollar?"
Conflicts of interest also proved a concern. "There was no independent custodian involved who could prove the existence of assets," says Chris Addy, founder of Montreal-based Castle Hall Alternatives, which vets hedge funds for clients seeking to invest money. "There's a clear and blatant conflict of interest with a manager using a related-party broker-dealer. Madoff is enormously unusual in that this is not a structure I've seen."
Some trading pros said Mr. Madoff's purported strategy couldn't be pulled off profitably while managing tens of billions of dollars.
"It seemed implausible that the S&P 100 options market that Madoff purported to trade could handle the size of the combined feeder funds' assets which we estimated to be $13 billion," Mr. Vos says.
Recent securities filings showed that the firm held less than $1 billion of shares, raising questions about where the rest of the money was. Some of Mr. Madoff's investors say they were told the firm put the bulk of its money in cash-equivalents at the end of each quarter, explaining why the public filings showed so few shares, but raising questions about where the proof was for all the cash.

Inside Wall Street's Madoff Scandal3:55
Another large-scale scandal rocks Wall Street as Bernard Madoff, a Wall Street titan and investment advisor was arrested for an alleged $50 billion dollar fraud against investors, WSJ's Kelsey Hubbard and Amir Efrati discuss.
Until at least November, 2006, the firm, which claimed to manage billions of dollars and be among the largest market makers in the stock market, used as its auditor Friehling & Horowitz, a small New City, New York firm.
Mr. Vos says his firm hired a private investigator and determined that the accounting firm had only three employees, one of whom was 78 and lived in Florida, and another was a secretary, and that it operated in a 13 foot by 18 foot office. His firm felt that was too small an operation to keep an eye on such a large firm operating a complicated trading strategy. A message left for the accounting firm was not returned.
Meanwhile, a series of media stories also raised questions about Madoff's operations, including a piece entitled "Madoff Tops Charts; Skeptics Ask How" in industry publication MAR/Hedge in May, 2001, and a subsequent story in Barron's. Mr. Madoff generally brushed off reporters' questions, citing the audited results and arguing that his business was too complicated for outsiders to understand.—Kara Scannell and Jenny Strasburg contributed to this article
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

How Bernie Madoff Made Smart Folks Look Dumb

THE INTELLIGENT INVESTOR
DECEMBER 13, 2008
How Bernie Madoff Made Smart Folks Look Dumb
By JASON ZWEIG

What do George Carlin and Bernard Madoff have in common?
The late comedian immortalized oxymorons, those absurd word pairs like "jumbo shrimp" and "military intelligence." Mr. Madoff just put the silliest of all financial oxymorons into the spotlight: "sophisticated investor."
The accounts managed by Bernard L. Madoff Investment Securities LLC reported gains of roughly 1% a month like clockwork, with nary a loss, for two decades. Why did that freakishly smooth return not set off alarms among current and prospective investors?
Of all people, sophisticated investors like Mr. Madoff's clients should know that if something sounds too good to be true, then it's not. But they believed it anyway. Why?

Mr. Madoff emphasized secrecy, lending his investment accounts a mysterious allure and sense of exclusivity. The initial marketing often was in the hands of what one source described as "a macher" (the Yiddish term for a big shot). At the country club or another exclusive rendezvous, the macher would brag, "I've got my money invested with Madoff and he's doing really well." When his listener expressed interest, the macher would reply, "You can't get in unless you're invited...but I can probably get you in."
Robert Cialdini, a psychology professor at Arizona State University and author of "Influence: Science and Practice," calls this strategy "a triple-threat combination." The "murkiness" of a hedge fund, he says, makes investors feel that it is "the inherent domain of people who know more than we do." This uncertainty leads us to look for social proof: evidence that other people we trust have already decided to invest. And by playing up how exclusive his funds were, Mr. Madoff shifted investors' fears from the risk that they might lose money to the risk they might lose out on making money.
If you did get invited in, then you were anointed a member of this particular club of "sophisticated investors." Once someone you respect went out of his way to grant you access, says Prof. Cialdini, it would seem almost an "insult" to do any further investigation. Mr. Madoff also was known to throw investors out of his funds for asking too many questions, so no one wanted to rock the boat.
This members-only feeling blinded many buyers of Mr. Madoff's funds to the numerous red flags fluttering around his operation. When you are in an exclusive private club, you do not go rummaging around in the kitchen to make sure that the health code is being followed.
Here we have the biggest dirty secret of the "sophisticated investor": Due diligence often goes undone. For a brief window in 2006, the Securities and Exchange Commission required hedge funds to file standardized disclosure forms. William Goetzmann, a finance professor at Yale School of Management, found that hedge funds disclosing legal or regulatory problems and conflicts of interest ended up with lower future performance. But the disclosure of these risks had no impact at all on how much money flowed into the hedge funds.
In other words, investors were getting useful information -- and paying no attention to it.
Amaranth Advisors LLC, the commodity hedge fund that collapsed in 2006 with $6 billion in losses, did not even file the required SEC form at the beginning of that year, a clear signal that something might be wrong. Instead of standing pat or pulling money out, investors poured more money in.
Last year, the Greenwich Roundtable, a nonprofit that researches alternative investments, conducted a survey of consultants, pension plans, "family offices," funds of funds and other large investors who shop for hedge funds. It's hard to imagine a more sophisticated crowd.
Yet one out of five investors in the survey reported that they "always follow" not a formal checklist or analytical procedure, but rather "an informal process" of due diligence.
That's for sure.

  • One out of four investors surveyed will write a check without having studied the financial statements of the fund.
  • Nearly one in three will not always run a background check on fund managers;
  • 6% may not even read the prospectus before ever committing money.
"Due diligence," says Stephen McMenamin of the Greenwich Roundtable, "is the art of asking good questions." It's also the art of not taking answers on faith.

If you invest with anyone who claims never to lose money, reports amazingly smooth returns, will not explain his strategy, refuses to disclose basic information or discuss potential risks, you're not sophisticated. You're an oxymoron.
Email: intelligentinvestor@wsj.com

http://online.wsj.com/article/SB122912266389002855.html