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alstry (35.03)

Madoff BIGGER than General Motors???

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December 12, 2008 – Comments (11)

Bernard Madoff is one man.  General Motors is one of the largest Corporations in the world...if viewed by sales.  A GM bankruptcy will have HUGE, but necessary implications.  The deception by Mr. Madoff could rip multiple holes throughout the entire fabric of our financial system.

If you thought Long Term Capital was an issue.......just wait to see how thie breaks over the weekend.

Hang on.

11 Comments – Post Your Own

#1) On December 12, 2008 at 9:43 AM, XMFSinchiruna (27.97) wrote:

This really is an incredible story ...

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYzclQY1HkVE&refer=home

Madoff Confessed $50 Billion Fraud Before FBI Arrest 

By David Voreacos and David Glovin

Dec. 12 (Bloomberg) -- Bernard Madoff confessed to employees this week that his investment advisory business was “a giant Ponzi scheme” that cost clients $50 billion before two FBI agents showed up yesterday morning at his Manhattan apartment.

“We’re here to find out if there’s an innocent explanation,” Agent Theodore Cacioppi told Madoff, who founded Bernard L. Madoff Investment Securities LLC and was the former head of the Securities Industry Association’s trading committee.

“There is no innocent explanation,” Madoff, 70, told the agents, saying he traded and lost money for institutional clients. He said he “paid investors with money that wasn’t there” and expected to go to jail. With that, agents arrested Madoff, according to an FBI complaint.

The 8:30 a.m. arrest capped the downfall of Madoff and businesses bearing his name that specialized in trading securities, making markets, and advising wealthy clients. Many questions remain unanswered, including whether Madoff’s clients actually lost $50 billion. The complaint and a civil lawsuit by regulators describe a man spinning out of control.

Madoff appeared in federal court in Manhattan at 6 p.m., wearing a white-striped shirt and dark-colored pants. U.S. Magistrate Judge Douglas Eaton described the securities-fraud charge against him and set a $10 million bond at a hearing where Madoff said nothing. Madoff later posted the bond, secured by his apartment and guaranteed by his wife.

Hedge Funds, Banks

Madoff’s firm had about $17.1 billion in assets under management as of Nov. 17, according to NASD records. At least half of its clients were hedge funds, and others included banks and wealthy individuals, according to the records.

The firm was the 23rd-largest market maker on Nasdaq in October, handling an average of about 50 million shares a day, exchange data show. It took orders from online brokers for some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Prosecutors joined the Securities and Exchange Commission, which filed a civil lawsuit, in scrambling to unravel the collapse of Madoff’s Investment Securities business. The broker-dealer and investment adviser was housed in a lipstick-shaped building at 885 Third Ave.

A rapid series of events in early December preceded the firm’s demise, according to the arrest complaint and SEC lawsuit.

In the first week of December, Madoff told a worker identified as Senior Employee No. 2 that clients had requested $7 billion in redemptions, he was struggling to find liquidity, and he thought he could do so, according to the FBI and SEC.

‘Under Great Stress’

Senior employees “previously understood” that the investment advisory business managed between $8 billion and $15 billion in assets, according to the documents.

On Dec. 9, Madoff told a colleague identified as Senior Employee No. 1 that he wanted to pay bonuses in December, or two months earlier than usual. The next day, Madoff got a visit at his offices from the employees. They said he appeared “under great stress” in prior weeks, according to the documents.

Madoff told the visitors that “he had recently made profits through business operations, and that now was a good time to distribute it,” according to the FBI complaint.

When the workers challenged that explanation, Madoff said he “wasn’t sure he would be able to hold it together” at the office and preferred to meet at his apartment, Senior Employee No. 2 told investigators. He ran his investment advisory business from a separate floor of his firm’s offices, keeping financial statements “under lock and key,” prosecutors said.

‘One Big Lie’

At his apartment, Madoff told the employees that his investment advisory business was a “fraud” and he was “finished,” according to the FBI complaint.

He said he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme,” Agent Cacioppi wrote in the complaint. The senior employees understood Madoff to be saying he had paid investors for years out of principal from other investors, the agent wrote.

The business had been insolvent for years, said Madoff, who then estimated losses at more than $50 billion. Madoff said he had $200 million to $300 million left, and he planned to pay employees, family, and friends.

Madoff, who had also confessed to a third senior employee, said he planned to surrender to authorities within a week, according to the complaint.

Cacioppi and another agent beat Madoff to the punch.

After saying he had no “innocent explanation,” Madoff confessed “it was all his fault,” Cacioppi wrote.

