Investigators on the Bernard Madoff Ponzi scheme case have been unable to find evidence that his investment advisory business ever made a single trade on behalf of clients, Reuters is reporting. If that’s true, it means that most – if not all – of the account statements Madoff sent his investors were fraudulent.
The 70-year-old Madoff was arrested on one count of securities fraud on December 11. Madoff – once a chairman of the Nasdaq stock exchange – is the founder and primary owner of Bernard L. Madoff Investment Securities LLC. The firm is primarily known for its business in market-making, or serving as the middleman between buyers and sellers of shares. However, Madoff also oversaw an investment-advisory business that managed money for high-net-worth individuals, hedge funds and other institutions.
According to the FBI complaint against Madoff, that business was largely a Ponzi scheme. The FBI said Madoff “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.” Madoff reportedly told employees that his fraud could cost investors as much as $50 billion.
A spokesperson for the Financial Industry Regulatory Authority (FINRA) – the industry-run regulator for brokerages - told Reuters that it’s investigators have not been able to find records of any trades Madoff’s investment advisory business might have made. Unless Madoff was initiating trades through other brokerages – something Reuters said wasn’t likely – he wasn’t making trades at all.
The only evidence that appears to show Madoff making trades for his clients are the detailed account statements they received every month. Now Reuters is reporting that all of those statements – literally thousands of them issued while Madoff ran his purported investment advisory business – could have been fraudulent. In fact, it is looking more and more like that was the case. According to Reuters, now that investigators are giving some of those statements a closer look, discrepancies are turning up.
It’s amazing to think Madoff could have pulled off such a elaborate fraud. If the charges turn out to be true, regulators like FINRA will likely shoulder some of the blame. As Reuters reported, Madoff’s business underwent routine examinations by FINRA and its predecessor, the National Association of Securities Dealers, every two years since it opened in 1960. Yet Madoff’s alleged fraud – including possible fake account statements – was never detected.
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