‘Broke,’ ‘Insolvent’

“Madoff also said that he was ‘broke’ and ‘insolvent’ and that he had decided that ‘it could not go on,’ and that he expected to go to jail,” the agent wrote. “Madoff also stated that he had recently admitted what he had done to Senior Employee Nos. 1, 2, and 3.”

Madoff founded the firm in 1960 after leaving law school at Hofstra University in Hempstead, New York, according to the company’s Web site. His brother, Peter, joined the firm in 1970 after graduating from law school, it said.

Madoff, who owned more than 75 percent of his firm, and his brother Peter, are the only two listed on regulatory records as “direct owners and executive officers.”

Madoff was influential with the Nasdaq Stock Market, serving as chairman of the board of directors, according to the FBI complaint.

He was chief of the Securities Industry Association’s trading committee in the 1990s and earlier this decade. He represented brokerages in talks with regulators about new stock-market rules as electronic-trading systems and networks grew.

Madoff, who founded his firm in 1960, won an assignment to manage a $450,000 stock offering for A.L.S. Steel Corp. of Corona, New York, two years later, according to an SEC news digest.

He was an early advocate for electronic trading, joining roundtable discussions with SEC regulators considering trading stocks in penny increments. His firm was among the first to make markets in New York Stock Exchange listed stocks outside of the Big Board, relying instead on Nasdaq.

Madoff’s Web site advertises the “high ethical standards” of his firm.

“In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.”

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).

 

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#2) On December 12, 2008 at 9:47 AM, alstry (35.03) wrote:

Just wait until the counterparty issues float to the surface.

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#3) On December 12, 2008 at 10:21 AM, Gemini846 (82.65) wrote:

Its fortunate that he didn't drag this further down the tube by trying to steal from his sell side business, then any broker who was exposed to them would be potentially at risk.

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#4) On December 12, 2008 at 10:36 AM, outoffocus (23.59) wrote:

Is it just me or has the GM stock price not updated this morning?

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#5) On December 12, 2008 at 10:58 AM, Option1307 (29.90) wrote:

Truely unbelieveable and absurd. While I admit its impressive he "gave up", this probably just shows how insolvent and screwed he really thought he was. He knew his time was up and threw in the towel because he had no other option. That, or he has lost his mind...

Another sad day in America. Everyday we are seeing more and more ponzi schemes and unwinding of our economy...

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#6) On December 12, 2008 at 11:11 AM, alstry (35.03) wrote:

Here is the problem in a nutshell.  If Madoff is a fraud, then what else is illusory.

I have been raising this issue intermittently since I started blogging on CAPs.  A while back, it was clear to me that the reporting of our pubic companies was questionable.  Many called me a many names.  It really didn't bother me...just gave me more fuel to persist.

At the end of the day, if you can't trust the numbers, you can't trust anything.  Madoff is not much different.  If you can't trust a person at the level of Madoff...what can we trust?  This logic comes from a basic rule in our justice system that  judges instruct jurors before going into deliberation.

The market is sorta like jurors...arbitors of value....soon we will find out what if anything has value....the real question now is how will value be measured???

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#7) On December 12, 2008 at 1:03 PM, Tastylunch (29.54) wrote:

good lord this is very bad

 what strange behavior on Madoff's part. Wonder why if he knew it was illegal why he didn't try to flee to Bolivia or somewhere remote.

Kinda odd he's being so honest with the authorities...

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#8) On December 12, 2008 at 1:22 PM, HansHauge (32.49) wrote:

Year ending 7k on the DOW.

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#9) On December 12, 2008 at 2:33 PM, alstry (35.03) wrote:

This weekend and into next week you will observe the implications of $50 Billion evaporating instantly.  At this point, people are still in shock...the symptoms will be felt very soon.

Let me warn you...they will be far more painful than many think.

Just as you can't drop a nooklular bomb on a populated city and not expect casualties....you can't evaporate $50 Billion without serious implicatoins....very serious implications.

This one will be remembered for a while...it is just that I don't think its the last.

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#10) On December 12, 2008 at 3:25 PM, jmt587 (99.88) wrote:

Tasty, he's 70, I think I read.  Probably not up for going underground.  Or perhaps he thought that he had more to fear from the people he embezzled from than from the government and a federal prison...

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#11) On December 13, 2008 at 3:27 PM, Tastylunch (29.54) wrote:

jmt587

Age never seemed to stop Nazi war criminals, I think mary propbbly had it right he was/is probbaly suicidal.

Mary953 

You might be right, I've since learned apparently his sons worked for him and didn't seem to know what old man Madoff was doing. That probably explains why he didn't flee, if he'd left  his sons would been holding the bag of the crime. He probably is trying to shield them from his crimes...

Be hard to imagine they really dind't know what was goin on though.

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